Stake

What

Staking crypto essentially means locking it up for future rewards — much like a savings account. The complexity of staking one's crypto, as well as the risks and rewards can vary depending on the coin and the place where it is staked.Bitcoin's blockchain relies on a consensus mechanism called Proof of Work, where the validity of the network is maintained by having people use their computers for solving math problems, roughly speaking. Proof of Stake is an alternative consensus mechanism that aims to alleviate the computational burden from a blockchain network via having people put their coins on the line instead. PoS networks include Solana, Avalanche and ETH2.0, amongst others. Setting up a Proof of Stake client can be quite technical and does not fit in the scope of this explainer. However, staking in the broader sense has been widely utilized by DeFi apps for various purposes, in which case it is as easy as clicking a button and paying some fees; like a savings account in the bank, but more transparent!

Why

Concentrating on the DeFi context, staking is a way for people to "signal their trust/allegiance" to a protocol. Some apps require people to lock up their tokens to partake in governance about future changes to the protocol.

Risk

When you stake your coins, you generally lock them in a smart contract, or maybe in a staking pool service offered by some Centralized Exchanges. In either case, you temporarily give up custody of your coins; even if you can withdraw with the click of a button (and paying some fees), your staked funds could get drained if a vulnerability in the code is exploited.

Reward

DEXes often give their users extra rewards for locking up their LP tokens, in order to incentivise people to provide liquidity on their platform — like different banks competing for people to use their services, but more transparent!

Related projects

Ethereum

Ethereum is open access to digital money and data-friendly services for everyone – no matter your background or location. It's a community-built technology behind the cryptocurrency ether (ETH) and thousands of applications and smart contracts (computer programs living on Ethereum) you can use today. The Ethereum network is a network of computers all over the world that follow a set of rules called the Ethereum protocol, and it acts as the foundation for communities, applications, organizations and digital assets that anyone can build and use. Ethereum allows you to coordinate, make agreements or transfer digital assets directly with other people. You don't need to rely on intermediaries. And because no government or company has control over Ethereum it is impossible for anyone to stop you from receiving payments or using services on Ethereum. As mentioned before, Ethereum is not controlled by any particular entity and it exists whenever there are connected computers running software following the Ethereum protocol and adding to the Ethereum blockchain. Each of these computers is known as a node. Nodes can be run by anyone, although to participate in securing the network you have to stake ETH (Ethereum’s native token). Anyone with 32 ETH can do this without needing permission. ### Why Ethereum helps people and communities to coordinate in a resilient, open and trustworthy way on the internet. It also gives people the tools to have self sovereignty over their digital assets, and is particualrly important for people who have had to handle uncertainty around the security or soundness or mobility of their assets due to external forces outside of their control. The core value of Ethereum is that you can interact with the internet without trusting a central authority that could change the rules or restrict your access. The internet was meant to be a free and open space for everyone, and Ethereum builds on this premise, allowing you to control your own assets and identity, instead of them being controlled by a few mega-corporations.
ethereum.org/en

Lido

### What Lido is an open source tool and family of protocols that enables users to mint liquid staking tokens (sTokens) - These liquid staking tokens receive rewards from validation activities of writing data to the blockchain, but unlike their staked counterparts, are "unlocked" which means they can be used in other on-chain activities, like DeFi. Lido protocols let users stake native tokens (ETH, MATIC, SOL) from Ethereum, Polygon, and Solana networks in a fully permissionless way. And as the protocols are deployed on public blockchains, users do not need the website to access the smart contracts. ### Why Traditional staking means that users need to lock-up their ETH or other native asset to be able to secure the network and receive the respective rewards. However, this means that these tokens can't be used for anything else while they are staked. Lido aims to solve this problem. Lido protocols give users liquidity - users are able to receive staking rewards from validation activities, but can sell their stTokens (tokens minted on Lido) anytime they want to exit their staking position. In addition, it allows users to participate in DeFi while getting rewards - Because sTokens are unstaked and thus "liquid", users can use stTokens as building blocks in DeFi protocols at the same time as getting staking rewards from validating activities. The Lido DAO also works with experienced node operators, which decreases the likelihood of technical mistakes that could lead to slashing or penalties and minimizes the technical burden for users to receive staking rewards. Users supply the stake, and the node operators supply the know-how.
lido.fi