What is staking in crypto?
Written by an ex-institutional trader. What crypto staking is, how proof-of-stake lets you earn rewards for helping secure a network, the risks people underestimate (lock-ups, slashing, price), and how staking is taxed in Australia.
Direct answer
Staking is locking up a proof-of-stake cryptocurrency to help run and secure its network, and earning rewards in return, a bit like earning interest for putting your coins to work. Proof-of-stake networks like Ethereum choose who validates transactions based on how much is staked, and reward stakers with new coins. You can stake directly, through a staking pool, or simply via an exchange that offers staking on your behalf.
The rewards are not free money. Staked coins are often locked for a period and cannot be sold, so a price drop while locked can wipe out the rewards and more. Some networks can penalise (slash) misbehaving validators, and exchange staking adds counterparty risk. In Australia, staking rewards are generally taxed as ordinary income at the value when received, and disposing of the coins later is a separate capital-gains event, so the tax treatment is two-layered and worth understanding before you start.
What staking is
Staking is locking up a proof-of-stake cryptocurrency to help run and secure its network, and earning rewards in return. Loosely, it is like putting your coins to work and receiving a yield, though calling it "crypto interest" undersells how different the risks are from a bank account.
Proof-of-stake is the consensus method used by Ethereum and many other networks (an alternative to Bitcoin's energy-intensive proof-of-work). It relies on participants staking coins to validate transactions, and rewards them for doing so honestly.
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How it works
On a proof-of-stake blockchain, validators are selected to confirm transactions based partly on how much they have staked as a commitment. Validate honestly and you earn rewards in newly issued coins; misbehave or go offline and some networks penalise you. The staked coins act as skin in the game that keeps validators honest.
Running your own validator has technical requirements and often a high minimum (32 ETH for solo Ethereum staking, for example), so most people do not. Instead they delegate to a staking pool or use an exchange that stakes on their behalf and passes on a share of the rewards. The reward rate depends on the network and shifts over time.
Ways to stake
There are three broad routes, trading off control and convenience:
- Solo staking: run your own validator. Maximum control and reward, but technical and capital-intensive.
- Staking pools: delegate your coins to a pool that runs validators, sharing rewards. A middle ground.
- Exchange staking: the exchange stakes on your behalf and credits rewards to your account. The easiest option, and how most Australians stake, but it adds counterparty risk because the exchange holds the coins.
For most beginners, exchange staking is the simplest entry point, with the trade-off of trusting the platform.
The risks
Staking is regularly marketed like a savings product, which hides genuine risks:
- Price risk. The big one. If the coin falls while your stake is locked and unsellable, the loss can dwarf the rewards.
- Lock-up periods. Many networks require coins to be locked, sometimes with an unbonding delay before you can withdraw.
- Slashing. Some networks penalise validators for downtime or misbehaviour, which can reach delegators.
- Counterparty risk. Exchange or platform staking means trusting that platform to stay solvent and secure.
- Yield traps. Unusually high advertised yields signal higher risk, not a better deal.
Staking can suit long-term holders comfortable holding through volatility, but it is not capital-protected and the headline yield never tells the whole story.
Staking and Australian tax
Staking has a two-layer tax treatment in Australia. The ATO generally treats staking rewards as ordinary income at their Australian-dollar value when you receive them. Then, when you later sell or swap those coins, that is a separate capital-gains-tax event based on the change in value since receipt.
That means staking can create a tax bill on rewards even before you sell anything, so record-keeping matters. The staking tax in Australia and crypto tax guides cover the detail, and crypto tax software that tracks reward events makes it manageable. To stake at all, you first need crypto, which you buy through a reputable AUSTRAC-registered exchange.
Popular Australian crypto exchanges
All three are AUSTRAC-registered Australian exchanges. Crypto is volatile; only invest what you can afford to lose.
This is general information, not financial advice. Staking is high-risk. Last reviewed: 2026-06-02.
Frequently asked questions
What is staking in crypto?
Staking is locking up a proof-of-stake cryptocurrency to help operate and secure its network, in exchange for rewards paid in more of that coin. Proof-of-stake networks rely on participants who stake coins to validate transactions, and they reward those participants with newly issued coins. For a holder, it is loosely similar to earning interest: you put your coins to work supporting the network and receive a yield, though the comparison to a savings account is misleading because the risks are very different.
How does crypto staking work?
On a proof-of-stake blockchain, validators are chosen to confirm transactions based partly on how much cryptocurrency they have staked as a commitment. Honest validation earns rewards in new coins; misbehaviour can be penalised. Most people do not run a validator themselves, which has technical requirements and minimums; instead they delegate to a staking pool or use an exchange that stakes on their behalf and shares the rewards. The reward rate varies by network and changes over time.
Is crypto staking safe?
Staking carries real risks despite often being marketed like a savings product. Your coins may be locked for a period and unable to be sold, so a price fall while locked can easily exceed the rewards earned. Some networks slash (penalise) validators for downtime or misbehaviour. Staking through an exchange adds counterparty risk if the platform fails. And the reward is paid in a volatile asset. Staking can suit long-term holders comfortable with these risks, but it is not a safe, fixed-income product.
How much can you earn from staking?
Reward rates vary widely by network and change over time, commonly ranging from low single digits to higher percentages per year, quoted as an annual percentage. Crucially, the reward is paid in the cryptocurrency itself, so the real return depends on the coin's price. A high staking yield on a coin that falls sharply in value can still be a loss overall. Very high advertised yields are a warning sign of higher risk, not a reliable opportunity, and should be treated with suspicion.
Can you lose money staking crypto?
Yes. The most common way is price risk: if the coin's value falls while your stake is locked and unable to be sold, the loss can far outweigh the rewards. You can also lose through slashing penalties on some networks, through an exchange or platform failing while it holds your staked coins, or by locking into a high-yield scheme that turns out to be unsustainable or a scam. Staking is not capital-protected, and the headline yield never tells the whole story.
How is crypto staking taxed in Australia?
The ATO generally treats staking rewards as ordinary income, assessed at the Australian-dollar value of the rewards when you receive them. Then, when you later sell or swap those coins, that is a separate capital-gains-tax event based on the change in value since you received them. So staking has a two-layer tax treatment: income on receipt, then capital gains on disposal. This makes record-keeping important, and crypto tax software that tracks reward events helps. See the staking tax guide for detail.
