What is staking?

What does staking mean in crypto?

In crypto, staked means that coins have been committed to support a proof-of-stake network's transaction validation. Staking connects the network's security to the coins validators put at stake. On Ethereum, validators check transactions and propose blocks, receiving protocol rewards for participating correctly. Their stake can be reduced for misconduct. Ethereum's proof-of-stake mechanism makes this financial commitment part of how the network agrees on its records.

For example, an Ethereum validator checks a block containing a payment. The validator is helping the network agree that the payment follows its rules; it is not lending the sender money. Staking rewards are additional coins allocated by the protocol for that work, rather than interest paid by a borrower. The rewards depend on participation and the network's staking rules.

How does crypto staking work?

Running your own Ethereum validator requires at least 32 ETH and software that stays connected to the network. Other Ethereum staking arrangements pool coins or delegate validation to an operator. They change who runs the equipment and who controls the keys, so the responsibilities differ.

Staking is not identical across networks. SOL holders can use Solana stake delegation to choose validators, while NEAR holders can delegate to NEAR validators. Cardano uses ADA delegation to stake pools, and Polkadot lets DOT holders nominate validators.

Bitcoin's proof-of-work system uses mining rather than staking. Holding BTC does not make it a stake in a proof-of-stake network.

What can go wrong when coins are staked?

The coin's market price can fall while it is staked. Withdrawal queues or unstaking periods can also delay access to coins. With Ethereum, an offline validator can incur penalties; serious misconduct can trigger slashing, which removes part of its stake. These Ethereum validator penalties make operator performance relevant as well as the coin's price.

The consequences are protocol-specific. On Polkadot, a nominator can share a validator's slashing penalty; on Solana, slashing is not automatic. Polkadot slashing rules and Solana slashing rules cannot be treated as interchangeable. A self-staker also has to protect withdrawal keys and understand the operator or service used.

What is liquid staking?

Liquid staking gives a participant a token representing a position in staked coins. That token may be transferred or used in applications while the underlying coins remain staked. Liquid and pooled staking arrangements add another layer of smart contracts and service arrangements: selling the token is different from withdrawing the underlying stake, and its market price can differ from the value it represents. A liquid staking token is a crypto-asset, whereas a staked ETP is a security held at a broker.

What does a staked ETP do?

Virtune Staked Ethereum ETP gives exposure to ETH's price through a listed security and incorporates staking of the ETH held as collateral. Virtune arranges staking through a provider; the holder owns the ETP in a brokerage account and does not operate a validator. Staking rewards increase the crypto-asset entitlement within the product rather than arriving as coins or cash in the holder's account.

Virtune holds the crypto-assets backing the ETPs with custodians. Virtune's methodology uses cold storage.

Costs and risks through a brokerage account

The management fee reduces the ETP's value. Brokerage, the spread between buy and sell prices, and possible currency conversion charges also affect the investor's result.

Costs when buying Virtune Staked Ethereum ETP

Cost	Charged by	When
Brokerage commission	Broker	On every purchase and sale
Difference between bid and ask price	Market	On every trade
Management fee, 1.40% per year	Issuer	Ongoing, from the product's value
Currency conversion	Broker, if applicable	If the product trades in another currency

Staking through an ETP leaves the investor exposed to the issuer's ability to meet its obligations, custody risks and the staking arrangement, as well as crypto-asset price changes. ETP structural risks remain even though the investor does not manage keys. The listing currency may also differ from the currency in which the investor measures their holdings. Tax treatment depends on the investor's country and account type.

Related reading

How to buy a crypto ETP explains the broker route. What Ethereum does, how Solana uses SOL and Polkadot's shared security explain the networks behind the three related staking products.