Staking System Overview

Staking System Overview

Governance Layer • Validators • Protocol Control

comprehensive guide to staking models and mechanics

Staking System Overview — Yield Models & Delegation Mechanics

Staking is the foundation of many blockchain networks — used to secure consensus, validate transactions, and reward token holders. But staking is no longer a single model. This overview breaks down the four primary forms of staking systems used across protocols today: traditional staking, delegated staking, liquid staking, and restaking.

Use Case: Provides a framework for understanding how staking earns rewards, how it’s evolving, and which methods maintain liquidity, decentralization, or protocol control.

Key Concepts:

• Validator Sets — Groups of authorized nodes that validate transactions and secure the network
• Lock-Up Periods — Time duration assets must remain staked before withdrawal is allowed
• Delegation — Process of assigning stake to a validator without transferring custody
• Liquid Yield — Earning rewards while maintaining asset liquidity through derivative tokens
• Restaking Protocols — Systems that allow already-staked assets to secure additional networks
• Security Guarantees — Assurances provided by stake-backed consensus mechanisms
• Staking — Locking tokens to participate in network validation and earn rewards
• Proof of Stake — Consensus mechanism underlying most staking systems
• Validator Node — Network participant that produces blocks and earns rewards
• Delegated Validator — Elected node receiving delegated stake from users
• Liquid Staking Protocol — Services providing tradeable staked token derivatives
• Delegated Proof of Stake — Consensus model where users delegate to validators
• APY – Annual Percentage Yield — Annualized return rate including compounding

Core Staking Models:

• 1. Traditional Staking
  • User locks their tokens directly into the network (e.g., $ETH, $ADA)
  • Assets are illiquid during the staking period
  • Rewards are distributed based on uptime and validator performance
• 2. Delegated Staking
  • User assigns their stake to a third-party validator without giving up custody
  • Popular in networks like $XRP (UNL model), $FLR (FTSO), and $ATOM
  • Validators earn commission, and users earn passive yield
• 3. Liquid Staking
  • User stakes tokens and receives a liquid “receipt” token (e.g., $sFLR, $stETH)
  • Token can be used in DeFi (lending, farming, etc.) while earning staking rewards
  • Popularized by Lido, Rocket Pool, and Sceptre Protocol
• 4. Restaking
  • User takes already staked assets and reuses them to secure additional networks or services
  • Enables multi-use security and layered yield (e.g., EigenLayer on Ethereum)
  • Still experimental — raises questions around slashing and composability risk

Why Staking Systems Matter:

• Defines how networks stay secure and decentralized
• Shapes user incentives, liquidity availability, and validator power dynamics
• Influences how DeFi protocols are built on top of underlying infrastructure

Summary: Staking has evolved from simple token lock-ups to a diverse ecosystem of yield-generating mechanisms. Understanding the differences between traditional, delegated, liquid, and restaking models helps users optimize returns while managing risk, liquidity, and exposure across multiple protocols.