Staking explained: proof of stake, validators and your options

Proof of stake in plain terms

Blockchains need a way to agree on which transactions happened. Bitcoin uses proof of work: miners spend electricity to compete for the right to add blocks. Many newer networks, including Ethereum, use proof of stake: participants lock up the network’s own token as a security deposit for the right to propose and confirm blocks.

Those participants are called validators. If they follow the rules, they earn rewards, typically from newly issued tokens and a share of transaction fees. If they break the rules or fail in certain ways, part of their deposit can be taken. That combination of carrot and stick is what keeps the network honest.

When you “stake”, you are either running a validator yourself or supplying tokens to someone who does. Ethereum’s own documentation (ethereum.org) describes solo, pooled and centralized options and their trade-offs.

Four ways to stake

Solo staking gives you full control, but you are responsible for keeping a validator online and correctly configured. Mistakes can cost you rewards or, in serious cases, part of your stake.

Pooled staking lets many people combine smaller amounts. You rely on the pool’s smart contracts and on whoever runs the validators.

Liquid staking gives you a token that represents your staked position, which you can trade or use elsewhere in DeFi. That convenience adds layers: the liquid staking token can trade at a discount, and using it as collateral adds liquidation risk.

Staking on a centralized platform is the simplest. The platform holds your tokens and stakes on your behalf. You take on custody risk: if the platform fails, your tokens may be tied up. See platform failure risk. Our staking options comparison sets these side by side.

See the full infographic with notes.

Lock-ups, unbonding and liquidity

Staked tokens usually cannot be sold instantly. Networks often have an unbonding or exit period, and queues can lengthen when many people want to leave at once. Platforms may add their own withdrawal timelines.

If you might need the money on short notice, the time it takes to unstake is as important as the reward rate.

Slashing and other risks

Slashing is a penalty that removes part of a validator’s stake for serious faults, such as signing conflicting blocks. Being offline usually leads to smaller penalties or missed rewards rather than slashing, but rules vary by network. If you stake through a pool or platform, ask how slashing losses are shared.

• Price risk: rewards are paid in the same token you staked. If it falls 30%, a few percent of rewards will not cover it.
• Smart contract risk: pooled and liquid staking rely on code. See smart contract risk.
• Custody risk: platform staking means trusting the platform with your assets.
• Depeg of liquid staking tokens: they can trade below the value of what they represent, especially in stress.
• Key risk: solo stakers must protect validator and withdrawal keys. See seed phrase security.

Staking in Canada: platforms and tax

If you stake through a crypto trading platform, that platform should be registered with Canadian securities regulators or operating under a pre-registration undertaking. You can check the CSA’s list of authorized platforms. See check a platform.

Whatever route you choose, keep records of each reward: date and time, quantity, and Canadian-dollar value. The CRA’s records page also asks you to keep wallet addresses and yearly balances, and to export platform history regularly.

How to choose an approach that fits you

There is no single right answer, only trade-offs that suit different people. Questions worth answering honestly:

• Do you want to hold your own keys, or are you comfortable with a platform holding them?
• How quickly might you need to sell?
• Can you keep a validator online and updated, or would you rely on someone else?
• Are you adding smart contract risk for a small difference in rate?
• How will you record each reward for tax?

Our self-custody readiness tool can help with the first question.

Your checklist

• Choose solo, pooled, liquid or platform staking deliberately, and write down why.
• Find out the unbonding or withdrawal time before staking.
• Learn how slashing losses would be shared with you.
• If using a platform, check it on the CSA authorized list.
• Record each reward’s date, quantity and Canadian-dollar value.
• Export platform statements regularly.

Sources and dates

• Ethereum staking — ethereum.orgreference
  No date shown on page · checked 2026-10-31. Solo, pooled and centralized staking options and their trade-offs.
• How does Bitcoin work? — bitcoin.orgreference
  No date shown on page · checked 2026-10-31. Plain-language explanation of Bitcoin.
• Reporting income from crypto-asset mining and staking activities — Canada Revenue Agencyin force
  Page date 2025-11-10 · checked 2026-10-30. Mining is usually a business; staking rewards on a centralized platform are generally income when credited. Silent on self-custody/DeFi staking.
• Understanding crypto-assets and your tax obligations — Canada Revenue Agencyin force
  No date shown on page · checked 2026-10-30. Defines crypto-assets; lists dispositions (sell, trade, barter, gift, gamble) and acquisitions including mining/staking rewards.
• Keeping books and records of crypto-assets for tax filing — Canada Revenue Agencyin force
  Page date 2025-11-10 · checked 2026-10-30. What to record per transaction, wallet addresses, yearly balances; export platform history; keep records at least six years.
• Crypto platforms authorized to do business with Canadians — Canadian Securities Administratorsreference
  Page date 2026-09-18 · checked 2026-10-30. The official list of authorized platforms, with links to each decision.
• Crypto platforms: regulation and enforcement actions — Canadian Securities Administratorsin force
  Page date 2025-10-22 · checked 2026-10-30. Platforms serving Canadians, including foreign ones, must register; operating platforms sign a pre-registration undertaking while under review.
• What's covered — Canada Deposit Insurance Corporationin force
  No date shown on page · checked 2026-10-30. Up to $100,000 per category per member institution; cryptocurrencies, including stablecoins, are not covered.