A staking screen advertising “5% a year” may remind you of bank interest. But staking relates to participation in network validation, and the coin's price also changes. Even when two percentages look alike, first check which asset increases and by how much.
Common terms
- Validator: A participant that proposes or validates blocks in a proof-of-stake network.
- Delegation: Participating by assigning your stake to a validator on networks that support it.
- APR: Usually an annualized rate without compounding.
- APY: Usually an annualized rate including compounding from reinvestment. Check the reinvestment frequency and costs.
- Unstaking: Releasing staked assets. Withdrawal may not be immediate.
- Slashing: A reduction in stake for specified rule violations or similar events. Whether it applies, and under what conditions, varies by network.
Token returns and returns in won are different
If 100 units of a hypothetical asset become 105 after one year, the quantity has grown 5%. But if the price falls from ₩1,000 to ₩800, their value falls from ₩100,000 to ₩84,000. You can receive rewards and still lose money in won terms.
Not every exchange deposit or rewards product has the same structure as network staking. Read the product description to find out where assets are used, who pays rewards and which costs are deducted.
Look all the way through to withdrawal
Compare waiting periods, fees, reward assets and the operator. If you receive a liquid staking token, selling it in the market may differ from redeeming it for the original asset. Its market price does not always maintain the same ratio to that asset.
Instead of comparing only large percentages, write down the return's basis, price risk, who holds the assets and the conditions for getting them back. An advertised annualized rate is not a promise of a fixed future return.
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