Research: Staking Sector Overview

Over the last several years, the concept of “staking” has moved from a niche concept to mainstream adoption, now underpinning many leading blockchains.

This report provides a historical overview of the rise of staking, explains how staking works as both a security mechanism and source of yield, examines developments such as liquid staking and restaking, as well as brief outlooks into future potential developments in the sector.

History

Staking in blockchain networks traces its origins back to early concepts of the proof-of-stake (PoS) consensus mechanism, emerging as an alternative to the energy-intensive proof-of-work (PoW) consensus popularized by Bitcoin.

The first PoS protocols introduced the core idea that users could secure a network and validate transactions by locking up, or “staking,” their tokens rather than expending computational resources.

A defining milestone in staking’s journey was “The Merge” in September 2022, where Ethereum’s execution layer merged with its PoS consensus layer, marking Ethereum’s long-anticipated transition from PoW to PoS, making it the largest PoS blockchain in the world by market capitalization.

This shift, along with the many PoS blockchains that emerged in the years prior, underscored a growing consensus that staking offered significant potential for both network security and investor yield.

The Basics of Proof-of-Stake

Staking is a mechanism to achieve distributed consensus, which is the process by which a blockchain’s participants agree on the state of the ledger.

In a PoS system, validators, sometimes called “stakers,” lock up a sum of the network’s native cryptocurrency as collateral, known as their stake.

The network’s protocol then pseudo-randomly selects validators to propose or validate the next block of transactions.

In essence, the more one stakes up to protocol-defined limits, the greater the chance one is chosen to produce a block and earn the associated block reward​.

This mechanism replaces the intense computational race of PoW, where miners compete against one another and expend electricity to find blocks, with an economic lottery where the chance of winning is weighted by the amount of staked tokens rather than computational power.

A key advantage of PoS is that it aligns network security with economic incentives, where validators risk their own capital and, therefore, have a strong incentive to not act maliciously.

Honest validators are rewarded with token rewards for their work in securing the chain.

These rewards typically come from two sources: Inflationary rewards from new token issuance and transaction fees. 

On the other hand, if a validator tries to cheat, for example, by creating invalid blocks or submitting two conflicting blocks for the same slot, then some or all of that validator’s staked tokens will be forfeited as a penalty, otherwise known as “slashing​.”

Therefore, the security of a PoS network comes from the fact that an attacker would need to acquire and risk a very large stake to overpower the honest validators, making attacks economically unattractive.

As mentioned before, staking also introduces an investment-like aspect to crypto holdings, as stakers earn rewards for their participation.

Many PoS networks also enforce an unbonding or unstaking period, where if a validator wants to stop staking activities and withdraw their staked tokens, they must wait a certain number of days before they are unlocked and become liquid.

This prevents a malicious actor from “quickly” exiting with their stake if they attempt an attack and see it failing. Note that their stake can still be slashed during the unbonding phase if malicious intent is uncovered.

Staking Ratios

A staking ratio refers to the percentage of a cryptocurrency's total token supply that is currently being actively staked on the network.

As of 31 December 2024, the percentage of the ETH supply that is staked, also known as its staking ratio, stood at 28%.

Source: The Block Pro Research

For comparison’s sake, as of 31 December 2024, the staking ratios of Solana, Polkadot and the Cosmos Hub stood at approximately 64%, 53% and 51%, respectively.

While a higher ratio signifies greater network engagement with staking activities, it does not necessarily correlate with decentralization, especially with the prominence of stake delegation.

Key Trends in the Staking Sector

As staking has matured, new mechanisms and products have emerged to enhance it. Key trends that have shaped the staking sector include liquid staking derivatives (LSDs) and restaking.

These innovations aim to make staking more capital-efficient with the broader crypto ecosystem.

Liquid Staking

A major downside of traditional staking is illiquidity.

Once tokens are staked, they typically cannot be freely traded or used until they are unstaked, which could be days or weeks later due to unbonding periods.

Liquid staking protocols solve this by issuing derivative tokens that represent a claim on staked assets and their rewards.

For example, if a user stakes ETH via a liquid staking service such as Lido, they receive a liquid staking token (LST) called stETH, which is freely transferable and can be used in DeFi applications while their original ETH remains locked in staking.

LSTs such as stETH and cbETH for ETH, or mSOL and jitoSOL for SOL, among others, are now widely used as yield-bearing collateral in lending markets or to back the issuance of decentralized stablecoins.

Moreover, another benefit of LSTs is that it enables stakers to “unstake” their assets immediately in the secondary market as opposed to having to wait through an unbonding period.

They accumulate staking rewards over time, usually by increasing in value against their underlying asset. For example, 1 stETH gradually becomes equal to or greater than 1 ETH.

As of 31 December 2024, the total value locked (TVL) in liquid staking across all blockchains stood at $58.9B.

From this, the TVL in Lido makes up roughly half of the total, followed by Binance staked ETH with 10%. Jito and Infrared Finance each contribute approximately 5% of the total, while Rocket Pool makes up ~4%.

The remaining 26% are composed of various protocols such as mETH Protocol, Marinade and Jupiter, among others.

Source: The Block Pro Research

In tandem with liquid staking, a range of staking-related financial products have emerged, most notably staking yield swaps.

These allow participants to exchange a variable staking yield for a fixed rate, mirroring interest rate swaps in traditional finance. This enables stakers to hedge against fluctuations in staking rewards and other market participants to speculate on future yield changes.

One of the most notable protocols that enable this is Pendle Finance.

Pendle tokenizes yield-bearing assets, such as LSTs, into principal tokens (PTs), which are redeemable for the underlying asset at maturity, and yield tokens (YTs), which receive staking rewards until maturity.

Traders can buy or sell YTs in Pendle’s marketplace to lock in a fixed yield or speculate on higher variable returns, much like splitting principal and coupons in traditional fixed-income markets.

A more comprehensive breakdown of Pendle Finance by The Block was covered in an earlier research piece .

Staking now underpins a growing suite of derivative products and services that treat staked tokens as productive, tradable assets.

Over time, we can expect this ecosystem of staking‐based financial tools to deepen, offering more ways to customize and potentially enhance returns, much like the broad range of instruments built on top of traditional fixed‐income assets.

Restaking

One of the most prominent developments in recent years within the staking sector is restaking. 

The concept of restaking is that Ethereum validators, who already have ETH staked for consensus, could opt-in to smart contracts that assign them additional duties for securing other services or infrastructures, called active validated services (AVS)​.

By “restaking” their native ETH or ETH LSTs in these contracts, validators can simultaneously provide economic security to multiple projects, from oracle networks, data availability layers, or sidechains, without having to put up separate collateral. In return, they earn additional rewards from those services.

Essentially, restaking leverages Ethereum’s existing staked capital to secure additional services and infrastructure, increasing capital efficiency by extending the security benefits of one stake across multiple protocols.

However, it also increases contagion risk where a flaw if a small module using restaked collateral is compromised, validators could be slashed on that module. Because the same stake secures multiple protocols, those losses reduce the total capital backing of other AVSs, potentially undermining overall network security if enough restaked validators are penalized. 

As of 31 December 2024, the total value locked (TVL) in restaking across all blockchains stood at $24.7B.

From this, the TVL in EigenLayer makes up a whopping 62% of the total, followed by Babylon with 22% and Symbiotic with 8.8%. The remaining 7.2% are composed of various protocols each with less than 1% of the total.

Source: The Block Pro Research

Liquid Restaking

Adding another layer deep is the concept of liquid restaking, which builds on traditional restaking by issuing tradable liquid restaking tokens (LRTs) for users that restake their assets.

While restaking locks tokens to provide security to multiple services, LRTs are transferable and can be utilized in DeFi applications while its underlying assets continue to earn rewards and secure AVSs.

While it further enhances capital efficiency, liquid restaking also amplifies the aforementioned contagion risks of traditional restaking.

It is worth noting that at the time of writing, the vast majority of restaked capital resides in Ethereum, while nearly all leading liquid restaking protocols are built on EigenLayer.

As of 31 December 2024, the total value locked (TVL) in the top 6 liquid restaking protocols on Ethereum stood at $11B.

From this, the TVL in ether.fi made up over 66% of the total, followed by Kelp and Renzo with 15% and 10%, respectively. The remaining 8% were divided between Swell, Puffer and Eigenpie.

Source: The Block Pro Research

Improved Staking Infrastructure

Another important trend is the maturation of staking infrastructure and efforts to keep it decentralized.

For example, on Ethereum, there are initiatives such as distributed validator technology (DVT), which lets multiple participants who do not individually have the required amount of ETH to become a solo validator to pool their ETH and collectively operate one validator under a shared key.

Though 32 ETH remains the minimum stake for an Ethereum validator, DVT‐based solutions enables stakers with smaller capital to combine resources in a trust‐minimized way rather than using a centralized staking service, thereby reducing single‐operator risk.

An example of a protocol that utilizes DVT is SSV Network, which has been covered by The Block in a previous research piece .

Ecosystem Map

Source: The Block Pro Research

Looking Ahead

Institutional involvement in staking from the traditional finance sector is expected to significantly increase in the near future.

As of the time of writing, traditional asset management firm Franklin Templeton has already established actively operating validator nodes across multiple PoS networks, such as Ethereum, Solana, Aptos, and Cardano, among many others.

The launch of the spot Ether ETFs in 2024 has already contributed to increased institutional participation and liquidity for the base ETH asset itself. However, at the time of writing, staking has not been enabled for the ETH held by ETFs.

If staking were to be enabled for ETF-held ETH, it would not only bring billions of capital into the staking sector but also potentially generate yield for ETF holders, effectively turning ETF holders into passive stakers via the funds.