What Is Crypto Staking and How to Earn Passive Income from It in 2025?

July 14, 2025 Team OnChain 7 min read

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Introduction

In the booming crypto market of 2025, valued at over $3 trillion, staking has become a popular way for investors to earn passive income while supporting blockchain networks. Unlike trading or mining, staking allows users to lock up their cryptocurrencies to secure a network and receive rewards, offering a low-effort investment strategy. This article explains what crypto staking is, how it works, its benefits and risks, and practical steps to start earning passive income in 2025.

What Is Crypto Staking?

Crypto staking involves locking up cryptocurrency holdings in a wallet or platform to support a proof-of-stake (PoS) blockchain’s operations, such as validating transactions and securing the network. In return, stakers earn rewards, typically paid in the same cryptocurrency, similar to earning interest on a savings account. Staking is a core feature of PoS blockchains like Ethereum, Cardano, Solana, and Cosmos, which rely on staked tokens to maintain consensus and prevent attacks.

Unlike proof-of-work (PoW) systems like Bitcoin, which require energy-intensive mining, PoS is energy-efficient, making staking an environmentally friendly way to earn income. In 2025, over 30% of major blockchains use PoS or its variants, driving staking’s popularity.

How Staking Works

Staking operates through the following process:

Locking Tokens: Users commit their tokens to a blockchain by depositing them into a staking wallet or platform. The minimum stake varies (e.g., 0.01 ETH for Ethereum, 5 ADA for Cardano).
Validator Selection: Staked tokens contribute to the network’s security. Validators, chosen based on stake size and other factors, process transactions and create new blocks.
Earning Rewards: Stakers receive rewards proportional to their stake, typically distributed daily, weekly, or monthly. Rewards come from transaction fees and new token issuance.
Lock-Up Periods: Some networks require tokens to be locked for a set period (e.g., 7–21 days for Cosmos), while others, like Cardano, allow flexible unstaking.

Example: Staking 100 ETH ($350,000 in 2025) at a 4% annual percentage yield (APY) could yield 4 ETH annually, worth $14,000, assuming stable prices.

Benefits of Crypto Staking

Staking offers several advantages for investors seeking passive income:

Passive Income: Annual yields typically range from 3–10% (e.g., 4–6% for Cardano, 5–7% for Solana), providing steady returns without active trading.
Low Entry Barrier: Many networks require minimal stakes (e.g., $10 worth of ADA), making staking accessible to small investors.
Network Support: Staking strengthens blockchain security and decentralization, aligning user incentives with network health.
Energy Efficiency: Unlike PoW mining, staking consumes minimal energy, appealing to eco-conscious investors.
Compound Returns: Reinvesting staking rewards, as supported by platforms like Kraken, compounds earnings over time.

In 2025, staking accounts for $500 billion in total value locked (TVL) across PoS networks, reflecting its widespread adoption.

Risks of Crypto Staking

While staking is relatively low-risk, it comes with challenges:

Price Volatility: Crypto prices fluctuate significantly. A 20% price drop could offset staking rewards, as seen in Solana’s 2022 dip.
Lock-Up Periods: Locked tokens may be inaccessible during market dips, limiting liquidity (e.g., Ethereum’s 7-day unstaking delay).
Slashing Risks: Validators failing to follow protocol rules may lose a portion of their stake (e.g., 1–7% in Ethereum for downtime).
Platform Risks: Staking via centralized platforms like Binance carries custodial risks, with $1.2 billion lost to exchange hacks in 2024.
Network Risks: Emerging PoS chains may have bugs or low adoption, reducing reward stability.

Example: A staker locking 1,000 ADA ($500) on Cardano earns 5% APY ($25/year) but risks losses if ADA’s price drops 30%, a common occurrence in volatile markets.

How to Start Staking in 2025

Follow these steps to begin staking and earning passive income:

1. Choose a PoS Cryptocurrency

Select a reputable blockchain with strong fundamentals and attractive rewards:

Ethereum (ETH): 4–6% APY, $350 billion TVL, supports DeFi and Layer-2 ecosystems.
Cardano (ADA): 4–6% APY, flexible staking, known for research-driven development.
Solana (SOL): 5–7% APY, high throughput (65,000 TPS), ideal for DeFi and NFTs.
Cosmos (ATOM): 8–10% APY, supports interoperable chains, but has a 21-day lock-up.
Polkadot (DOT): 10–14% APY, complex but supports cross-chain ecosystems.

Tip: Research tokenomics on CoinGecko or CoinMarketCap to verify supply, staking rewards, and network adoption.

2. Select a Staking Method

Choose between custodial and non-custodial staking based on your technical expertise:

Custodial Staking: Use centralized platforms like Binance, Coinbase, or Kraken for simplicity. These handle validator operations but charge fees (5–20% of rewards) and carry custodial risks.
Non-Custodial Staking: Run your own validator node or delegate to one via wallets like MetaMask (Ethereum), Yoroi (Cardano), or Phantom (Solana). Requires technical setup but offers full control.
Staking Pools: Join pools to stake small amounts without running a node. Pools like Rocket Pool (Ethereum) or Lido Finance offer 4–5% APY with low minimums.

Example: Staking 10 SOL ($1,500) via Phantom wallet with a validator pool yields ~6% APY, earning $90 annually after minimal fees.

3. Set Up a Wallet

Custodial: Create an account on a platform like Coinbase, deposit funds, and select the staking option.
Non-Custodial: Download a compatible wallet (e.g., Yoroi for Cardano, Ledger Live for multi-chain staking), secure your seed phrase, and transfer tokens.

Tip: Store seed phrases offline (e.g., on metal plates) to prevent hacks, which affected 1.3 million users in 2024.

4. Stake Your Tokens

Custodial: Navigate to the staking section, select your cryptocurrency, and confirm the stake. Coinbase offers one-click staking for ETH and ADA.
Non-Custodial: Choose a validator or pool, delegate your tokens, and monitor rewards. For Ethereum, platforms like Lido simplify delegation with 0.1 ETH minimums.
Validator Node: For advanced users, run a node (e.g., 32 ETH for Ethereum, ~$112,000) using hardware with 16GB RAM and stable internet.

5. Monitor and Optimize Returns

Track rewards via wallet dashboards or platforms like StakingRewards.com, which reports APYs for 200+ assets.
Reinvest rewards to compound returns, boosting long-term gains.
Diversify across multiple chains (e.g., ETH, ADA, SOL) to mitigate network-specific risks.
Stay updated on protocol changes, like Ethereum’s Fusaka Upgrade in 2025, which may adjust staking yields.

Best Practices for Staking in 2025

Diversify Assets: Stake across multiple PoS chains to reduce exposure to price volatility or network issues.
Secure Your Wallet: Use cold wallets (e.g., Ledger Nano X) for non-custodial staking and enable 2FA on custodial platforms.
Research Validators: Choose validators with high uptime (>99%) and low commission rates (0–5%) to maximize rewards.
Monitor Tax Implications: Staking rewards are taxable as income in many jurisdictions (e.g., IRS treats them as ordinary income in the U.S.).
Stay Informed: Follow network updates on X or official blogs to anticipate changes in rewards or lock-up periods.

Challenges and Considerations

Market Volatility: Price drops can negate staking rewards, requiring a long-term perspective.
Slashing and Downtime: Poor validator performance may lead to penalties, though reputable pools minimize this risk.
Custodial Risks: Centralized platforms may freeze funds due to regulatory actions, as seen in Binance’s $4.3 billion settlement in 2024.
Technical Complexity: Non-custodial staking requires setup knowledge, deterring beginners.
Regulatory Uncertainty: Evolving regulations, like the EU’s MiCA, may impact staking platforms, especially custodial ones.

Conclusion

Crypto staking is a powerful way to earn passive income in 2025, offering 3–14% annual yields while supporting PoS blockchain security. With accessible platforms like Coinbase and non-custodial options like MetaMask, investors can stake as little as $10 to generate returns. However, risks like price volatility, lock-up periods, and platform vulnerabilities require careful planning. By choosing reputable networks, securing wallets, and diversifying stakes, investors can maximize rewards and navigate the evolving crypto landscape effectively.