Explainer: proof of stake, validators and slashing

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Proof of stake is a consensus mechanism in which validators lock tokens as collateral for the right to propose and confirm blocks. Honest validators earn staking rewards; validators that break key rules can lose part of their stake through slashing.

Token holders who do not run a validator can still take part by delegating to one or by using liquid staking, which issues a tradable receipt token for the staked deposit. Liquid staking keeps capital usable in DeFi, but adds smart contract risk and the possibility that the receipt token trades below its underlying value.

Staking rewards are usually quoted as an annual percentage yield. That figure is an estimate based on recent network conditions and can change. Lock-up periods, withdrawal queues and validator performance all affect what a staker actually receives.

Compared with proof of work, proof of stake uses far less energy. The trade-offs most often debated are the concentration of stake among large providers and how quickly a network can reach finality.