What is staking

Staking is a fundamental part of any Proof of Stake (PoS) blockchain network. Staking is the mechanism where special nodes on the network, i.e., Validator Nodes, confirm transactions, create blocks, and extend the chain. In this section, we will focus on how staking works on the Ethereum network.

Ethereum has become a Proof of Stake (PoS) network since September 2022. In Ethereum, any user can run a validator node by locking 32 ETH and running special software to build and validate new Ethereum blocks.

The validator nodes are rewarded for building & validating blocks which generates staking yield on the locked ETH. As most users don't have 32 ETH to run their own validator node, protocols such as Lido collect small ETH deposits from users to launch validator nodes on their behalf. For every 32 ETH of deposits, the protocol launches a new validator node. The earned rewards from all the validator nodes are shared proportionally between the depositors.

When a validator node is selected to build a block, the node collects new transactions and combines them to propose a new block. The validator node can delegate the task of choosing the transactions in a block to a different entity called a “Builder.” This mechanism is called Proposer Builder Separation (PBS). When a new block is proposed by a validator, other validator nodes inspect the block and validate its correctness.