Staking tokens means that depositing your crypto into a ‘savings account’ to benefit the project or the people using it. There is almost always a reward for doing this.
https://www.tiktok.com/@rabbithole_gg/video/7126842895012859182
Staking tokens helps to stabilize the token’s overall economy by shielding it from big sell off events.
<aside> 🤔 For example: Say you and 100 friends each hold 10,000 FUNCOINs, and they’re worth $1 each. One day, the price starts to dip (a common thing in the crypto world).
Worried about your $10,000 shrinking to nothing, you sell for as much as you can. All your friends do the same. All this sell pressure will certainly drive the price further down, causing more holders to worry and sell… and now the FUNCOIN token economy is in a downward spiral.
The FUNCOIN project obviously doesn’t want to see this. To help with stability, they may offer an option to stake your tokens. Let’s say they choose a four week unstaking period and offer a weekly airdrop.
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In this new scenario, say you stake 8,000 tokens and keep 2,000. If you want those 8,000 back, it will take 4 weeks. But every week you keep your stake, the project adds 25 new tokens to your stake (just like compound interest).
Now if the price dips, you can only sell at most 2,000. If many others also stake to get the rewards, the downward spiral may never happen. The price recovers, and you’re glad you still have at least 8,000 “in the vault.”
Every project is different, so there’s no one-size-fits-all way to stake tokens. Generally, you’ll need to connect your wallet to the platform and sign a transaction that commits an amount you choose to be staked. A gas fee will usually apply.
Since there are usually rewards for staking, and since project creators have an incentive to encourage staking, it's usually pretty easy to find the staking button or menu on most dApps.
Staking can be called other things in crypto. You might see different terms like:
Certain games or other creative projects might invent their own terms. But whenever your token is ‘locked up’ for a certain amount of time, it’s considered staking.