Delegated staking: how it works and what you own
Delegated staking assigns staking rights to a validator while you keep ownership. Rewards come after commission, and slashing can cut the tokens you delegated.
Vahe HakobyanEditor-in-chief
Updated Oct 6, 20263 min readFact-checked
On this page
- Rewards are paid after the validator takes its commission.
- Unbonding can keep your tokens locked for a period.
- Staking rewards are generally taxable income when you receive them.
Delegated staking is one way to take part in proof-of-stake. The network uses validators to propose blocks and check each other's work, and token holders can hand off that job.
How does delegated staking work?
In a proof-of-stake network, validators propose blocks and check other validators. A token holder can delegate staking rights to a validator. The validator does the technical work and takes a commission. The rest of the rewards go to you.
- You choose a validator and delegate tokens.
- The validator runs the node and joins consensus.
- Rewards accrue to your delegated position.
- The validator deducts its commission.
- Your ownership stays with you on-chain.
What risks and limits apply?
Delegated tokens usually stay locked. To move them, you often wait through an unbonding period. During that time you cannot transfer or sell the tokens. A validator can also be slashed for breaking network rules. Slashing reduces the tokens you delegated.
Where do people delegate, and what is different?
You can delegate on-chain, through an exchange, or through a liquid staking service. On-chain delegation keeps custody with you. Exchange staking and liquid staking put control somewhere else.
How is it taxed in the US?
The IRS treats staking rewards as ordinary income when you receive them. You report the fair market value in US dollars on the day you get the rewards. The tokens count as property, so a later sale can create a capital gain or loss.
Frequently asked questions
Yes, if the validator is slashed for a serious rule violation. Slashing reduces the tokens you delegated, not just the rewards you earned.
No. The validator runs the node and the consensus software. You usually sign a delegation transaction from your wallet or approve the operator's setup.
No. Liquid staking gives you a receipt token that you can trade, and it adds smart contract risk. Delegated staking does not create a tradable receipt token.
Compare commission, uptime, and slashing history. A validator with steady uptime and a clear commission is easier to evaluate. You can also split your tokens across several validators.
