Staking Rewards: Earn Income from Your Crypto Assets
Staking rewards can be a source of uncorrelated income that may enhance total returns for investments in Proof of Stake blockchain tokens
Traditional sources of investment income like bond coupon payments are tied to central bank policy and the state of the economy. Although there are some ways to diversify across alternative income-generating strategies in traditional markets, most options will have a similar correlation to the economic cycle. Staking rewards — the income received from helping validate blockchain transactions — represents a unique potential source of income that is not correlated to the actions of the Fed or the performance of the broader economy.
Staking reward rates are governed by protocol-specific parameters and network-level participation rate — not conditions in U.S. Dollar money markets. As a result, reward rates differ from traditional fixed income yields in terms of levels and changes over time.
For example, across the top 20 Proof of Stake (PoS) digital assets, median staking reward rates have consistently exceeded conventional fixed income benchmarks like the federal funds rate or a benchmark investment grade corporate bond yield. Since 2019, median staking rewards have ranged between 5% and 10% annualized (Exhibit 1).
Exhibit 1: Staking reward rates uncorrelated to fixed income yields
Staking rewards have also demonstrated low to negative correlation with traditional interest rate instruments. In terms of monthly changes since 2019 the median staking reward rate in our sample had the following correlations with traditional benchmark rates:
-0.67 vs. Fed Funds Rate
-0.71 vs. 10-Year Treasury Yield
-0.76 vs. U.S. Corporate Bonds
This rate independence enhances staking’s potential value in a multi-asset portfolio, offering both the potential for income diversification and reduced correlation risk relative to conventional fixed income instruments.
Higher Total Returns, Comparable Risk
Staking serves as a mechanism to potentially enhance total returns while only adding marginally to portfolio risk (through various operational risk, as discussed below). Staking rewards are paid in native blockchain tokens, not fiat currency. These rewards can be reinvested to compound over time, potentially creating a dual return stream — capital appreciation plus staking income — without altering the investor’s underlying exposure. In PoS networks, this income typically ranges from 5%–10% annually and can help offset volatility during market drawdowns.
To quantify this effect, we created two hypothetical indexes of PoS token returns: (1) an index including only price returns and (2) an index encompassing both price returns and staking rewards. Both indexes are equally weighted and include the top 10 PoS tokens by market capitalization. Indexes are unmanaged and you cannot invest directly in an index. These results are strictly hypothetical and do not reflect actual results achieved by an investor.The underlying indices are hypothetical and do not represent any actual index used to evaluate broader investments.The indices were created by the author and were constructed with the benefit of hindsight.Staking rewards are not guaranteed payments may not be paid and are not an obligation of any firm of government entity.
Exhibit 2 displays the return statistics for the two indexes. Incorporating staking rewards raises the total return to 72% from 60% — implying an effective annual reward rate of 12%. Staking rewards do not contribute to price volatility (although staking can introduce other risks; see next paragraph) so the higher returns would also contribute a higher Sharpe Ratio.
Exhibit 2: Staking rewards can potentially contribute to total returns
Staking rewards are typically modest relative to token price volatility, and price variability should be considered the primary source of risk and potential return for most crypto asset investments. That being said, staking activity can introduce new risks, including potential slashing (loss of staked assets due to failure of transaction validation), lock-up periods (limited liquidity during staking, which can impact portfolio rebalancing and the ability to respond to market changes), and smart contract risk (the possibility of vulnerabilities or exploits in the underlying staking protocol or smart contracts, particularly on less secure or experimental networks). Additionally, transaction costs and staking commission fees are not considered in the analysis but can accumulate over time.
This analysis demonstrates that staking rewards represents a structurally distinct and potentially beneficial source of income for digital asset portfolios. Their integration into portfolio construction frameworks may enhance total return potential and offer income diversification benefits independent of traditional interest rate dynamics.
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