What is staking?

Staking means locking up tokens for a set time or until withdrawal, usually in return for rewards or for the right to take part in running or governing a network. It matters because it changes how many tokens are available to trade, and it shapes who has a stake in the project's success.

How it works

Tokens move from the holder's free balance into a staked pool. While staked they usually cannot be spent, so circulating supply falls and velocity is lower. The network pays rewards to stakers, often as a yearly percentage of the staked amount, which adds new tokens. Reward per staker depends on the total staked: the more people stake, the smaller each person's share of a fixed reward.

The feedback loop is that a high reward rate attracts more stakers, which dilutes the reward rate, which reduces the incentive. The trade-off is between rewards that attract participants and the new supply those rewards create, which can lower the token's price.

Example

Say a network pays a fixed 1 million tokens of rewards per year to stakers. If 10 million tokens are staked, the reward rate is 1 ÷ 10 = 10%. If staking doubles to 20 million, the rate halves to 5%. A holder who stakes 1,000 tokens earns 100 tokens at the first rate and 50 at the second. If some holders leave at 5%, the rate climbs back. These are illustrative numbers.

How to model it in Machinations

Draw a Pool of free tokens, a Pool of staked tokens and a connection between them with a rate set by a Lever. A Source of rewards feeds the staked Pool, and a Register computes the reward rate as rewards divided by staked. Use a state connection from that Register to the rate at which free tokens are staked. Play and chart the staked Pool and the reward rate to see where they settle.