Proof-of-stake blockchains reward token holders for locking tokens in the network to help validate transactions and secure consensus. Staking rewards come from two sources: newly issued tokens (protocol inflation) and transaction fees paid by users. The combination is reflected in the APY you see quoted on exchanges and staking dashboards.
Quoted APY varies by network and changes over time. Ethereum staking typically yields 3-5%, Solana 6-8%, Cardano 3-5%, and Cosmos-family chains often 10-20%. Higher yields usually indicate higher inflation — the protocol is issuing new tokens to validators — which can dilute long-term value if demand doesn't grow in parallel.
Compounding frequency matters but not enormously. Most staking protocols distribute rewards daily or per epoch (every few hours for some). If your staking platform automatically re-stakes rewards, you effectively compound at that cadence. Manual restaking requires periodic transactions, which may incur gas fees that partially offset the compounding benefit.
Key risks in staking include: slashing (penalties for validator misbehavior), lock-up periods (some tokens can't be withdrawn immediately), smart-contract risk (for liquid staking protocols), and price volatility (your staked tokens still fluctuate in USD value). Liquid staking tokens (e.g., stETH, rETH) introduce additional de-peg risk during stress events. Always understand the specific protocol before committing capital.