Unstacking — Withdrawal from staking

Staking has become one of the most common ways to earn passive income in the blockchain ecosystem. Users lock up coins, support the network's performance, and receive income in return. But at some point, the assets may be needed again — then a process called unstaking or withdrawal from staking is initiated.

Essentially, Unstaking is the procedure of returning staked tokens back to the user. However, this is not an instant operation: it often involves delays, restrictions, and certain risks.

Source: GoMining

How does staking withdrawal work?

1. Withdrawal request. The user sends a transaction to «unstake». From this point on, the coins no longer participate in servicing the network and cease to generate rewards.

2. Unfreezing period. Most PoS networks do not return funds instantly. First, the assets enter the unbonding mode — this is the period during which they remain locked.

The duration depends on the specific blockchain:

— In one project, you need to wait several hours;

— In another, several days;

— In more conservative networks, weeks.This period is in place to protect the network: it prevents validator manipulation and reduces the risk of abuse.

3. Access to tokens. When the unfreeze period ends, the coins become fully liquid and can once again be sent, traded, staked, or used in DeFi.

The economic effect of unstaking in DeFi 

Unstaking tokens affects not only the user, but also the entire network. Mass unstaking can cause a temporary decrease in liquidity and a reduction in the share of staked assets, which sometimes affects validator rewards and the overall stability of the network.

1. Impact on token price. If a large number of users simultaneously withdraw tokens and sell them on the market, this can lead to a drop in price.

2. Impact on validator rewards. The fewer staked tokens a validator has, the lower their share of rewards. Accordingly, the remaining holders may receive fewer rewards.

3. Risks to the network. A decrease in the share of staked coins can reduce the security of the PoS blockchain. Therefore, the unbonding period is introduced as a protective mechanism to prevent mass exits and manipulation.

Understanding these factors allows users to plan their token withdrawals more carefully and minimize the potential impact on their assets.

Strategies for effective use of staking withdrawals

1. Withdrawing some tokens to manage liquidity. It is not necessary to withdraw the entire stake at once. You can withdraw only some of the coins, leaving the remaining tokens in the network to earn rewards. This strategy allows you to simultaneously preserve your income and use some of your assets for trading or investing in other projects, increasing your financial flexibility.

2. Moving assets between different platforms. Staking conditions can vary significantly between different validators and services in terms of yield, unlocking periods, and fees. Withdrawing tokens at the right time allows you to redistribute them to more profitable platforms or networks, increasing your overall staking income.

3. Investing through DeFi during the unfreezing period. Even while tokens are in the unbonding period, they can be directed to DeFi protocols after the unfreezing period ends. This can be in the form of providing liquidity, lending, or participating in yield farming. This approach allows you to earn additional income and use your assets effectively.

4. Risk management during market fluctuations. The unstaking process can be used as a capital protection tool. For example, if a token loses value sharply, some of the staked coins can be withdrawn to lock in profits or reduce potential losses. This method is especially useful on volatile PoS networks.

5. Combination with liquid staking. With the help of liquid staking protocols, it is possible to withdraw tokens without losing rewards. stTokens continue to generate income, and their owner gets the opportunity to simultaneously participate in DeFi projects or quickly exchange assets for other tokens. This provides both income and access to liquidity.

Potential risks

1. No income. While coins are in the unstaking period, there are no rewards; accruals stop immediately after unstake is launched.

2. Slashing. If a validator commits violations, part of the stake may be written off. In some networks, this also affects delegators.

3. Features of centralized platforms. Exchanges and services may use their own withdrawal rules. Sometimes their terms differ from the parameters of the blockchain; the delay may be longer.

4. Withdrawal queue. In popular networks, there may be queues for unstake. With mass withdrawals, the waiting time increases.

In conclusion

Unstaking is an important asset management mechanism in Proof-of-Stake blockchains. It allows users to return their tokens, but requires an understanding of how the unfreezing period works, what risks exist, and how specific platforms or validators operate.

By managing staking wisely and withdrawing assets in a timely manner, you can effectively allocate liquidity, reduce risks, and get the most out of participating in the PoS ecosystem.Subscribe and get access to the GoMining course on cryptocurrency and Bitcoin, which is (still) free: https://academy.gomining.com/courses/bitcoin-and-mining