Liquidity Pools vs Staking Find Your Best Fit
Hussnain Aslam
CTO
Aug 4, 2025
If you're looking at ways to use your cryptocurrency to generate passive income, you've surely heard of two well-liked choices: staking and liquidity pools. While each can yield rewards, they operate differently and each has advantages and disadvantages of its own. In this guide, we'll explain liquidity pools vs staking in simple terms so you can choose the best option for you.
What is Staking?
Let’s begin with staking as it's the simpler of the two.
Staking is when you lock your cryptocurrency—like Ethereum or Solana—to help support and secure a blockchain network. In return, you earn staking rewards. It is kind of like earning interest from a savings account, but in the world of crypto.
Most staking happens on Proof of Stake (PoS) or Delegated Proof of Stake (DPoS) networks. Unlike Bitcoin’s system, these networks don’t need giant machines solving math problems. Instead, they pick validators based on how much crypto they have staked. So, the more you stake, the more you help secure the network—and the more you can earn.
It is one of the core decentralized finance strategies and a solid way to grow your crypto while supporting the system behind it.
Types of Staking
There is more than one way to stake. Here are the main types:
1. Traditional Staking
This is the classic method. You lock your tokens directly on the network. Your crypto stays there for a set period, and you earn rewards in return. Simple and straightforward.
2. Pool Staking
Not everyone has enough crypto to stake on their own. That is where staking pools come in. They let smaller holders join forces and improve their chances of being picked as validators. Everyone shares the staking rewards based on what they put in.
3. Liquid Staking
So, what is liquid staking?
It is a newer way to stake your tokens without giving up access to them. When you use liquid staking, you get a token back that represents your staked asset—like stETH for staked ETH. You can trade it, lend it, or use it in other DeFi investment options, all while still earning rewards.
It adds flexibility and opens up more advanced moves—like pairing liquid staking with crypto yield farming to boost your earnings.
Benefits & Risks of Staking
Staking is popular for good reason. Still, staking is not risk-free:
Benefits | Risks |
It provides steady passive income through staking rewards. | Some types come with lock-up periods, meaning your crypto is tied up for days or weeks. |
It helps you support the networks you believe in. | Price swings in the market can affect the value of your rewards. |
Compared to other DeFi strategies, it generally carries lower risk. | In some systems, bad behavior or downtime can lead to slashing penalties, where part of your stake gets cut |
You don’t need much to get started, especially if you use a pool or liquid staking. |
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So, while staking is one of the more stable DeFi investment options, it is always smart to understand the terms before jumping in.
What Are Liquidity Pools?
If you’re wondering what are liquidity pools in DeFi, it’s simply a smart contract that holds funds to enable decentralized trading and often rewards liquidity providers in return.
In smart contracts, a sum or group of cryptocurrencies is called a liquidity pool. This pool eliminates the requirement for buyers and sellers to match in real-time when trading tokens on decentralized exchanges (DEXs) such as PancakeSwap or Uniswap.
How Liquidity Pools Work in DeFi
For example, suppose you put $800 CELO and $800 BNB into a pool. By supplying crypto liquidity pools, you enable other individuals to trade between BNB and CELO. In exchange, you receive a tiny percentage of the trading fees.
That’s how decentralized exchanges keep working—thanks to people like you who deposit tokens into these pools, so others can swap without delays.
Benefits & Risks of Liquidity Pools
Depending on the platform, some liquidity pools also offer farming prizes or bonus tokens. So, on top of the fees you earn, there can be extra incentives too. But of course, there are liquidity pool risks.
Let us look at some of the benefits and risks associated with liquidity pools:
Benefits | Risks |
You earn from both trading activity and bonus rewards. | Impermanent loss — when token prices change a lot while they’re in the pool. |
Often enjoy higher APYs than regular staking. | Even if you earn trading fees, you could end up with less than just holding your tokens. |
You help keep decentralized finance strategies running. | Smart contract bugs or exploits might lead to losses. |
No need to rely on centralized systems. | Market volatility can hit your returns harder than expected. |
Liquidity Pools vs Staking: The Big Differences
The table below offers a clear comparison of liquidity pools vs staking, breaking down how each works and what to expect.
Feature | Staking | Liquidity Pools |
Purpose | A way to support a blockchain network’s operations. You help keep it secure and get rewarded for it. | You provide tokens to a shared pool so others can swap them. You earn a share of the swap fees. |
Risk Level | Most people think it carries less risk. Especially with big names like ETH, it feels easier and more predictable. | Risk is higher because of impermanent loss — when token prices change too much, you might lose value. |
Asset Lock-Up | Your crypto is usually locked for a few days or even weeks, depending on the method. Some options are flexible, though. | Many pools let you withdraw anytime, but risks are still there. |
Returns | Rewards are often steady and known in advance. | Returns depend on how much trading happens in the pool — they can be higher but go up and down. |
Liquidity | You often cannot touch your tokens while they are staked. | Usually more flexible. Some platforms let you pull out whenever you want. |
Complexity | Sometimes it needs setting up validators or delegating to one. | You need to manage two tokens and understand things like impermanent loss. |
Use of Staked Assets | You cannot really use your staked tokens until you unstake them. | You sometimes get LP tokens in return — and those can be used in other ways on DeFi platforms. |
Which Is Safer?
Generally, staking is safer than liquidity pools, mostly when using reputable networks like Cardano or Ethereum.
The major risks of staking are:
- The market price falling.
- You are unable to access your money during lock-up periods.
- Slashing (rarely, when validators act inappropriately).
Higher risk is associated with liquidity pools because of:
- Temporary loss.
- Smart contract bugs.
- Little trading volume (less money from fees).
However, there is frequently a greater chance of payoff for greater risk.
Which One Pays More?
The project, schedule, and state of the market all play a part in the earning.
The yearly yield from staking on well-known networks can range from 3% to 15%.
On the other hand, liquidity pools have the potential to pay higher rates, particularly when trading volume is high and if yield farming rewards are included. Although some pools have an APR of more than 50%, this usually entails a larger risk.
Staking is typically preferable if you want smaller, more consistent returns.
It may be worthwhile investing in the best liquidity pools if you're willing to take greater risk in order to optimize profits.
Who Should Choose Staking?
It’s very simple!
Select staking if you:
- Want rewards that are easy and low risk.
- Have faith in a PoS blockchain in the long run.
- Avoid dealing with market swings between two tokens.
- Prefer to hold just one asset, such as SOL or ETH.
- It is easy for beginners to use and effective for long-term holders.
Who Should Choose Liquidity Pools?
Better liquidity pools are created if you:
- Understand DeFi systems such as PancakeSwap, SushiSwap, Uniswap, and others.
- Understand and be able to cope with impermanent loss.
- Desire to profit from yielding rewards and trading fees.
- Are capable of keeping a close eye on your finances.
This approach works best for more seasoned users who don't mind taking on greater risk in exchange for bigger rewards.
Can You Do Both?
Absolutely, yes.
To diversify, many cryptocurrency users do both:
- Stake just one part of their portfolio, such as SOL or ETH.
- To make more money, put another part into liquidity pools.
You may balance growth and safety in this way.
Emerging Trends in 2025
DeFi ecosystem is changing fast. In 2025, new ideas are making staking and liquidity pooling smarter, easier, and more flexible. From liquid staking benefits to better ways of avoiding impermanent loss, users now have more control over how they earn.
1. Liquid Staking is Getting Big
You have probably heard of staking. But now there is liquid staking — and it is becoming one of the top DeFi investment options.
It lets you stake your crypto and still stay liquid. How? When you stake, you get a token back that represents your staked amount. You can trade that token or use it somewhere else — while still earning staking rewards.
Some platforms even take it a step further with liquid restaking. Your stake stays liquid but also helps secure more than one network. More rewards, but also more risk.
2. Impermanent Loss? Getting Smarter About It
If you are using liquidity pools, you should know how impermanent loss affects your liquidity pools. So here is impermanent loss explained simply.
It happens when the tokens you added to a pool change price differently. Even if you earn some fees, you might end up with less value than you started with.
But in 2025, platforms are doing more to fix this. Stablecoin pools are safer since prices stay steady. New Automated Market Makers (AMMs) are smarter too — they adjust things to reduce your loss.
That makes pool staking vs traditional staking more fair and less risky.
3. Liquidity Pools Are Going Cross-Chain
This year, liquidity pools in trading are not just limited to one blockchain. Thanks to cross chain DeFi, you can now add tokens on one network and earn from swaps happening across several.
This opens up more choices for users. And for crypto yield farming, it is a game changer. You can jump between chains and chase the best rewards without getting stuck.
4. Staking and Pooling Are Easier Than Ever
DeFi used to feel complicated. But not anymore.
In 2025, more platforms are focusing on the user experience. If you are joining a staking pool or adding tokens to a custom liquidity pool, the process is smooth. Fewer steps. Clear instructions. More flexible options.
So. if you are exploring new decentralized finance strategies, now is a good time to get started — no deep technical skills needed.
Final Thoughts
When it comes to liquidity pools vs staking, both are thrilling ways to make money with your cryptocurrency—but they serve different purposes and come with different levels of risk.
Staking is the best option if you want something passive, straightforward, and dependable.
Liquidity pools may be a good option for more experienced investors who want to get larger returns.
In any case, be sure to do your homework on the platform, be aware of the risks and benefits of both, and never spend more than you can afford to lose.
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Frequently Asked Questions
What people commonly ask about ARMswap and its features.
Staking helps secure a blockchain and gives rewards in return. Whereas liquidity pools let people trade tokens and reward you with a share of swap fees. Although both refer to the methods that earn income, they work differently.
It depends. Staking gives steady returns. Whereas liquidity pools can give more—but at a higher risk. If the pool gets lots of trades, the rewards go up. But remember that prices can change fast too.
The biggest one is impermanent loss. If token prices change too much, your returns may drop. Also, smart contract bugs and low trading volume can affect earnings.
Not always. Some platforms have a lock-up period. Others let you unstake anytime. It depends on the network and type of staking.
With traditional staking, your tokens are locked and cannot be used. On the other hand, in liquid staking, you still earn rewards, and your crypto stays usable too. You get a token that stands for your stake. You can trade it or use it in other DeFi apps.
It happens when tokens in a pool move in price. You might get less back at the time of withdrawal than if you just held the tokens and did not put them in the pool. Even if you earn fees, the total value may drop when impermanent loss occurs.
Yes. Staking is considered more stable. Although liquidity pools give higher returns, they also have more risk. You need to watch price changes and contract safety.
Yes. Most platforms make it easy to participate in staking. You just pick a validator or join a staking pool. No need to run your own setup.
Every time someone swaps tokens in the pool, a small fee is taken. That fee is shared with everyone who added funds to the liquidity pool.
Many do. Platforms like Uniswap, PancakeSwap, and Lido offer both options. You can choose what fits your risk level and style.
Absolutely. Many crypto users split their portfolios—doing staking with one portion (like ETH staking) for steady rewards and joining liquidity pools with another portion to chase higher yields. This helps balance risk and reward across different strategies.