Where Are Staking and Farming Headed

This guide is part of the “Guide to Staking Crypto” and “Guide to Yield Farming” series.

Staking and yield farming have been the heart of DeFi’s passive income story over the last few years. Back in 2020-2021, crypto enthusiasts were all about chasing high APYs, no matter how unsustainable it seemed. But as the dust settled, the industry is now transitioning to real longevity, which comes from several factors: increased efficiency, strong risk management for average users, and the connecting of crypto to mass markets. 

Today we will analyze the most likely path ahead. We’ll revisit what staking and yield farming showed us in the past, explore the trends that are shaping them today, and look at the regulatory pressures that will ultimately decide which models thrive and which will collapse.

The industry is now making yield more sustainable, capital allocation more efficient, and risk more manageable, all of which is adding to real-world value.

Staking and yield farming today

At their core, both staking and yield farming are about putting your crypto assets to work.

In Proof-of-Stake (PoS) blockchains, staking is the backbone of network security. By staking, you’re actually helping the system, making it stronger and more resilient. You do this by locking up tokens to validate transactions, and then you earn new ones in return. Without stakers, chains like Ethereum or Solana wouldn’t function safely.

Yield farming, on the other hand, comes from the world of decentralized exchanges and liquidity pools. Instead of securing a blockchain, you supply liquidity or lend assets to smart contracts. These smart contracts run all sorts of financial services with your tokens. In return, you earn fees, governance tokens, or extra rewards. Yield farming has quickly become a playground for tech-savvy investors chasing returns that overperform what other markets could offer.

The thing is, these models are not perfect, and there are some aspects you need to know about how these processes work. Staked tokens are often locked, leaving your capital underutilized. Then, if you’re a liquidity provider, you can sometimes face impermanent loss when the invested token prices move apart from each other. 

Then we have bugs and hacks in smart contracts that are a constant risk. Finally, as you will see in many early projects, rewards were inflated away by printing tokens with little real value behind them. These weaknesses are why staking and yield farming were in need of change, and now, after addressing these issues, we are entering a new chapter.

Four key trends shaping the future

The next wave of DeFi (decentralized finance) is about making yield in a smarter way, creating more sustainable projects, and getting more integrated into the broader financial system. Four trends stand out.

Liquid staking derivatives

Until recently, staking meant locking your tokens up and forgetting about them. Liquid staking changed all that. Platforms like Lido (with stETH) and Rocket Pool (with rETH) issue you a liquid token that you can restake. That token represents your staked position but can also be traded, lent, or used in your other DeFi strategies.

This is a game-changer for capital efficiency. Your ETH can secure the Ethereum network while its liquid token gets deployed into lending protocols or liquidity pools. This double-dipping system has given rise to an entire sub-sector called LSDfi or Liquid Staking Derivatives Finance.

Looking ahead, we are expecting liquid staking to expand across many blockchains, not just Ethereum. Wrapped and non-rebasing tokens like wstETH (the wrapped version of Lido’s stETH token) will see broader adoption because they integrate amazingly with other DeFi apps. We currently see how big institutions are exploring staking, I’m sure they too will prefer liquid formats that fit neatly into their portfolios.

Restaking is the new frontier of shared security

If liquid staking freed up capital, restaking then multiplies its utility. Instead of staking once and stopping there, restaking allows those same assets to secure other protocols and earn extra yield for you. EigenLayer has led this concept by letting users restake ETH or liquid staking tokens to support services like data availability and oracles. 

The upside is obvious, the more yield sources, the stronger security for smaller protocols. But as usual, there are risks. If a service you help secure fails or misbehaves, you can face slashing penalties, which means you can lose part of your original stake. Risk rises as more moving parts get layered on top of each other.

From what we can see now, restaking is growing rapidly. We expect liquid restaking tokens (LRTs) to spread quickly, by giving users flexibility while compounding their yield. In the near future, tools for measuring and pricing slashing risk will become widespread and common, just like APY calculators. For now, CoinMetrics has a slashing metrics API, which is designed to give you data about validator slashing events across the major networks (Ethereum, Cosmos chains, etc.).

Real-world assets and tokenization

One of the industries biggest promises has been the merging of digital finance with the world of traditional banking. Tokenization is supposed to be the bridge. By converting assets like real estate, private credit, or treasury bonds into blockchain tokens, they can be integrated into DeFi just like ETH or USDC.

For yield farming, this is huge. Instead of returns based purely on inflationary tokens, protocols can tap real cash flows like rents, loan interest, and bond payments. This shift makes yields more stable and more appealing to institutional players who demand a sustainable yield.

The outlook for this is very promising to everyone involved. Better standards for tokenization, stronger audits, and regulatory frameworks will open the door to institutional players. Pension funds, insurance companies, and banks, to be specific. DeFi could end up as a new infrastructure layer for traditional finance, crypto has already proven itself to be a lasting experiment.

AI, automation, and yield aggregators

I remember in the early days, yield farming required hours of manual research and constant monitoring of the pools. Yield aggregators like Yearn Finance came along and simplified this by pooling user funds and automatically deploying them to the best opportunities. The next technological leap will come from AI and machine learning.

Imagine token vaults that analyze thousands of pools in real time, forecast APY changes, and shift everyone’s funds automatically. How amazing it will feel to reduce impermanent loss or catch a short-term yield spike without doing anything yourself. These smart yield aggregators will likely be able to tailor strategies to our preferences – aggressive or conservative management.

We’ve already seen automation in other markets, so this will feel like having a robo-advisor except for DeFi investments. The move from manual farming to AI-driven portfolios will make yield farming less time-consuming and more accessible to everyday investors.

The shifting landscape: risk and regulation

Of course, no future is shaped only by technology. Regulation will be a decisive factor.

Authorities are taking a harder look at staking, yield farming, and especially liquid staking tokens. The SEC has suggested that under certain conditions, LSTs may not be securities, which reassures large investors. But the picture remains unclear, but one thing is for certain compliance with KYC and AML rules will be everywhere as the industry grows. And I bet the transition to real-world asset tokenization will attract even more scrutiny from lawmakers, since it blends crypto tokens with off-chain legal rights.

Risk management is maturing along with the industry. A quick audit isn’t enough anymore. Investors are looking for on-chain insurance options, more stable validator sets to avoid single points of failure, and governance that’s transparent rather than hidden behind a few insiders. 

For liquid staking tokens, stability goes beyond smart contracts. It’s about keeping the token closely tied to the value of the asset it represents. If you hold stETH or rETH, you want the assurance that you can sell it without taking a big hit financially and that you can exit your position when the time comes.

As DeFi’s yield engine matures

The story of DeFi is moving away from raw speculation into layered sustainability. Liquid staking frees up capital, and by restaking, multiplies it. Soon, we may see tokenized real-world assets that can be used to ground DeFi, and AI yield aggregators that will optimize it. 

When you add in other cryptocurrencies and Layer 2 solutions, the next era of cryptocurrency looks more promising than anything we’ve ever seen before.

But the future won’t belong to those who chase the highest yield. It will belong to those who design their financial strategy for sustainable yield, and to those who understand risks like impermanent loss and slashing.

The key takeaway today is that the next wave of staking and yield farming is coming. The next wave will be about innovation, automation, and real-world value. Smart investors like you will be asking the right questions, such as, “Does staking here strengthen the network, or just recycle capital without adding value?” Instead of focusing only on yield, you’ll be thinking about whether the system is designed to last. That shift in mindset is what will separate those who simply earn for a season from those who build lasting wealth as DeFi matures.

Comparison Table of Key Trends in Staking and Yield Farming

Trend	What is it	Opportunities	Watch out for
Liquid staking derivatives (LSDs)	Tokens like stETH or rETH represent staked assets while remaining tradable and usable in DeFi.	Capital efficiency, enables LSDfi, expands to other chains, attractive for institutions.	Peg stability risk, smart contract vulnerabilities, and concentration of staking power in large providers.
Restaking	Using staked assets (or liquid versions) to secure additional services via protocols (like EigenLayer).	Extra yield sources, shared security for smaller protocols, and a growing ecosystem of restaking services.	Compounded slashing risk, higher complexity, and governance uncertainty.
Real-world assets (RWAs) & tokenization	Converting off-chain assets (bonds, credit, real estate) into blockchain tokens usable in DeFi.	Provides sustainable yield, ties returns to real cash flows, opens DeFi to traditional finance.	Regulatory scrutiny, legal enforceability, valuation transparency.
AI automation & yield aggregators	Smart vaults and aggregators (e.g., Yearn Finance) that deploy capital automatically	Hands-off farming, optimized strategies across chains, reduces the entry barrier for new users.	Reliance on algorithms, potential black-box decision making, smart contract, and oracle risk.

Fig. 1 – Key Trends in Staking and Yield Farming

The future of staking will be shaped by how well these systems evolve to deliver sustainable rewards and value for the entire ecosystem.