baking def

What Is Baking?

Baking refers to the process by which validators propose and confirm new blocks in Proof-of-Stake (PoS) blockchains like Tezos. Closely tied to staking and delegation, baking relies on a system of rewards and penalties to maintain network security and integrity.

In PoS systems, holding tokens can be viewed as possessing voting power. Users who hold tokens such as XTZ can delegate their voting rights to validators known as “bakers.” Bakers are responsible for producing new blocks and attesting to or voting on blocks proposed by others. Successful block production and participation in validation earn on-chain rewards, while violating protocol rules—such as double baking or prolonged downtime—may result in the forfeiture of a portion of the baker’s security deposit.

How Does Baking Work in Tezos?

In Tezos, baking involves bakers proposing new blocks, other nodes attesting or voting on those proposals, reaching consensus, and ultimately adding the block to the blockchain.

The process can be understood as a form of round-robin ledger keeping:

Step 1: The network selects eligible bakers to propose new blocks based on randomness and weight, where weight reflects the baker’s own stake and delegated voting power.

Step 2: Other bakers attest to or vote on the proposed block, signaling their agreement with the new ledger entry.

Step 3: Once the network’s consensus threshold is reached, the block is confirmed and broadcasted. Participants receive rewards proportionate to their stake or delegated voting power.

Consensus is the process by which the network agrees on the canonical state of the blockchain. To enhance reliability, the protocol defines time slots, rounds, thresholds, and penalty mechanisms—encouraging honest participation and penalizing malicious or negligent behavior.

What Is the Relationship Between Baking and Staking?

Staking provides voting power, and this voting power enables bakers to participate in block production and validation, earning rewards that are then shared with delegators.

In Tezos, typical token holders do not need to run their own nodes. Instead, they can delegate their voting rights to a baker. Delegation does not transfer ownership of your tokens; you continue to hold XTZ in your own wallet while allowing a baker to use your voting rights. Bakers must operate nodes, provide security deposits, and stay online per protocol requirements. They earn rewards through block production and validation, then distribute net proceeds—after deducting agreed-upon fees—to their delegators according to a transparent formula.

How Can You Participate in Baking? What Do You Need?

There are two main ways to participate in baking: delegate your tokens to an established baker or run your own baker node. For beginners, delegation is typically more user-friendly.

Step 1: Choose your method of participation. For delegation, prepare a wallet that supports Tezos delegation or use platform-based products. For self-baking, set up a reliable server with appropriate monitoring and key management solutions.

Step 2: Evaluate your chosen baker or platform. Consider their historical uptime, fee structure, reward distribution cycle, transparency, and penalty record. Public information is available through Tezos blockchain explorers like TzKT and TzStats.

Step 3: Complete delegation or subscribe to a staking product. Set your wallet to delegate XTZ to your selected baker or use platform services that facilitate XTZ staking/delegation. On Gate’s financial or staking sections, look for details and terms related to XTZ or other PoS assets.

Step 4: Track rewards and withdrawal processes. Understand reward distribution cycles, lock-up or unbonding periods, and ensure you’re aware of any required waiting periods or withdrawal procedures.

How Are Baking Rewards Calculated?

Baking rewards generally come from two sources: block inflation (issuance) and transaction fees. Rewards are allocated based on staking and delegated weight. Bakers charge pre-agreed fees, with remaining rewards distributed proportionally to delegators.

Factors affecting reward amounts include:

• Weight: Greater staked or delegated voting power increases chances of being selected for block proposals and attestations.
• Uptime and Performance: Consistently online nodes with low latency minimize missed opportunities for baking or attesting.
• Fees and Distribution Cycles: Different bakers set varying fees and payout schedules, directly affecting net returns for delegators.

As of 2025, annualized yields on major PoS networks generally range from single-digit to low double-digit percentages, depending on protocol parameters, network activity, and baker performance. Current rates can be checked via Tezos explorers or platform product pages.

What Are the Risks of Baking? How Can They Be Mitigated?

Baking involves both financial and technical risks that require active management.

Slashing Risk: If a baker double bakes or commits serious violations, part of their security deposit may be slashed. Delegator earnings can be impacted. Choosing reputable bakers and diversifying your delegations can reduce single-point risk.

Operational & Technical Risk: Node downtime, network failures, or key leaks can affect block production and rewards. If you run your own node, ensure redundancy, proper monitoring, and emergency procedures are in place.

Platform & Custody Risk: When using third-party platforms, check whether they perform on-chain delegation, how assets are held in custody, and what withdrawal/lock-up terms apply. Review all product details and risk disclosures carefully on Gate before participating.

Price & Liquidity Risk: Token price volatility affects actual returns; if there are lock-up or unbonding periods, it may be difficult to liquidate quickly. Familiarize yourself with timing cycles in advance and plan your finances accordingly.

How Does Baking Differ from Other PoS Mechanisms?

Baking is a term unique to the Tezos ecosystem but functionally aligns with block production and validation in other PoS networks. The differences lie mainly in operational parameters and user experience.

Compared to chains like Ethereum, requirements for running validator nodes, lock-up/unbonding procedures, slashing details, and delegation experiences vary. Some networks enforce strict staking collateralization and exit queues; Tezos emphasizes flexible delegation and transparent distribution. Similar to Cosmos’ delegation model, users “assign voting rights to professional nodes” by selecting validators and fee structures—but specific reward cycles and penalty rules are determined by each network’s protocol.

What Are the Key Takeaways About Baking?

Baking is the process of block production and validation on Tezos-style PoS chains. It leverages staking and delegation to form voting power, using rewards and penalties to ensure validator honesty and uptime. Beginners are generally better served by participating via delegation—focusing on stable, transparent bakers or reputable platforms, understanding reward sources/distribution cycles, and being aware of operational, penalty, and liquidity risks. Careful study of protocol rules, product terms, diversified delegation, and maintaining transparency are prudent approaches for safer participation.

FAQ

How many Tezos tokens do I need to start baking?

To bake directly on Tezos, you need at least 6,000 XTZ as the minimum required stake. If you have less than this amount, you can participate by delegation—assigning your tokens to a qualified baker to earn rewards without running your own node or handling technical operations.

What is the annualized yield for baking?

Tezos baking typically offers annualized yields between 5% and 8%, depending on network conditions such as difficulty level, number of participants, and current inflation rate. Rewards are distributed regularly to your wallet; however, be mindful that fees and network fluctuations may affect your actual returns. Check platforms like Gate for the most up-to-date yield data.

Will my tokens be locked if I delegate them to a validator?

When you delegate XTZ tokens in Tezos, your assets remain unfrozen in your wallet—you retain full control for transfers or trades at any time. However, poor validator performance or penalties may impact your earned rewards. That’s why it’s important to choose reliable validators with strong operational track records.

How much do bakers lose if they get penalized?

Tezos employs a relatively mild slashing mechanism: instead of fully confiscating tokens, only a portion of rewards is deducted for infractions. This approach aims to incentivize honest behavior while not overly punishing accidental failures. Severe or prolonged misbehavior results in larger deductions from earnings.

How is baking related to Tezos governance voting?

Both bakers and XTZ holders can participate in Tezos’ on-chain governance votes—deciding on network upgrades or parameter adjustments. Bakers wield more influence due to their aggregated voting power; however, even regular holders can participate by delegating their votes through bakers. This reflects Tezos’ commitment to decentralized governance principles.