Ethereum holders can stake their assets from instruments such as single staking, independent staking pools, or liquid staking protocols. Each method is different and has both benefits and risks. Below, we will consider them in more detail so that you can choose the appropriate option for yourself.
Merging Ethereum with Proof-of-Stake
Very soon, Ethereum will merge with Proof-of-Stake, allowing holders of Ethereum tokens to get good benefits. This merger will cause the Ethereum blockchain to completely abandon the Proof-of-Work consensus mechanism, replacing it with Proof-of-Stake. This means that the blockchain will no longer rely on miners but on validators to validate transactions. As a result, ETH holders can test the network by staking their assets, for which they can earn income. Leading up to this historic event, we will detail how Ethereum token holders can use their assets to make money.
Ethereum Liquid Staking Protocols
The most popular ETH staking method is liquid staking protocols, of which Rocket Pool and Lido are the largest on the market. Token holders can freeze their ETH and be rewarded with the same tokens that represent their deposited assets. To delegate your assets to liquid staking protocols, you need an Ethereum wallet. Lido is currently offering 3.8% APR, Rocket Pool is offering 3.61% APR for staking, and 4.84% APR for those who want to stake their ETH and run a node.
This method has the advantage of obtaining a liquid token. When users receive an ETH token representing their deposit, they can use it in DeFi protocols to increase returns.
Liquid staking protocols take the choice of validators very seriously. For example, Lido has a whitelist of industry-leading staking providers and a scorecard to track the performance of the protocol’s staking. Rocket Pool has chosen a different tactic to spread the losses associated with unreliable validators throughout the network. This helps to avoid substantial losses on the part of individual users, but at the same time, all network users can suffer (albeit to a small extent).
Rocket Pool and Lido are leaders in the liquid stakes game, with $590 million and $7.5 billion in liquid stakes, respectively. With Lido vastly outperforming its competitors, many members of the Ethereum community are concerned that this could lead to a decrease in the network’s decentralization. According to Dune, the protocol currently handles just over 30% of all ETH staked, which is a huge number.
A big risk of staking ETH is the reduction, where the network can penalize a validator’s failure or misbehavior by burning their staking. Protocols can also suffer from exploits or bugs, adding to the list of possible risks.
Staking Eth on Crypto Exchanges
Many cryptocurrency exchanges offer convenient ways to stake ETH to generate income. For example, exchanges like Binance or Coinbase offer staking services to their users and plan to support Proof-of-Stake Ethereum even after the merger. In terms of interest, Coinbase offers around 3.28% per annum and Binance up to 5.2%.
This type of staking is one of the easiest to earn. Many major exchanges require users to pass KYC (Know-Your-Customer) authentication to open an account. The risks include the fact that centralized exchanges are custodial. This means that users trust their funds to third parties. Over the years, there have been several cases where users lost everything after they entrusted their assets to companies. Although there are not too many such examples, they took place.
Despite this, centralized exchanges provide a convenient and fairly secure channel for staking ETH. Coinbase also points out that users can be compensated for rate cuts even if the cause is beyond the exchange’s control. This, in turn, gives at least some guarantee to the validators.
Coinbase, Kraken, and Binance control 14.5%, 8.3%, and 6.6% of the total ETH market share. For this reason, they are the largest company in this field after Lido. All this leads to some concerns about centralization. Furthermore, fuel is added to the fire by the US Treasury Department, which has imposed sanctions against Tornado Cash. In this regard, there are some risks that US exchanges such as Coinbase and Kraken may be asked to censor transactions at the base level of Ethereum. This may lead to a reduction in the share of the community. On the other hand, representatives of Coinbase reacted to this, saying that they would consider censorship an attack on the network.
How to Stake Ethereum Solo?
One of the most obvious but difficult ways for ETH holders to make money on their assets is to create their validator. This requires expensive special equipment, a reliable Internet connection, and the availability of ETH tokens. On the other hand, it is easier than running your mining farm. According to Ethereum, single staking is currently generating 4.1% per annum. However, this figure is expected to rise to 8% after the merger. In addition, all participants contribute to the decentralization of Ethereum, for which they are rewarded without having to pay a management fee.
In addition to the benefits of single betting, there are also risks associated with it. If the Internet connection is interrupted or unstable, there is a big risk of losing the funds of the validators. For this reason, users must provide stable internet to ensure the network runs smoothly. Apart from this, validators must also manage their private keys and update their client software regularly. For this reason, validation can hardly be considered a passive income system. There is also a risk of losing 32 ETH if the user makes a mistake while setting up the node. And since blockchain transactions are irreversible, there is a risk of losing a large amount of money permanently. Thus, solo staking is only recommended for advanced users.
Eth Staking Pools and Staking-as-a-Service Providers
A staking pool is a term for a staking service provider that allows users to deposit even small amounts of ETH into a pool. This is a great option for those who have a lower deposit rate. This is because Ethereum requires users to deposit 32 ETH to become a validator, which is currently over $54,000. Crypto exchanges such as Lido, Rocket Pool, and Coinbase have their own staking pools that can be used to stake ETH and earn staking rewards.
Depositing ETH to an independent pool is fairly simple and as fast as depositing through Lido. The main task is to choose the right pool. In the case of Ethereum, you need to know if the pool is open source if it supports nodes without permissions if there is a reward for finding bugs and bugs, etc. Talking about centralized organizations is worth paying attention to reputation, security architecture, asset size, and market position.
Delegating to an independent staking pool is the catalyst for decentralizing the entire Ethereum system. At the moment, independent staking pools and single validators account for slightly less than half of the network’s staking power. On the other hand, they are usually more profitable.
In addition, ETH holders can use the Staking-as-a-Service platform to stake their assets. Such platforms and providers allow users with large amounts of ETH to rent a validator and delegate operations to a third party. It is considered a safer and more profitable investment than independent pools. However, they are available for users who have 32 ETH. It is worth noting that independent staking pools and SaaS platforms may have the same exploits, bugs, etc., that centralized exchanges have. All this exposes users to the same common risks on other platforms.
Conclusion
As you can see, there are several ways to earn money for ETN holders. However, potential players should consider that all ETH placed on the network is currently locked and will not be available for extraction for some time, even after the merge. This applies to all staking activities, whether liquid staking protocols, exchanges, or single verification. According to Ethereum, withdrawals will be allowed half a year after the merger, but there is no exact date. Those who don’t want to wait should consider staking Ethereum. Also, it would help if you understood that staking is optional and many prefer to keep their savings in cold storage wallets or exchanges. This is the safest and most reliable option, although less profitable. Assess all risks before making a decision.
FAQ
Ethereum networks are currently successfully merging. This transition from proof of work to proof of stake is sustainable. This could reduce global electricity consumption by 0.2%.
After Merge, the Mining of new blocks in the Ether network on computer resources stopped working. Those who hold a lot of Ethereum in their wallets have the greatest impact on the ecosystem and profits.
In this case, there is no way to unstake the ETH stakes in the beacon chain. However, exchanging the StETh balance for regular ETH is possible in this case.
Probably yes. While the price per token is already very high, it will likely change after the merger.
All the methods described in the text can help you do this. However, each of them has its advantages, disadvantages, and risks. So carefully analyze them before making a final decision.