Summary: ETH staking is a great way to generate wealth with your Ethereum that would otherwise be sitting idle. In this article, we find the best rates for Ethereum staking, different staking strategies, and the myriad ways in which you can maximize your ETH returns.
|Source||APY||Min. Stake||Amount Staked||Fee||Type|
|Aave||1.68%||0.01ETH||38,654||Variable (ETH gas fees)||De-centralized|
4 Ways to Stake ETH
There are at least four different ways in which crypto investors can stake their ETH on the Ethereum Proof-of-Stake blockchain. From billionaire crypto whales to first-time investors, there is an ETH staking option for everyone out there.
We’ll cover each option, with the difficulty level for each, as well as the “regulation risk” that the government will shut it down.
1. Solo Staking (Validator Node)
Difficulty level: High
Regulation risk: Low
In a Proof-of-Stake blockchain network like Ethereum, a validator is a computer that is dedicated to maintaining the security and integrity of the entire system. To run a validator node on Ethereum 2.0, you need to stake 32 ETH (roughly $50,000 at the time of this writing).
The process of staking 32 ETH and running a validator node on your own is called solo staking. Along with the ETH, you will also need a reasonably high level of knowledge about network software and hardware maintenance.
Solo staking involves:
- Setting up a dedicated computer system.
- Running and syncing an execution layer client.
- Running and syncing a consensus layer client.
- Generating and managing your keys.
- Maintaining both the hardware and software of your node.
Needless to say, solo staking is a major responsibility. But you are a full contributor to the Ethereum network, and you are rewarded a portion of the gas fees paid by those who use it.
Advantages of Solo Staking
- Earn more ETH without paying any fees to middlemen.
- Retain full control of your investment and keys.
- A more secure form of staking.
- Better for the long-term health of the Ethereum blockchain.
Disadvantages of Solo Staking
- Needs a high capital investment.
- Requires knowledge of blockchain and computer hardware.
- The burden of security (and uptime) rests on your shoulders alone.
2. Staking as a Service
Difficulty level: Medium
Regulation risk: Medium
This is a business model where a third-party company runs a validator node on your behalf. All you have to do is provide the 32 ETH staking capital. For a fixed fee, the firm will handle the installation, programming, and maintenance of your validator node.
Staking as a Service is an option if you have 32 ETH to spare, but lack the knowledge and experience in configuring and running a validator node on your own. You can delegate the technical tasks to the company while still retaining control of your validator keys.
With the rise of ETH 2.0, many firms have started offering Staking as a Service. Stake.Fish, featured on our shortlist, is one such firm that charges a flat commission of 0.1 ETH for its services.
If you want to find the best staking as a service firm, look for these features:
- Uses 100% open-source code.
- Provides formal auditing results of all essential code.
- Has a bug bounty system to reduce the risk of vulnerabilities.
- Service has undergone proper battle-testing.
- There are KYC, account signup, or special permission requirements.
- The company has a diverse array of independent validator clients.
- You get full custody of all validator keys.
Staking as a Service is a model that has some clear advantages and some weaknesses as well, depending largely on your proficiency in the technical aspects of cryptocurrencies and blockchain networks.
Advantages of Staking as a Service
- Beginner friendly – no need for advanced knowledge about blockchain.
- You don’t have to worry about security and network uptime.
- You still retain control of your investment via ownership of validator keys.
- You don’t have to invest money into IT hardware
Disadvantages of Staking as a Service
- A percentage of your rewards will go to the company as service charges and fees.
- The security of your investment is in the hands of a third party.
- You have to handle the hassles of KYC and other signup formalities.
3. Pooled Staking
Difficulty level: Low
Regulation risk: Low
The vast majority of crypto enthusiasts do not have the resources to run a solo validator node. Pooled staking is the next best option: investors pool their money together via pooling platforms. Once the pool reaches 32 ETH, the platform deploys it to activate a validator node, and the members of the pool share in the rewards.
The important thing to keep in mind is that these staking pools exist outside the Ethereum blockchain. The majority of staking pools operate in a decentralized manner, with trustless and permissionless processes.
Importantly, this means regulators would have a hard time shutting them down.
Many of these platforms rely on smart contracts to operate the system. Some of them also provide native liquidity tokens to investors. These tokens act like shares, representing your stake in the pool.
Lido and RocketPool are two popular examples of decentralized pooled staking protocols for Ethereum.
Advantages of Pooled Staking
- Most protocols have very low deposit limits.
- No need to worry about setting up a node.
- Liquidity tokens can provide added value and rewards.
- You can hold liquidity tokens in your wallets.
Disadvantages of Pooled Staking
- You have to rely on third parties.
- You have no control over the validator nodes.
- Platforms often charge a flat fee out of your rewards.
4. Centralized Exchanges
Difficulty level: Low
Regulation risk: High
At the opposite end of solo staking, you have staking via centralized exchanges. Major crypto exchanges like Binance, Coinbase, and Crypto.com operate large staking pools that attract tens of millions of dollars from small investors.
While centralized exchanges offer a range of convenient features, they also retain full control of your invested ETH. You don’t have access to validator keys and enjoy none of the privileges of running a node on your own.
From a long-term perspective, however, having a few powerful exchanges take control of multiple validators is probably not good for the health of the Ethereum PoS system. And they are higher risk for regulators.
Advantages of Centralized Exchanges
- Gives access to staking for as low as 0.001 ETH.
- Requires minimal oversight or effort.
- You don’t have to hold funds in your wallet.
Disadvantages of Centralized Exchanges
- They may charge service fees and withdrawal fees.
- Centralized exchanges may have security risks.
- You have no power over the staking nodes.
- Honeypots for regulators.
Before Staking ETH, Please Read This
The Ethereum Merge is not a done deal. There are still many upgrades to come, chief among them the Shanghai Update, which is expected to drop in 2023. It is expected to improve Ethereum 2.0 further, with a host of vital changes.
Until that happens, you will have to consider these important factors that will remain unchanged for the immediate future of ETH staking:
An estimated $22 billion of ETH is currently locked on the Ethereum 2.0 blockchain. But investors cannot withdraw their staked ETH, until at least the Shanghai upgrade in 2023. If you invest money in a solo validator node, that money will stay locked until then.
With pooled staking and centralized exchanges, you may have the option to trade your liquidity token to withdraw your share of stake indirectly from the pool. Such tokens usually have their value pegged to ETH at a 1:1 ratio.
Compared to returns of around 9% from late 2021, ETH staking rewards on many pools have dropped to around 4.4% on average since the Merge. There are several reasons for this:
- The macro-economic situation across the world has subdued demand for crypto.
- There is an ongoing crypto winter with low on-chain activity.
- Even more investors are creating validator nodes on Ethereum 2.0.
Crypto staking rewards are determined by a combination of factors, including on-chain activity, crypto prices, demand for the token, and the number of validators. When there are more validator nodes, the staking rewards will be spread thinner.
Investing in Future DeFi Potential
The current APY from ETH staking is comparable to US Treasuries, which are one of the most trusted investment assets on the planet. Yet the enthusiasm for ETH validator nodes has not dimmed, even with a lock on withdrawals, because staking rewards are paid in ETH.
Investors are bullish on the unique position held by Ethereum in the wider crypto ecosystem. Most DeFi apps and smart contracts rely heavily on ERC-20 tokens. This technology is built almost entirely on Ethereum, making it a fundamental platform for the future of finance. Owning ETH, we believe, is like investing in the Ethereum “company.”
As economic conditions improve, and further upgrades reduce ETH gas prices and improve scalability, staking rewards may see a huge jump. And the price of ETH may jump as well. You’ll never get that potential upside with US Treasuries.
Investor Takeaway: To Stake or Not to Stake?
Inflation is high and interest rates are rising, with many believing a recession may be around the corner. The next few years could be rough for investors, both in traditional and crypto markets.
But we believe that Ethereum has a bright future ahead of it, based on the success of The Merge. Here are some options for staking ETH in 2023:
- Solo Staking/Staking as a Service: For those who can afford it, this option provides maximum rewards in the long run.
- Decentralized Staking Pools: For investors unwilling to spend 32 ETH, this gives you a measure of control and autonomy.
- Centralized Exchanges: For those investing small sums, this is by far the most user-friendly option (but it comes with regulatory risk).
We don’t recommend staking if you need that money for other goals like retirement, basic expenses, and debt repayments. But if you do have some money to spare, consider pooled staking in a permissionless, trustless, battle-tested protocol like Lido or Rocket Pool.
Staking is not a short-term investment, particularly with a long-term token like ETH. To enjoy its future potential, be patient.
HODLing + staking = the best long-term rewards.