In September 2022, the Ethereum blockchain received its biggest upgrade to date. The Merge upgrade moved Ethereum from Proof-of-Work over to Proof-of-Stake. The transition to Proof-of-Stake has made the Ethereum much more environmentally friendly and also laid the foundation for future upgrades, which will significantly improve the scalability of the network.
With the introduction of Proof-of-Stake on Ethereum, ETH holders now have the opportunity to stake their coins and earn staking rewards in the form of additional ETH. In this article, we’ll explain Ethereum staking and present the different options ETH holders have when it comes to earning staking rewards.
Key highlights:
- The Ethereum network transitioned to a Proof-of-Stake consensus mechanism in September of 2021.
- This means that ETH holders can now stake their ETH to provide additional security to the network and earn rewards.
- If you want to run your own validator, you need 32 ETH.
- If you don’t have 32 ETH, you can still earn staking rewards. You can use liquid staking protocols such as Lido or stake your ETH with the help of a crypto exchange.
- We explain all the different ways of staking ETH and highlight the benefits and disadvantages of each.
What is Ethereum staking?
Ethereum now uses a Proof-of-Stake consensus mechanism, in which validators stake ETH in exchange for participating in the consensus process. Validators are rewarded for adding new blocks to the Ethereum blockchain and for checking that blocks proposed by other validators follow the protocol’s rules.
Validators that are reliable and act in the best interests of the network receive ETH as a reward. At the time of writing, validators on Ethereum are earning an APR (annual percentage rate) of about 4%. If you’re investing in Ethereum and don’t plan to sell in the short term, staking ETH is certainly worth considering to passively grow your ETH holdings.
The rewards earned by each validator depend on the total number of validators that are active on the Ethereum network, as well as network activity (more activity means more potential income from transaction fees).
The catch is that validators who are not reliable or are found to be breaking the rules are punished by having a portion or the entirety of their ETH stake taken away.
Who can stake ETH?
In order to launch your own validator, you need to have 32 ETH. At the time of writing, this translates to about $57,000, so it’s definitely not accessible to everyone from a financial perspective.
However, the good news is that there are still ways to earn staking rewards with your ETH even if you don’t have the 32 ETH required to launch your own validator. We’ll discuss the different ways to stake ETH a bit further below in the article.
Initially, staked ETH coins could not be withdrawn. However, this was changed with the Shapella upgrade in April of 2023, which gave users the ability to withdraw their staked coins.
Where to stake ETH?
There’s four distinct options for ETH holders that want to stake their ETH and earn staking rewards.
- Solo staking
- Staking as a service
- Staking pools
- Staking through crypto exchanges
However, solo staking and staking as a service are limited to those that have at least 32 ETH.
Do you have 32 ETH to stake?
If you have 32 or more ETH to stake, you can access solo staking or staking as a service solutions. Of course, you can also use other ways of staking ETH that are also available to users that have less than 32 ETH to stake.
Solo staking
Solo staking involves launching your own Ethereum validator and maintaining it yourself. Each validator you run requires a stake of 32 ETH.
When you’re solo staking, you’re directly participating in the consensus process of the Ethereum blockchain and contribute to the network’s decentralization. In addition, you remain in full control of your private keys and receive full staking rewards directly from the Ethereum protocol. This is why the Ethereum Foundation describes solo staking as the “gold standard” for Ethereum staking.
While solo staking certainly has a lot of benefits, it is the least accessible way to stake ETH for the average person. The most obvious barrier to entry is that you need at least 32 ETH, which is simply out of reach for most Ethereum investors. Operating a validator also requires some technical expertise, and you need to ensure that your validator stays online continuously to avoid inactivity penalties.
Staking as a service
There are various staking as a service providers that offer to manage one or more Ethereum validators on your behalf. When using these services, you’re required to provide ETH (32 ETH per validator). In most cases, you get to keep control of your private keys, which is a plus.
Of course, staking as a service providers need some form of compensation for operating validator nodes on your behalf. So, while your validators will be earning ETH staking rewards directly from the Ethereum protocol, you will have to pay a fee to the service provider to keep your validators up and running.
So, staking as a service can be a good option if you have the sufficient amount of ETH to have your own validators but don’t want to deal with the technical aspects of setting up a node and keeping it operational.
Overall, your returns will be slightly lower than what you’d get with solo staking as you’ll have to pay a fee to the provider. Some examples of staking as a service providers are BloxStaking and Abyss Finance.
Do you have less than 32 ETH to stake?
If you don’t have 32 ETH to stake, you can’t engage in solo staking, but there’s other options available to you.
Staking pools
Staking pools take ETH deposits from multiple users and pool them together to launch Ethereum validators. This makes it possible for anyone to stake their ETH, even if they don’t have 32 ETH themselves.
Staking pools are a very popular way of staking Ethereum, and many of them offer liquid staking, which is a very handy feature. Here’s two examples of the top two Ethereum staking pools available today.
Lido
Lido is a liquid staking solution that supports multiple blockchains, including Ethereum. Lido is the most popular way to stake Ethereum. At the time of writing, over 30% of all staked ETH has been staked through Lido.
After staking your ETH through Lido, you will receive an equivalent amount of stETH tokens, which represent your staked ETH and any accrued rewards. These stETH tokens can be used in DeFi protocols or even sold if you need liquidity.
However, you should keep in mind that the stETH to ETH exchange rate is usually skewed in favor of ETH, so you will likely receive a bit less than 1 ETH for each stETH you sell. Of course, you are also able to redeem your stETH for staked ETH on a 1:1 basis.
Rocket Pool
Rocket Pool is also a liquid staking solution that allows users to stake smaller amounts of ETH. The minimum amount of ETH that can be staked through Rocket Pool is 0.01 ETH, which makes the service highly accessible.
When you stake ETH through Rocket Pool, your staked coins and accrued rewards are represented with rETH tokens. Similarly to stETH, you can use rETH in any way you please. rETH holders can redeem their tokens for ETH on a 1:1 basis.
Overall, staking pools are a good option for anyone that’s looking to earn Ethereum staking rewards but has less than 32 ETH to stake.
Crypto exchanges
Many cryptocurrency exchanges offer Ethereum staking services to their users. For example, you can stake your Ethereum on Binance, which is a solid option since you will be able to retain liquidity thanks to BETH, a token that represents ETH staked through Binance.
When staking through an exchange, you deposit ETH to the exchange. The exchange then pools together ETH from multiple users to deploy Ethereum validators. The rewards earned by these validators are then distributed to the users who staked their ETH, but the exchange will typically take a cut from the rewards as a fee for the service they provide.
Staking through exchanges is probably the most convenient way to earn Ethereum staking rewards, but it also requires the most trust. When you deposit your ETH to a centralized crypto exchange, you have to trust that they will manage your funds responsibly. In addition, there could be a negative impact to the decentralization of Ethereum if exchanges control a large number of validators.
Comparison of Ethereum staking methods
Now that we’ve briefly explained each different Ethereum staking method, let’s do a quick comparison of their pros and cons.
Minimum amount Pros Cons Solo staking 32 ETH
- Full control over staking setup
- Receive full rewards
- Contributes most to decentralization
- High barrier to entry
- Requires technical knowledge
Staking as a service 32 ETH
- Much simpler than solo staking
- Keep control of keys required to withdraw or transfer staked ETH
- Service providers take a fee
- High barrier to entry
Staking pools Small (0.01 ETH or less)
- You can stake smaller amounts of ETH
- Many staking pools offer liquidity tokens
- Non-custodial options available
- Smart contract risks
- Liquidity token price fluctuations
Crypto exchanges Small (0.01 ETH or less)
- Very convenient way of staking ETH
- Many exchanges offer liquid staking options
- Requires trust in the exchange
- Exchange takes a cut of the rewards
- Centralization risks
Ethereum “restaking”
Recently, the concept of Ethereum “restaking” has started to gain traction in the crypto community. Through protocols such as EigenLayer, users who own staked ETH can choose to “restake” their coins to help provide security to applications that function on top of the Ethereum network. Essentially, this means that staked ETH can be used to validate networks and services other than the Ethereum mainnet, allowing users to earn additional rewards on top of the standard ETH staking yield.
Currently, the most popular Ethereum restaking protocol is EigenLayer, which supports restaking both for ETH as well as liquid staking tokens such as stETH and rETH. Please keep in mind that restaking is a relatively new concept and doesn’t have a long track record in real-world conditions. If you’re using a protocol such as EigenLayer to restake your ETH, you could be taking on substantially more risk than if you just kept your coins staked normally.
The bottom line—ETH staking is a good choice for long-term holders
Ethereum staking is worth it if you’re an ETH holder and plan to hold your coins over the long term. This is already the position of many ETH holders, as Ethereum is widely perceived as one of the best cryptocurrencies to hold for the long term. Before deciding whether staking is right for you, make sure to check the current ETH staking rewards to see what kind of APR to expect.
If you’re also interested in cryptocurrencies other than Ethereum, check out our list of the best cryptocurrencies to buy right now.
