At the end of the last year, on December 1, the long-awaited new version of the Ethereum network was launched. So, now anyone who is familiar with cryptocurrencies and ETH can potentially become a validator in this network. This means, a new opportunity for passive income emerged.
Staking in Ethereum 2.0 is blocking ETH in a smart contract to participate in the network as a validator and receive a reward for confirming blocks. Staking became possible after the launch of a new version of the network on the Proof-of-Stake (PoS) consensus algorithm. This consensus algorithm is similar to well-known mining, but instead of using computational resources validators block coins in the wallet to run a special node.
To become an Ethereum 2.0 validator, you need to block at least 32 ETH for staking which is quite a lot for an average crypto investor. At the moment I’m writing this 32 ETH is more than roughly $80,000. So, this is a problem that I want to find solutions for in this newsletter. How can an average investor stake ETH 2.0?
A few important things before we start:
APY isn’t regular. The more ETH is staked, the lower the APY will be. Calculations in this article are based on the current APY of the day I’m writing this.
You won’t be able to withdraw your stake until future upgrades are deployed (it can take 1-2 years easily). Withdraws will be available in a minor upgrade following the merge of the mainnet with the Beacon Chain.
This is not investment advice. Do your own research and understand all the risks.
A pool is an intermediary for people with less than 32 ETH, pooling their ETH for joint staking. Staking rewards are distributed among the pool members in proportion to the shares of how much ETH they distributed. Storage is decentralized, transparent, and secured by a smart contract. Pools charge staking fees, and some services have a limit on the minimum amount of ETH to be deposited. Most staking pools issue tokenized versions of staking-locked ETH like rETH. These ERC-20 tokens represent not only ETH but staking income as well. Tokens can have the same symbol or name. But if they are not issued by the same pool, they are different assets with different liquidity.
The list of active pools and their comparative analysis can be found HERE.
Let me take you through some examples. For instance, let’s check, for example, 2 of the top providers, Ankr and Rocket Pool.
Staking via Ankr is quite comfortable but still, there is a limitation of the minimum amount of ETH to be staked. The user would stake at least 0.5 of ETH, equal to roughly $1,150 as of today. And today’s APY for staking via Ankr is 9.64%. But it’s important to know that Ankr charges a 15% fee on all rewards. For this fee, Ankr provides user-friendly infrastructure and synthetic asset aETH which can be immediately sold in case the owner decides to stop staking ETH. So, if the investor wants to stake 1 ETH via Ankr the rewards will be ~$0.331 net per day.
Rocket Pool has a lower minimum amount of ETH required to start staking – only 0.01 ETH which is just about $23 at the moment. Same as Ankr, Rocket Pool provides the staker with a synthetic asset called rETH which can be tradeable. APY on the Rocket Pool is 9.8% for the moment I’m writing this article. Rocket Pool charges 10% commission (and 0 commission if you stake at least 16 ETH), so if the investor stakes 1 ETH the reward will be ~$0.42 per day for now.
Staking with Exchanges
One of the easiest options is to transfer ETH to a wallet on an exchange or other custodian service that offers split staking rewards. However, there’s a classic risk of dealing with the centralized exchange: the user does not control the private keys.
At the moment staking ETH via an exchange is definitely can be the simplest method. An investor just needs to sign up or use an existing exchange account, deposit or buy ETH and stake it via the clear interface. Nowadays it’s possible on many exchanges but since staking via an exchange is risky I would recommend using only the most reputable ones. For instance, Binance, Huobi, Coinbase, Kraken, and OKEx can be considered as relatively safe platforms for staking. Maybe later I’ll write an additional article with the review of staking opportunities on different exchanges.
So, how much can you earn by staking ETH via exchanges? For instance, Binance provides convenient ETH 2.0 staking with just a few requirements. Staking assets cannot be redeemed until shard chains are launched, which can take up to 2 years. Binance provides users with BETH tokenized assets at a 1:1 ratio as proof that you have provided ETH for staking. There’s no minimum amount of ETH to stake on Binance, so basically, anyone can start doing it. More, Binance charges 0% fees for its service, which is pretty unique. The APY for the moment I’m writing this is around 9.32%. So, by staking 1 ETH the user will be getting around $0.447 of rewards per day. It’s very important to stress that the APY for staking will be changing over time.
Another example is Kraken exchange which provides the same service with the same conditions except one. This exchange charges ~15% fee on all staking rewards. Also, Kraken has a so-called boarding process for ETH staked. The rewards will start being generated up to 20 days after the user actually pushed the button. So, staking on Kraken will let the user gain ~$0.38 per day in case the APY doesn’t change much after the 20 day boarding period.
Lending platforms on ETH
A balanced option between staking and the ability to borrow tokens for ETH blocked in staking. Suitable for risky traders and investors looking to maximize profits. For example, there is a lending platform called LiquidStake. It’s backed by Darma Capital and allows ETH stakers to borrow USDC using staked ETH as collateral.
The user can benefit from the opportunity to generate income through staking and retain the ability to trade, invest, or hold liquid crypto assets. LiquidStake consolidates customers’ crypto assets and transfers them to major staking service providers. Loans can be obtained from the very first moment of ETH staking.
Let’s talk numbers. Staking at LiquidStake the investor gets 9.86% APY and pays 14.91% commission on rewards. In addition to this, the investor gets the loan in USDC equal to the value of ETH staked. So, staking 1 ETH the user gets $0.4 per day for the moment I’m writing it.
How profitable it is?
In the end, it’s also very important to mark that the validator’s reward is affected by the total number of ETH blocked for staking. Depending on this figure, the maximum annual return of the validator can range from 2 to 20%. So the profit an investor can make out of staking is not really high but is comparably stable and low-risk.
You can check the current number of total ETH staked HERE
However, this profit is larger than the average interest you can get by depositing fiat money in the bank account, so ETH staking might be an interesting alternative. Still, it’s important to analyze the risks of the chosen staking method and remember that the ETH price is quite volatile. So despite the staking profits, the investor can get some additional profit or loss depending on the ETH price on the market.
And, as usual, don’t forget to do your own research while choosing the way to stake ETH.