In short, staking allows token holders to lock up their tokens in order to secure and validate a blockchain network. As a reward for doing so, stakers earn staking rewards in the form of the native token they are staking.
There are many reasons a user may want to stake, as well as many considerations when doing so. If you are interested in diving into these, as well as a comparison between staking platforms, you can read our guide to staking here.
Today’s write up is going to be focused on liquid staking, which solves two main issues of conventional staking:
- Token Lock-Up:Liquid staking providers issue tokenized receipts of staked ETH, allowing investors to remain liquid and earn additional yield.
- Minimum ETH requirement:Setting up your own validator to stake ETH requires a minimum of 32 ETH, which can be bypassed by pooling ETH with others through a liquid staking provider.
Since the Milk Man isn’t sitting on 32 ETH and we want to show you all some cool things to do with Lido staked ETH, we decided to stake our ETH with Lido Finance.
What We Did - Milk Road Public Wallet
We started our public wallet journey by funding the Milk Road wallet with $10,000 and converting 40% of that to ETH. As DeFi enthusiasts, we want ETH to be our biggest holding, and it is also the asset that allows us to do the most extracurriculars on-chain.
It's only been a few months, but we've already accomplished a lot:
- We bridged tokens to three different layer-2 blockchains.
- We provided liquidity to decentralized exchanges and bridges.
- And much, much more. You can read all about it in our guide to investing!
And now, we're here to focus on Lido ETH staking. We took the ~2.15 ETH in our portfolio and staked it all with Lido Finance.
Why We're Staking ETH
We decided to stake all of our ETH for a few reasons:
- We plan to hold ETH for the long-term, and want to earn interest on the holdings that would be sitting in our wallet regardless
- Holding stETH will allow us to explore the LSD-Fi sector and pursue additional yield
- The Milk Man is a big proponent of crypto security and the more ETH that is staked, the more secure Ethereum’s blockchain is
We also felt it was an opportune time to stake. Lido staking projected that we would receive 3.8% annual interest on our ETH holdings. While this isn’t going to make the Milk Man a millionaire, it allows us to earn an additional return while holding an asset that we feel very strongly about (ETH).
And as more and more ETH is staked over time, the yield for stakers will decrease. So we wanted to get in on the fun as early as possible. ETH’s staking yield has already come down after starting the year closer to 5%. As this continues to decrease, protocols are going to need to find interesting ways to stay competitive.
Lastly, our ETH gas fee to stake was less than $5. We were able to keep this so low by transacting at times when the blockchain was not busy. Historically, this is on the weekends or early morning for those in the United States, but you can always check ETH Gas Fees live here.
Why Lido Finance
We chose Lido ETH staking for a few reasons:
- Lido is the first mover and largest provider in the liquid staking sector. As of August 14, 2023, Lido was holding over 80% of the total LSD sector’s market share. That amounts to over 8.3M Lido staked Ether by 166K unique depositors.
- They have an industry competitive fee and APR.Since Lido is providing the service of staking, they take a cut of the staking profits. Lido takes 10% of all of your ETH staking rewards, which is on par with the lowest in the sector.
When we staked our ETH with Lido, it estimated that we would receive a 3.8% yield on our ETH. While this might not be the highest yield available, it is very close and we value Lido’s market dominance and battle-tested smart contracts.
- Our last reason for choosing Lido was due to their integrations. First off, you can stake with Lido directly from your MetaMask wallet. More importantly, Lido issues stETH to users who stake Ether on their platform.
stETH is the most popular and utilized form of staked Ether. This means that it is the most widely acceptable, and has the most flexibility when it comes to earning additional yield in DeFi.
We also considered staking our ETH with Rocket Pool and Frax Finance. Both have unique offerings that we will be revisiting over time!
Step By Step: How To Stake
Step 1: Getting Started With Lido
Once you have funded your wallet or swapped tokens for ETH, you are ready to help secure Ethereum’s blockchain. Today we will only be staking ETH, but note that the process for staking MATIC or SOL is very similar.
The first step is to head to https://lido.fi/ and press “Stake Now” on the home page. You will be shown this screen before being redirected to the staking portal:
Lido shows you how much ETH is staked through their offering, the estimated yield you will receive for staking for a full year (APR), as well as additional information on staking and Lido as a platform.
When you get to the next screen, you will be prompted to connect and verify your wallet.
Step 2: Staking Assets With Lido
After connecting your wallet, you will be presented with this screen:
- The top section shows your wallet’s ETH balance, the amount you currently have staked and the percent of interest you can expect to receive.
- The middle area is where you choose how much you want to stake, as well as where you submit the transaction. You can choose “Max” to select all of your holdings, minus the expected gas fee that you will pay.
- The bottom section shows you the expected outcome of the trade, the max fee that the user will pay and the fee that Lido will receive on Ethereum staking rewards.
Once you press submit and confirm the transaction in your wallet, your ETH will convert to stETH.
Step 3: Tracking Staking Rewards
And just like that, you are now securing the network and earning rewards! When you want to unstake your assets, you simply choose “withdrawal” from the header options and follow the same process as staking.
This top bar is also where you can track your Ethereum staking rewards in real time:
This dashboard shows your transaction history on Lido, your staked holdings and the amount of rewards you have received to date. (Since we staked our ETH minutes ago, we don’t have any rewards yet.)
Staking In MetaMask Portfolio
In addition to buying crypto or swapping tokens, MetaMask also has a staking offering built directly into the MetaMask portfolio dApp. We explain how to use MetaMask Portfolio in another post.
You can access this feature by opening your wallet and navigating to the portfolio tab on the home page:
Once on the portfolio dApp’s home page, click on the “Stake” option from the left column and you will be presented with a list of liquid staking providers.
MetaMask will provide you with context around each provider and estimate the yield you will receive for staking. They also allow you to track your rewards after your stake along with your portfolio.
It is important to note that MetaMask is not a liquid staking provider themselves. They simply offer a convenient way to access providers such as Lido and Rocket Pool.
But MetaMask does not charge a fee for using their staking interface. However, just like every other transaction on the Ethereum network, you will be required to pay a gas fee to stake and unstake your assets.
This fee is dependent on how congested the blockchain is at the time and will also be estimated on the final confirmation screen:
Concerns Around Liquid Staking
While staking offers a lot of benefits to token holders, it does not come without risk. Here are some of the risks stakers should be aware of:
- Smart Contract / Provider Risk:Staking assets removes them from your personal wallet and puts them in the hands of a smart contract or an entity. This opens users up to the risks of hacks or mispractice.
- Taxes & Fees:Lido takes 10% of all ETH staking rewards as a service fee. And staking rewards are also taxed as income. In addition, the U.S. counts converting ETH to a liquid staking offering as a crypto taxable event, the same as a swap.
- Unpredictable Yield:The crypto yield from staking can be hard to predict and is constantly changing. While more tokens being staked over time can help make the network more secure, it can also take away from the yield stakers earn.
- Centralization:One entity having control over so much of the ETH supply and network validators has raised some concerns within the crypto community.
Next Steps
Earning yield in return for securing a network is an exciting concept. But it’s only the start. The Shanghai upgrade and introduction of liquid staking has opened up a whole new sector of DeFi products.
We've since taken our staked holdings to do some pretty cool things:
- We traded staking yield on Pendle Finance
- We restaked our staked ETH with EigenLayer
- There's a lot more planned, stay posted to our Public Wallet page
For now, readers can track our wallet on their own through DeBank. Simply go to their site, paste in our wallet address and follow our journey in real time under “portfolio”.
Frequently Asked Questions
Staking is mutually beneficial, benefiting both tokenholders and the respective blockchain. As more tokens are staked, networks become more secure and decentralized. And in turn, token holders are rewarded for staking, often through earning yield and having a say in the project’s decisions.
First off, the amount of tokens staked directly impacts the current staking yield. While more stakers helps to secure the network, it will also decrease the interest earned over time.The second factor is the amount of network usage and in turn, the amount of revenue the network or protocol is generating. A percentage of this revenue is passed through to token holders, so the more profitable a blockchain is, the higher yield its stakers will receive.
There are many considerations when choosing the right staking provider, with most of the focus centered around security and rewards. You should always ensure that the platform is audited and has a track record of reliability.Once you feel confident in the platform itself, you want to compare rewards across the industry and ensure that you are receiving competitive interest. An intuitive user experience and low fees should also be considerations.
There are a lot of benefits to staking, but it does not come without risk. Users should be aware that staking yields constantly change and can be hard to predict.Additionally, you take on smart contract risk as a DeFi provider and also need to pay fees for using the service. Lastly, there are concerns over how staking providers could impact the decentralizing of the Ethereum network.
This report is for informational purposes only and should not be relied upon as a basis for investment decisions, nor is it offered or intended to be used as legal, tax, investment, financial or other advice. You should conduct your own research and consult independent counsel on the matters discussed within this report. Part performance of any asset is not indicative of future results.
It should also be noted that the writer(s) of this report may hold assets mentioned in the article at the time of writing.
