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 staked ETH, we decided to stake our ETH with Lido Finance.
What We Did – Milk Road Public Wallet
We recently funded the Milk Road wallet with $10,000 and converted 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.
We still hold a lot of USDC (60%) because we want to walk you Roaders through each step of the process. And we’re still in the very early stages. We’re taking it slow over here.
So while our portfolio is currently made up of 40% ETH, that could change in the future as we fully allocate our cash holdings. For now, we have taken the ~2.15 ETH in our holdings 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 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 as our staking provider 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 Ether staked 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 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 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 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
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 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.
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.
This sector, named LSD-Fi, consists of protocols that allow you to use your staked Ether for other activities such as trading yield or minting stablecoins.
If these terms mean nothing to you right now, do not worry. We’ll be diving head first into a few of these protocols later this week with our staked ETH!
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”.
Here is the Milk Road Public wallet address:
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.