Ethereum staking is the process of locking up some of your $ETH tokens to help validate blocks and secure the Ethereum network.
In this article, we'll look at how to stake Ethereum, its pros and cons, and if it's right for you!
Key Takeaways
- Crypto staking is great for earning passive income while you hold your assets for the long-term.
- Staking your $ETH earns you staking rewards in the form of annual percentage yield (APY) on your staked tokens.
- There are broad three ways to stake Ethereum — staking through a centralized exchange, liquid staking, or running your own node(s).
What is Ethereum Staking?
You guys do know how bank deposits work, right? You lock up your fiat in a bank, In return, the bank gives you a specific amount of interest per year.
Well, staking is crypto’s version of this. Staking requires you to lock up your crypto assets (Example: $ETH, $SOL etc.) and in return, the network pays you interest on your deposit.
Currently, the amount of total staked ETH is 34.1M. This means that Ethereum has a staking ratio of approximately 28%. If you're confused, this means that 28% of Ethereum's total supply is currently being staked.
In a nutshell, staking is the easiest way to earn passive income in crypto. If you've invested in Ethereum for the long-term, then staking your $ETH is definitely something you should consider.In fact, you’re leaving money on the table if you don’t!
How Does Ethereum Staking Work?
If you want to look cool in front of your crypto friends, here are the nitty-gritty nerdy details about how staking works:
Staking is the act of locking up your $ETH to improve Ethereum's network security.Staking is only possible on Proof of Stake (PoS) networks such as Ethereum or Solana.
This means that various validators stake their $ETH to earn the chance to process a new block on the Ethereum blockchain. If the validator completes the job, they earn native block rewards. But if they act dishonestly by validating false transactions, they lose a portion of the $ETH they had staked. This process of confiscating their $ETH is called a slashing event.
Becoming a validator is the most complicated way to stake your $ETH, but we're going to show you 2 (much easier) ways to start earning yield on your Ether. But before we get into that, let's explore whether staking $ETH is for you.
Who Should Stake Ethereum?
- People who want to earn interest on crypto: If you’re investing for the long haul, you can earn passive income on your $ETH holdings.
- People who can afford to wait: Staking crypto often comes with lock-up periods during which you can’t withdraw, use, or sell your crypto.
- People interested in compounded returns: Stakers can reinvest their staking rewards, thereby potentially increasing their returns over time.
Pros and Cons of Staking
Pros
- Passive Income: Staking allows crypto holders to earn a steady stream of staking rewards without actively trading.
- Compounding Rewards: Many staking platforms and protocols allow users to automatically reinvest their staking rewards
- Easy to start: Staking can be done easily through many popular wallets and exchanges.
- Promotes long-term holding: Staking encourages holders to avoid frequent trading, supporting a long-term investment strategy—something we at Milk Road strongly believe in.
Cons
- Lock-up periods: Many staking protocols require a lock-up period during which staked tokens cannot be withdrawn or sold.
- Market volatility: While staking can earn rewards, market fluctuations can cause the value of staked tokens to drop significantly, potentially outweighing the rewards earned.
- Platform risks: Hacks or mismanagement of the exchange / third-party platform could result in the loss of your staked assets. Ouch.
- Taxable Event: Converting your $ETH to any liquid staking token such as $stETH is a taxable event as you are realizing a capital gain / loss.
Different ways to stake Ethereum
When it comes to $ETH, there are multiple staking options that are outlined below. We're going to be providing a step-by-step tutorial for centralized providers (Coinbase) and liquid staking (Lido).
If you wish to stake your $ETH by running your own validator, check out this page.
Note: Each staking option has its own risks and benefits.
| Difficulty to Use | APY | Liquid Staking Token | Capital Required | |
|---|---|---|---|---|
| Centralized Exchange | Low | ~ 2.0% | No | Low |
| $ETH Staking Pool (liquid staking) | Medium | ~ 2.8% | Yes | Low |
| Network Validator | High | ~ 4.0% | No | High (32 $ETH required) |
Staking via a centralized exchange (Eg: Coinbase)
You have multiple staking options when it comes to centralized exchanges. Many centralized exchanges such as Coinbase, Binance and Gemini provide support for $ETH staking. The process takes just a few clicks and allows you to receive staking rewards on your $ETH instantly.
Here’s an in-depth guide on how to stake $ETH on Coinbase.
Liquid Staking Platforms (Eg: Lido)
This intermediate option requires a few more steps but has the added benefit of giving you a liquid staking token that can be used in place of your staked ETH.
The most popular liquid staking platform out there is Lido. We’ve made a step-by-step tutorial on how to liquid stake your $ETH on Lido.
In case you're looking to unstake your $ETH on Lido, we've got a guide on the withdrawal process as well. Check it out here!
Staking via wallets
Staking through your own Ethereum wallet lets you keep full control of your private keys while delegating your existing ETH to a trusted validator.
Many popular wallets like MetaMask, Phantom and Ledger now support ETH staking directly through your own wallet.
Note: It doesn't matter if you transfer ETH to another wallet. As long as you are staking ETH on that wallet, you will earn ETH staking rewards.
Running your own networks validators
This is the most direct but also the most challenging way to stake $ETH.
Running your own validator node requires a 32 $ETH stake and a dedicated computer connected to the internet 24/7. Most of us here probably don’t have 32 $ETH just lying under our bed.
Best Platforms to stake ETH
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4.6To Sum It Up
Ethereum staking provides holders with the opportunity to validate the Ethereum network while simultaneously earning Ethereum staking rewards (paid in $ETH).
It's also important to choose wisely when deciding where to stake $ETH. While the network requires a 32 $ETH balance to directly stake, service providers such as staking pools and centralized exchanges allow staking with much smaller balances.
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, through earning yield.
- People who want to earn interest on crypto: If you’re investing for the long haul, you can earn passive income on your crypto holdings.
- People who can afford to wait: Staking crypto often comes with lock-up periods during which you can’t withdraw, use, or sell your crypto.
- People interested in compounded returns: Stakers can reinvest their staking rewards, thereby potentially increasing their returns over time.
There are a lot of benefits to staking, but it does not come without risk. One of the biggest risks you should consider is the “Platform Risk” which means that you can lose all your staked $ETH if the staking platform you use gets compromised.That’s why it’s important to do research into the platform before staking your $ETH with them.
There is no minimum amount required to stake $ETH.
Staking yield is the interest rate you receive when you stake your $ETH. This rate is also know as APY (Annual Percentage Yield).
Converting your $ETH to any liquid staking token such as $stETH is a taxable event as you are realizing a capital gain / loss. For individual tax advice regarding staking rewards, please consult a tax advisor.
Yes. Whichever wallet holds the $stETH will receive the yield. As long as you own the wallet with the $stETH, you will continue to receive yield on that specific wallet. Learn more here.
Our pick for the best Ethereum staking pool is Lido.
