Welcome crypto enthusiasts! Does it seem like you have found your way here looking for a way to earn passive income from Ethereum staking? In addition to earning passive interest income, this article will help you put your Ethereum to work for you and protect and improve the Ethereum ecosystem we all know and love, but without the pesky gas fees for now.
In this article, you’ll learn where and how to stake your Ethereum so you can earn a little APY on those ETH holdings. However, before you indulge yourself in this topic, I recommend watching the following video for a better understanding.
What is Ethereum Staking?
As it is a hefty topic, I won’t get too deep into it, but I’ll give a quick summary of what is happening with Ethereum and why it is necessary.
In the midst of upgrading Ethereum, the network will move from a proof of work consensus mechanism to Ethereum 2.0, which will function on the basis of consensus based on stake. It has been a long time coming, and for good reason. Ethereum basically powers the entire Defi space. Among other things, Decentraland and Sandbox rely on it, and most of our beloved NFTs and crypto domains are also hosted on it. Nearly half of the top 100 cryptocurrencies are Ethereum ERC20 tokens alone.
The Ethereum network has been experiencing explosive growth since its inception back in 2015, so there has always been a sense that the network would eventually need to transition to proof of stake if it wanted to keep pace with the growing Ethereum ecosystem.
Staking is basically members of the Ethereum network validating it, adding blocks to the new consensus model for Ethereum 2.0, and contributing to its security. Those who validate or stake their coins receive interest as a reward for their participation and support.
How much can you earn from Ethereum staking?
Staking Ethereum at APYs varies according to the number of participants as well as the amount of ETH staked, along with the platform and method used for the stake. The rewards are dynamically determined upon epoch completion in accordance with the state of the network.
ETH staked in the network and a validator’s uptime is included in network-level reward rates.
According to exchanges such as Binance, Coinbase, and Kraken, staking rewards for Ethereum range between 4 and 20 percent as of this writing, though it is important to note that higher interest rates were given to the newcomers, with rates now on the lower end. In order to run its own validators or utilize staking pools, the APY is expected to be between 4-10%.
What are the risks involved in staking Ethereum?
Unfortunately, staking Ethereum is not all sunshine and rainbows, unlike any investment vehicle that promises returns, there are risks involved.
There is some risk of losing funds from slashing Ethereum accounts if things go horribly wrong with the upgrade, though it is unlikely, so keep that in mind. If they are not performing their staking duties properly and go offline for more than 50% of the time, they lose funds because they will not be able to receive their rewards. As a result, validators can lose their funds and be expelled from the system if they publish contradictory information about a chain. As this normally occurs only in cases where a validator is acting improperly, the amount slashed will be between 1 ETH and the staked amount.
In addition, there is an issue called market risk, which is caused by the fact that staked Ethereum will remain locked until the upgrade is complete, which means that your Ethereum will remain inaccessible to be sold.
In the long term, Ethereum staking is only suitable for long-term holders and investors and is not appropriate for short-term traders. For instance, if Ethereum skyrocketed to 10K tomorrow and then plummeted back to five hundred dollars, that is a market risk!
How and where can you stake Ethereum?
Answers to this question will not be the same for everybody. Staking Ethereum is possible in a variety of ways, and there are many different places where you can stake. It’s not all the same when it comes to staking, which is why I will cover the most popular staking methods, as well as the most difficult and expensive methods to set up in terms of initial setup and amount of ETH required.
Centralized Staking on an Exchange
To stake Ethereum, centralized exchanges are the fastest and easiest method. There is no minimum amount of Ethereum required to start staking, as long as you stake more than 0.0001 ETH regardless of which platform you use. Binance, Kraken, and Coinbase all support Ethereum staking. Staking consists of simply holding Ethereum in an account on one of the exchanges. Many people already have an account on one of these exchanges.
In order to know if your location is supported for liquid Ethereum staking, you should contact your exchange of choice. The Ethereum 2.0 staking initiation on any of these exchanges cannot be revoked until phase one of the Ethereum 2.0 upgrade has been completed. However, staking differs from exchange to exchange.
- Coinbase. To the best of our knowledge, Coinbase does not offer liquid staking, meaning that they do not provide users with an ERC20 token pegged to the Ethereum that they stake, as Binance and Kraken do. Therefore, your ERC20 token is locked and your capital is no longer liquid for use. As well as the Ethereum and staking rewards, Coinbase locks them and makes them unavailable to access. However, users can still view these rewards under the “lifetime rewards” section of Coinbase. According to their FAQ section, Coinbase plans to add liquidity to staked ETH funds later this year. However, there is no ETA available at the moment. To learn more about ETH staking on Coinbase, click here.
- Binance. It is quite different. Those who stake Ethereum with Binance will receive the Beacon Ethereum token, called “BETH,” in return for their stake at a 1:1 value. As soon as the first phase of Ethereum 2.0 is completed, users will be able to swap back to ETH. The BETH funds will be converted into ETH at a later time when the amount of BETH they are holding at the time of conversion will equal the amount of ETH they receive. While the ETH is locked away from being staked, users can freely exchange their BETH for other assets or engage in BETH yield farming in order to increase their rewards when converting back into ETH. Click here for a guide to Binance ethereum staking.
- Kraken. As with Binance, Kraken also offers liquid Ethereum Staking with a 0.00001 ETH minimum to get started. The Kraken staking method offers users a pegged token that represents the value of the Ethereum staked at a 1:1 ratio, similar to how Ethereum is staked. In this token, ETH2.S, users can transact as they would with regular ERC20 tokens. The staked Ethereum is locked and unavailable until phase one of the Ethereum 2.0 update has been completed, as with all centralized exchange methods. It is important to note that even though staking Ethereum is available on Kraken for users located in the United States and Canada, liquid staking and ETH2.S distribution is not available, so make sure you check for supported regions before participating. More on ethereum staking on Kraken here.
Be your own Validator
For die-hard Ethereum enthusiasts and early adopters, setting up a validator node is the most efficient and decentralized method to stake Ethereum, but setting it up won’t be easy or cheap, and you certainly don’t want to use this technique if you aren’t technically minded, don’t hold 32 ETH, or will not have continuous internet access.
They choose this option primarily so they can directly support the Ethereum network and ensure its future success and prosperity through contributing to its security and functionality. Validators and nodes for ETH 2.0 staking can be set up with just 32 ETH, which at the time of this writing is just $115,000 dollars. Sounds easy, doesn’t it?
For those who aren’t tech-savvy, don’t want to run their own nodes, or don’t have enough money to buy 32 Ether for staking, what options are available? It is thankfully possible to start with the easiest option of ethereum staking on a centralized platform, but there are many alternatives.
Staking Pools
After joining a staking pool, users who have less than 32 ETH can take part in Ethereum staking. Multiple stake pools exist, too many for me to mention here, but here are a few top choices for your consideration. Staking pools collect Ethereum from multiple participants to contribute to validators, collecting enough Ethereum for staking to begin. This is one of the great things about Staking pools, which is why the majority of users prefer them because it makes their ETH safe from centralized exchanges, and yet they can still stake. Lido has the most users in this category.
Lido
It is a brilliant option, as the Ethereum can be staked from any non-custodial wallet, such as Metamask, Coinbase Wallet, Trust Wallet, and even Ledger, which is a real game-changer.
As Binance and Kraken do, Lido offers liquid staking, a wonderful, decentralized method of participating in Ethereum staking without locking up your capital. Ethereum will remain locked, but users will still receive stETH at a value of 1:1 in proportion to the amount staked in ETH plus rewards. Once the first phase of the ETH 2.0 upgrade is completed, stETH tokens will be minted and burned. Tokens in stETH can be used the same way as regular ERC20 tokens. Besides Lido’s Ethereum 2.0 staking feature being available in Argent, Lido’s Ethereum staking feature also comes supported and preinstalled. For information on how to use Lido with a software wallet, go here and for information on how to use Lido with a hardware wallet, go here.
Conclusion
There are three main methods Ethereum holders can use if they wish to stake their funds. Due to the prospect of losing access to Ethereum for an unknown period of time as we wait for the first phase of the upgrade to be completed, the process of staking Ethereum is not something that should be done by the short term holders or traders. Those who stake Ethereum are mostly long-term Ethereum holders, and those who back DeFi and are passionate about the Ethereum ecosystem who desire to see the future of DeFi flourish.