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Learn about Ethereum Staking
There are several ways to earn a return on your ETH, including lending them out to custodial providers or through decentralized lending protocols, running your own validator, using a validator as a service, staking via a pool, or staking on centralised exchanges. For the best security and control over your funds, we recommend using a Ledger Hardware Wallet.
It all depends on how much you are willing to stake. You will need 32 ETH to activate your own validator, but it is possible to stake less.
There are four main options to stake your ETH:
- Solo home staking (Run a validator)
Solo staking on Ethereum is the gold standard for staking. It provides full participation rewards, improves the decentralization of the network, and never requires trusting anyone else with your funds.
Those considering solo staking should have at least 32 ETH and a dedicated computer connected to the internet ~24/7. Some technical know-how is helpful, but easy-to-use tools now exist to help simplify this process.
- Validator as a service
If you don’t want or don’t feel comfortable dealing with hardware but still want to stake your 32 ETH, staking-as-a-service options allow you to delegate the hard part while you earn native block rewards.
These options usually walk you through creating a set of validator credentials, uploading your signing keys to them, and depositing your 32 ETH. This allows the service to validate on your behalf.
This method of staking requires a certain level of trust in the provider. To limit counterparty risk, the keys to withdraw your ETH are usually kept in your possession.
- Staking pools
Several pooling solutions now exist to assist users who do not have or feel comfortable staking 32 ETH. Many of these options include what is known as ‘liquid staking’ which involves an ERC-20 liquidity token that represents your staked ETH.
Liquid staking enables easy and anytime exiting and makes staking as simple as a token swap. This option also allows users to hold custody of their assets in their own Ethereum wallet. Pooled staking is not native to the Ethereum network. Third parties are building these solutions, and they carry their own risks.
- Centralised exchanges
Many centralized exchanges provide staking services if you are not yet comfortable holding ETH in your own wallet. They can be a fallback to allow you to earn some yield on your ETH holdings with minimal oversight or effort.
The trade-off here is that centralized providers consolidate large pools of ETH to run large numbers of validators. This can be dangerous for the network and its users as it creates a large centralized target and point of failure, making the network more vulnerable to attack or bugs.
The time you will need to wait to unstake your ETH can vary depending on the number of validators ahead of you in the withdrawal queue. Currently, a maximum of 16 withdrawals can be processed at a time in a single block, which translates to around 115,200 validator withdrawals per day, assuming no missed slots.
Expanding this calculation, we can estimate the time it will take to process a given number of withdrawals:
|Number of Withdrawals||Withdrawal Time|
As you see this slows down as more validators are on the network.
Once you have staked your ETH, there are a few things to keep in mind depending on the option you have chosen:
- If you are running a validator, the fee tips and MEV (maximum extractable value) earned will be credited to a Mainnet account controlled by the validator and is immediately available to withdraw. When users execute transactions on Ethereum Mainnet, they must pay a fee in ETH to cover the gas cost and a tip to the validator. This ETH is already on the execution layer and is not newly issued by the protocol, it is immediately available to the validator if a proper fee recipient address is provided to the client software.
- Additionally, validators who contribute to consensus will be awarded newly issued ETH, which is recorded on the Beacon Chain. Reward payments are automatically processed for active validator accounts with a maxed out effective balance of 32 ETH. Any rewards earned above 32 ETH are not considered as part of the validator’s principal or weight on the network, and are automatically withdrawn as reward payments every few days. There is no need for validator operators to take any action other than providing a withdrawal address once. This process is initiated on the consensus layer, so no gas (transaction fee) is required at any stage. Providing a withdrawal address is a required step for any validator account before it will be eligible to have ETH withdrawn from its balance. If you have not updated your withdrawal credentials, you can do so here.
- It’s recommended that staking pool members or holders of liquid staking tokens (LSTs) should contact their provider to obtain further information regarding how staking withdrawals will impact their specific arrangement. This is because each provider operates differently. In general, users won’t have to do much and won’t be limited in their ability to withdraw rewards or exit validator funds following the Shanghai upgrade. As a result, users now have the flexibility to redeem their staked ETH or switch to a different staking provider. If a particular pool becomes too large, funds can be withdrawn and redeemed, and staked with a smaller provider. Alternatively, if enough ETH has been accumulated, users could opt to stake from home.
To calculate your staking rewards under different network conditions, use our Ethereum staking calculator to accurately determine your rewards.
It is essential for users to stake their PoS tokens with dependable and highly performant validators, which is why we have rolled out our Staking Rewards Verified Staking Provider (VSP) Program in June 2022. Through this program, we thoroughly scrutinize potential validators, evaluating factors such as security measures, their on-chain reliability, their provider setup, and value-added services for the whole ecosystem.
If you decide to go with a staking pool, there are numerous factors to take into account:
Number of stakers: A large number of stakers may signal a positive reputation for a validator.
Network Share: When selecting a staking pool, it’s generally advisable to avoid choosing one with the highest or lowest network share. Delegating to the most popular staking pools can increase the risk of centralization within the network. Finding the balance and choosing a validator with a moderate network share and good reputation could be the best approach.
Performance: It is important to select a staking pool with high uptime performance. You can view a validator’s performance on the Rated.Network. Our suggestion is to only choose staking providers with an uptime performance of 99% or higher and a track record of not being slashed.
Value Add to the Ecosystem: Another way to assess the long-term vision of validators is to check if they offer additional services to their delegators, such as tax reporting tools, explorers, etc. This can be a useful filter when comparing different providers.
The Staking Rewards on ETH come from:
- Inflation on the Ethereum Network (Block Rewards): The exact staking issuance fluctuates based on the total amount of ETH staked. The total supply of ETH is inflated in each block to incentivise validators. This implies that ETH holders who choose not to stake will get diluted over time.
- Transaction Fees: Each transaction processed by the network comes with transaction fees. Transaction fees are collected by the network and distributed to validators. The Staking APR will vary with network usage, as the network gets busier the APR will rise and vice versa. (The transaction fees are split into two components: Base Fee & Tips) ETH Burn: The opposite force to ETH issuance is the rate at which ETH is burned.The burning of ETH is when existing ETH gets destroyed, removing it from circulation. For a transaction to execute on Ethereum, a minimum fee (known as a “base fee”) must be paid, which fluctuates continuously (block-to-block) depending on network activity. The fee is paid in ETH and is required for the transaction to be considered valid. This fee gets burned during the transaction process, removing it from circulation.
- Maximal Extractable Value: Maximal extractable value (MEV) refers to the maximum value that can be extracted from block production in excess of the standard block reward and gas fees by including, excluding, and changing the order of transactions in a block. It is value that can be extracted in excess of the standard block reward and gas fees. Depending on network activity, MEV increase the staking APR quite significantly – but can not be relied upon as a steady source of staking rewards.
We strive to make staking as safe and transparent as possible, however, it’s important to consider factors that may influence whether a particular staking option is appropriate for you.
Slashing risk: When staking Ethereum, there is a risk of being partially or fully slashed if the validator misbehaves. This can happen if a validator double votes by attesting to two candidates for the same block, attests to a block that ‘surrounds’ another one (effectively changing history), or proposing and signing two different blocks for the same slot. If one of these actions are detected, 1/32 of the validators’ staked ether is immediately burned, then a 36 day removal begins. During this removal period the validators stake gradually bleeds away. At the mid-point (Day 18) an additional penalty is applied whose magnitude scales with the total staked ether of all slashed validators in the 36 days prior to slashing event. This means that when more validators are slashed, the magnitude of the slash increases. The maximum slash is the full effective balance of all slashed validators (i.e. if there are lots of validators being slashed they could lose their entire stake). On the other hand, a single, isolated slashing event only burns a small portion of the validator’s stake. This midpoint penalty that scales with the number of slashed validators is called the “correlation penalty”.
Slashing is quite a rare occurrence given the serious penalties if it does take place. As a user, slashing is something to take note of but not to be scared of. The majority of the slashing risk can be avoided through staking with a reputable staking provider. To select a safe and reliable staking provider, view our FAQ on how to choose Ethereum staking providers.
Withdrawals/Unbonding risk: Currently, a maximum of 16 withdrawals can be processed at a time in a single block, which translates to around 115,200 validator withdrawals per day, assuming no missed slots. However, the time you will need to wait to unstake your ETH can vary depending on the number of validators ahead of you in the withdrawal queue. It’s essential to keep in mind that investors will not be able to immediately sell their tokens but have to wait until the withdrawal process is completed before they can access their tokens. This is especially crucial to consider given the highly volatile nature of crypto markets. If you don’t intend to hold ETH long-term, it’s wise to keep your funds liquid.
Protocol security risks: There is an inherent risk that the protocol could contain unknown bugs, this risk applies not only to staking but also the investment in ETH in general.
This list is not exhaustive and other risks may apply.
ETH is the native token of the Ethereum network and it is used to perform various important functions within the network:
- Staking: Users can temporarily lock up ETH to contribute to the security of the network. In return for the service, stakers are compensated with staking rewards.
- Gas token: Each transaction processed by the network comes with transaction fees. The transaction fees are split into two components: Base Fee & Tips. For a transaction to execute on Ethereum, a minimum fee (known as a “base fee”) must be paid, which fluctuates continuously (block-to-block) depending on network activity. The fee is paid in ETH and is required for the transaction to be considered valid. This fee gets burned during the transaction process, removing it from circulation. The tip fee is optional but is included to get your transaction processed more quickly when network congestion leads to a backlog of orders in Ethereum’s mempool, which refers to the remaining unprocessed transactions on the network at any given time. The higher the tip, the faster your transaction is processed.
The term ‘Ethereum 2.0’ has been phased out after The Merge
- The terms Eth1 and Eth2 (Ethereum 2.0) have been phased out
- Execution layer (Eth1) and Consensus layer (Eth2) are the new terminologies
- The roadmap to scale Ethereum in a decentralized way remains the same
- You don’t need to do anything
Where did Ethereum 2.0 come from?
Ethereum always had, as part of its roadmap, plans to scale the network in a decentralized way and to transition to proof-of-stake. Early on, researchers worked on these efforts separately, but around 2018 they were combined into a single roadmap under the “Ethereum 2.0” umbrella.
As part of that roadmap, the existing proof-of-work chain (Eth1) would eventually be deprecated via the difficulty bomb. Users & applications would migrate to a new, proof-of-stake Ethereum chain, known as Eth2.
So why did it change?
As work began on the Beacon Chain, it became clear that the phased Ethereum 2.0 roadmap would take several years to deliver fully. This led to a revival of research initiatives on the proof-of-work chain such as Stateless Ethereum, a paradigm that would remove the untouched state from the network to bound its growth rate.
The increased focus on making the proof-of-work chain long-term sustainable paired with the realization that the Beacon Chain would be ready much earlier than other components of the Ethereum 2.0 roadmap led to an “Early Merge” proposal. This proposal would launch the existing EVM chain as “Shard 0” of the Ethereum 2.0 system. Not only would this expedite the move to proof-of-stake, but it would also make for a much smoother transition for applications, as the move to proof-of-stake could happen without any migration on their end.
For more information on the ‘Great Renaming’, read this.
The Merge represented the joining of the existing execution layer of Ethereum (the Mainnet we use today) with its new proof-of-stake consensus layer, the Beacon Chain. It eliminated the need for energy-intensive mining and instead secured the network using staked ETH.
The Merge took place on the 14th of September 2022.
Ethereum uses a proof-of-stake consensus mechanism, where validators explicitly stake capital in the form of ETH into a smart contract on Ethereum. This staked ETH then acts as collateral that can be destroyed if the validator behaves dishonestly or lazily. The validator is then responsible for checking that new blocks propagated over the network are valid and occasionally creating and propagating new blocks themselves.
To participate as a validator, a user must deposit 32 ETH into the deposit contract and run three separate pieces of software:
- an execution client
- a consensus client
- a validator
On depositing their ETH, the user joins an activation queue that limits the rate of new validators joining the network. Once activated, validators receive new blocks from peers on the Ethereum network. The transactions delivered in the block are re-executed, and the block signature is checked to ensure the block is valid. The validator then sends a vote (called an attestation) in favour of that block across the network.
ETH has no maximum supply and currently has annual issuance between 0.5% – 1% depending on how much ETH is being staked. Ethereum has a burn mechanism where a part of every transaction fee (The base fee) is burnt. This acts as negative issuance for the protocol and can result in deflationary tokenomics if network activity remains high.
Initial Distribution Breakdown
The initial distribution of Ethereum (ETH) is as follows:
- 83.33% is allocated to Ethereum Crowdsale
- 16.68% is allocated to Ethereum Foundation, Early Contributors & Others
- 31,000 BTC ($18.3M at the time) was raised in a public sale that took place between July 22, 2014, and September 02, 2014.