| | | The next 100 million crypto investors. |
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| Health, Wealth, and Happiness |
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| “It’s not only our capacity but also our belief that defines our ability to move forward.” ― Mozella Ademiluyi |
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In today's issue: Even while the mainstream media is decrying the death of crypto, savvy investors continue to stake ETH and generate impressive returns.
Remember: the average U.S. savings account is still paying just 0.18%. You can be earning multiples of that figure, by patiently staking ETH.
We've pulled the best yields from the top staking platforms, so you have all the rates at your fingertips. Read on. |
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| | | Must Read Today's most important story for crypto investors. |
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A detailed blow-by-blow on the rise and fall of FTX, and its founder Sam Bankman-Fried. Includes new details of the frantic, last-minute calls SBF made to ask investors for a bailout, from competing crypto exchanges to the government of Saudi Arabia.
While FTX customers are likely to receive only a fraction of their deposits in bankruptcy proceedings, some of FTX's employees who held their net worth in the FTT token watched their savings disappear.
Investor takeaway: Diversify! We want to shout it from the rooftops. Our simple strategy would have saved a lot of people a lot of pain: wide diversification across stocks, bonds, and crypto. (See our Blockchain Believers portfolio for details.) |
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| Ethereum Staking Yields: Maximize your ETH Returns by Preetam Kaushik |
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| Summary: ETH staking is a great way to generate wealth with your Ethereum that would otherwise be sitting idle. In this article, we find the best rates for Ethereum staking, different staking strategies, and the myriad ways in which you can maximize your ETH returns. |
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5 Ways to Stake ETH
There are at least five different ways in which crypto investors can stake their ETH on the new Ethereum 2.0 blockchain. From billionaire crypto whales to first-time investors, there is an ETH staking option for everyone out there.
1. Solo Staking In a Proof of Stake blockchain network like Ethereum, a validator is a computer that is dedicated to maintaining the security and integrity of the entire system. To run a validator node on Ethereum 2.0, you need to stake 32 ETH (roughly $50,000 at the time of this writing).
The process of staking 32 ETH and running a validator node on your own is called solo staking. Along with the ETH, you will also need a reasonably high level of knowledge about network software and hardware maintenance.
Solo staking involves: Setting up a dedicated computer system. Running and syncing an execution layer client. Running and syncing a consensus layer client. Generating and managing your keys. Maintaining both the hardware and software of your node.
Needless to say, solo staking is a major responsibility. But you are a full contributor to the Ethereum network, and you are rewarded a portion of the gas fees paid by those who use it.
Advantages of Solo Staking Earn more ETH without paying any fees to middlemen. Retain full control of your investment and keys. A more secure form of staking. Better for the long-term health of the Ethereum blockchain.
Disadvantages of Solo Staking Needs a high capital investment. Requires knowledge of blockchain and computer hardware. The burden of security (and uptime) rests on your shoulders alone.
2. Staking as a Service This is a business model where a third-party company runs a validator node on your behalf. All you have to do is provide the 32 ETH staking capital. For a fixed fee, the firm will handle the installation, programming, and maintenance of your validator node.
Staking as a Service is an option if you have 32 ETH to spare, but lack the knowledge and experience in configuring and running a validator node on your own. You can delegate the technical tasks to the company while still retaining control of your validator keys.
With the rise of ETH 2.0, many firms have started offering Staking as a Service. Stake.Fish, featured on our shortlist, is one such firm that charges a flat commission of 0.1 ETH for its services.
If you want to find the best staking as a service firm, look for these features: Uses 100% open-source code. Provides formal auditing results of all essential code. Has a bug bounty system to reduce the risk of vulnerabilities. Service has undergone proper battle-testing. There are KYC, account signup, or special permission requirements. The company has a diverse array of independent validator clients. You get full custody of all validator keys.
The main advantage of this system is that you can enjoy the rewards of solo staking without technical knowledge or responsibilities. The downside is that you have to pay a fee and rely on a third party for security.
3. Pooled Staking The vast majority of crypto enthusiasts do not have the resources to run a solo validator node. Pooled staking is the next best option: investors pool their money together via pooling platforms. Once the pool reaches 32 ETH, the platform deploys it to activate a validator node, and the members of the pool share in the rewards.
The important thing to keep in mind is that these staking pools exist outside the ETH 2.0 blockchain. The majority of staking pools operate in a decentralized manner, with trustless and permissionless processes.
Many of these platforms rely on smart contracts to operate the system. Some of them also provide native liquidity tokens to investors. These tokens act like shares, representing your stake in the pool.
Lido and Rocket Pool are two popular examples of decentralized pooled staking protocols for Ethereum.
Advantages of Pooled Staking: Most protocols have very low deposit limits. No need to worry about setting up a node. Liquidity tokens can provide added value and rewards. You can hold liquidity tokens in your wallets.
Disadvantages of Pooled Staking: You have to rely on third parties. You have no control over the validator nodes. Platforms often charge a flat fee out of your rewards.
4. Centralized Exchanges At the opposite end of solo staking, you have staking via centralized exchanges. Major crypto exchanges like Binance, Coinbase, and Crypto.com operate large staking pools that attract tens of millions of dollars from small investors.
While centralized exchanges offer a range of convenient features, they also retain full control of your invested ETH. You don't have access to validator keys and enjoy none of the privileges of running a node on your own.
From a long-term perspective, however, having a few powerful exchanges take control of multiple validators is probably not good for the health of the Ethereum PoS system.
Advantages of Centralized Exchanges: Gives access to staking for as low as 0.001 ETH. Requires minimal oversight or effort. You don’t have to hold funds in your wallet.
Disadvantages of Centralized Exchanges: They may charge service fees and withdrawal fees. Centralized exchanges may have security risks. You have no power over the staking nodes. Giving exchanges more power over Ethereum may have negative long-term consequences. |
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Before Staking ETH, Please Read This
The Ethereum Merge is not a done deal. There are still many loose ends that will require multiple updates to resolve. Chief among them is the Shanghai Update, which is expected to drop sometime in Q3 2023. It is expected to improve Ethereum 2.0 further, with a host of vital changes.
Until that happens, you will have to consider these important factors that will remain unchanged for the immediate future of ETH staking:
Locked Withdrawals An estimated $22 billion of ETH is currently locked on the Ethereum 2.0 blockchain. But the investors cannot withdraw their staked ETH, until at least the Shanghai upgrade in 2023. If you invest money in a solo validator node, that money will stay locked for roughly a year or possibly longer.
With pooled staking and centralized exchanges, you may have the option to trade your liquidity token to withdraw your share of stake indirectly from the pool. Such tokens usually have their value pegged to ETH at a 1:1 ratio.
Historically Low APY Compared to returns of around 9% from late 2021, ETH staking rewards on many pools have dropped to around 4.4% on average since the Merge. There are several reasons for this: The macro-economic situation across the world has subdued demand for crypto. There is an ongoing crypto winter with low on-chain activity. Even more investors are creating validator nodes on Ethereum 2.0.
Crypto staking rewards are determined by a combination of factors, including on-chain activity, crypto prices, demand for the token, and the number of validators. When there are more validator nodes, the staking rewards will be spread thinner.
Investing in Future DeFi Potential The current APY from ETH staking is comparable to US Treasuries, which are one of the most trusted investment assets on the planet. Yet the enthusiasm for ETH validator nodes has not dimmed, even with a lock on withdrawals, because staking rewards are paid in ETH.
Investors are bullish on the unique position held by Ethereum in the wider crypto ecosystem. Most DeFi apps and smart contracts rely heavily on ERC-20 tokens. This technology is built almost entirely on Ethereum, making it a fundamental platform for the future of finance. Owning ETH, we believe, is like investing in the Ethereum "company."
When economic conditions improve, and further upgrades reduce ETH gas prices and improve scalability, staking rewards may see a huge jump, bringing APYs closer to the 20% mark. And the price of ETH may jump as well. You'll never get that potential upside with US Treasuries.
Investor Takeaway: To Stake or Not to Stake?
Inflation is high and interest rates are rising, with many believing a recession may be around the corner. The next few years could be rough for investors, both in traditional and crypto markets.
But we believe that Ethereum has a bright future ahead of it, based on the success of The Merge. Here are some options for staking ETH in 2023:
Solo Staking/Staking as a Service: For those who can afford it, this option provides maximum rewards in the long run. Decentralized Staking Pools: For investors unwilling to spend 32 ETH, this gives you a measure of control and autonomy. Centralized Exchanges: For those investing small sums, this is by far the most user-friendly option.
We don't recommend staking if you need that money for other goals like retirement, basic expenses, and debt repayments. But if you do have some money to spare, consider pooled staking in a permissionless, trustless, battle-tested protocol like Lido or Rocket Pool.
Staking is not a short-term investment, particularly with a long-term token like ETH. To enjoy its future potential, be patient.
HODLing + staking = the best long-term rewards. |
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Bitcoin Market Journal is a daily newsletter that makes you a better crypto investor. It's created by John Hargrave, Nick Marinoff, Steve Walters, Anatol Antonovici, Ben Burn, Preetam Kaushik, and Daniel Joel.
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