Ethereum Merge is approaching and ETH holders have the option to stake their holdings through solo staking, independent staking pools, liquid staking protocols and centralized exchanges. While each method is slightly different from the others, they all have different benefits and risks.
Coming soon: Ethereum Merge
Ethereum Merge for Proof-of-Stake (PoS) is nearing completion. ETH holders now have a chance to earn capital. With Merge, the world’s second largest blockchain will shut down the Proof-of-Work (PoW) consensus mechanism. Later, it will return to PoS. As Ethereum moves away from PoW, it will rely on validators rather than miners to verify transactions. ETH holders will verify the network by staking their holdings. Thus, it will be possible for them to receive efficiency in return for their services.
According to the statements, Ethereum Merge will take place between September 13 and 15. However, there are currently multiple staking options for ETH holders. Ahead of Ethereum’s milestone event, this feature details the main ways ETH holders can stake their assets.
Staking methods for Ethereum
Lik staking protocols
One of the most popular ways to stake ETH is through liquid staking protocols. The biggest ones on the market today are Lido and Rocket Pool. It is possible for users to lock their ETH and receive rewards with staked ETH tokens (stETH in Lido, rETH in Rocket Pool) representing their invested assets. Transferring ETH to liquid staking protocols is easy. All you need is an Ethereum wallet. Lido currently gives 3.8% APR. Rocket Pool, on the other hand, gives 3.61% APR for staking and 4.84% for those who want to stake their ETH and run their own nodes. For comparison, solo staking on Ethereum currently earns around 4.1% APR.
The main benefit of liquid staking comes from receiving a liquid token. When users receive a staked ETH token representing their deposit, they have the opportunity to increase their yield by running it on DeFi protocols. For example, you can invest Lido’s stETH in the yield strategy protocol. Yearn Finance currently earns roughly 7% APR, bringing the overall return to almost 11%.
Liquid staking protocols like Lido and Rocket Pool are careful when choosing validators to work with. Lido maintains a whitelist of industry-leading staking providers. It also maintains a community-owned scorecard to monitor the staking performance of the protocol. Meanwhile, Rocket Pool maintains a policy stating that losses due to unreliable validators are shared over the Rocket Pool network to minimize the impact on single users.
Staking on exchanges
Centralized exchanges offer convenient ways to stake ETH and earn returns. Most major crypto exchanges have staking services, including Coinbase, Binance, and Kraken. After Merge, they plan to support PoS Ethereum. Coinbase is currently pricing around 3.28% April, Kraken 4% to 7%, and Binance “up to 5.2%”.
Staking on centralized exchanges is arguably the easiest way to earn returns in ETH. However, most exchanges require users to pass KYC (Know Your Customer) identity checks to open an account. In addition, these exchanges function as escrow. It entrusts users’ funds to a third party. Crypto has seen many cases of users losing everything after entrusting their assets to companies in the past. All you have to do is cryptocoin.comfrom Mt. Reading articles on Gox and Celsius.
However, major exchanges provide a convenient and relatively secure channel to stake ETH. A common assumption is that exchange-powered validators are less likely to be interrupted. Coinbase states that users can be compensated for bets cut, even if the cause is beyond the exchange’s control.
Staking pools and SaaS providers
“Stake pool” is an umbrella term for any staking service provider that allows users to contribute small amounts of ETH to a pool. Ethereum users need to deposit 32 ETH (over $54,000 at current prices) to become a validator. This is why stake pools are popular options for those with smaller stakes to deposit.
Lido, Rocket Pool, Coinbase, and Kraken all operate their own staking pools. It is possible to use several “standalone” stake pools to stake ETH and generate returns. Investing ETH in a standalone staking pool is in most cases as easy as staking on Lido or Coinbase. The difficult task is to choose the right bet pool. Authorizing an independent stake pool helps increase the decentralization of Ethereum. Currently, independent stake pools and solo validators make up less than half of the network’s staking power. They also tend to provide higher returns than other services. For example, stakefish currently gives 6.67% APR, while Everstake gives 4.05% APR.
It is also possible for ETH holders to use a Staking-as-a-Service (SaaS) platform to stake their assets. SaaS platforms allow users with sufficient ETH to hire a validator and delegate transactions to a third party. Thus, it provides a special kind of staking service. SaaS platforms are considered to be less risky than standalone stake pools. In addition, they often provide higher returns. However, it is possible for them to be used only by users who own 32 ETH.
solo staking
Perhaps the most obvious option for the ETH holder is to set up their own validators. This usually requires special hardware, technical know-how, a solid internet connection and 32 ETH. But it’s arguably easier than running a mining rig. According to the Ethereum website, solo staking currently yields 4.1% APR. However, experts estimate that this figure will exceed 8% after Merge.
Solo stakers participate in network consensus. It also contributes to the security and decentralization of Ethereum. In return, they get rewards directly from the protocol without having to pay management fees. The Ethereum Foundation encourages solo verification. According to Dune data compiled by Hildobby, Vitalik Buterin himself has staked 6,976 ETH to 218 validators.
There are clear risks associated with solo staking. Verifiers can withhold their funds if their internet connection goes down. Solo validators are supposed to guarantee uninterrupted network uptime. They must manage their own private keys, monitor their nodes, and regularly update their client software. This is why verification doesn’t exactly qualify as a “passive income” strategy. Also, in extreme cases, users risk losing 32 ETH if they make a mistake while setting up their nodes. Ethereum transactions are irreversible. Therefore, there is a risk of losing their assets forever. For these reasons, experts generally only recommend solo staking for more advanced users.
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