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The introduction of staking on Ethereum marked one of crypto’s most historic milestones. The network adopted proof-of-stake (PoS) in 2022, replacing the old proof-of-work (PoW) design.
Proof-of-stake forms the backbone of Ethereum 2.0. The consensus mechanism offers users a new way to participate in securing the network.
Staking removes the need to rely on energy intensive mining. Instead, users can stake ETH to the blockchain and earn rewards from transaction fees and new blocks. Validator nodes use these staked assets to confirm new transactions.
ETH staking has enjoyed incredible demand since launch. More than 29 million ETH is currently staked, representing nearly 25% of total supply.
Choosing how to stake your ETH can be a challenging decision. The sector’s tremendous growth has given rise to a thriving competitive landscape, leaving stakers spoilt for choice.
Staking ETH offers various rewards depending on the method and platform being used.
This staking yield is derived from three sources:
The bulk of ETH staking yield is generated by transaction fees. Meanwhile, block rewards are only distributed to validators who participate in a block’s confirmation.
Solo staking involves staking ETH tokens directly to the smart contract to run an Ethereum validator node. With solo staking, users earn yield from block rewards in addition to transaction fees.
However, this method carries a high barrier to entry.
Solo stakers need to lock up 32 ETH to set up a node. In addition, stakers need dedicated hardware to run the node. Nodes also need to be maintained and constantly monitored to avoid slashing penalties.
As a result, solo staking is mainly used by institutions and power users. These entities are generally committed to the network’s long-term success.
Liquid staking services emerged to democratize the staking process. In contrast to solo staking, users can deposit as little as 0.01 ETH to liquid staking platforms to earn yield.
These platforms deposit ETH to staking pools, which are then delegated to validators.
Participants receive liquid staking tokens (LSTs) representing their deposited capital and accrued yield. Importantly, LSTs maintain a peg to ETH, allowing them to be transacted freely in DeFi. As a result, users can participate in ETH staking without being forced to lock up their capital.
These benefits have generated major demand for liquid staking. LST pioneer Lido Finance is now DeFi’s largest protocol, with more than 8.9 million ETH staked via the platform. This accounts for nearly a third of the total amount of ETH staked at present.
The annual percentage yield (APY) offered to ETH stakers varies according to the number of users and network activity. Rewards rates also vary between protocols as platforms use unique mechanics for staking.
In general, ETH staking APYs range from 3% to 5%.
However, yield has dropped significantly with rising adoption. This is because the same pool of rewards is being split between increasing numbers of validators.
At the time of writing, ETH’s real rewards rate sits under 4% after adjusting for inflation. Solo stakers running their own nodes may also receive additional yield from block rewards.
The budding sector of LSTfi has emerged to address the issue of yield compression. Platforms like Origin Ether (OETH) offer users an opportunity to compound their returns through multiple streams of rewards. Such platforms harness bespoke strategies across blue-chip DeFi protocols to generate consistent yield for users.
Launched in late 2020, Lido has been instrumental in shaping the ETH staking landscape. Lido was the first platform to offer ETH liquid staking, carving out a fresh sector of innovation. Users who stake through Lido receive an LST in the form of Lido staked-Ether (stETH).
Lido’s market dominance highlights the demand for liquid staking on the Ethereum network. The protocol is now the largest in DeFi, with more than $21B in total value locked.
Stakers on Lido currently receive around 3.5% APY on their capital.
Rocket Pool built on Lido’s liquid staking design to make staking even more accessible. Rocket Pool’s unique mechanics allow anyone to run a validator node by staking only 8 ETH to a mini-pool. This threshold is far more attainable than the 32 ETH needed to run a node independently.
Rocketpool currently offers users ETH staking APYs of ~3.1%. If you stake via a mini-pool with 8 ETH or more, you can receive heightened rewards.
Frax Finance’s liquid staking product is informed by the team’s vast expertise in developing innovative stablecoins. In contrast to Lido and Rocketpool, Frax’s ETH staking mechanics use two ETH-pegged tokens – frxETH and sfrxETH.
Users who deposit ETH to Frax receive frxETH representing their capital. Then, users can choose to stake frxETH via the sfrxETH vault. Accrued staking yield is distributed to frxETH stakers in the form of sfrxETH.
This two-pronged approach is designed to broaden LST utility. By isolating staked capital (frxETH) and the LST (sfrxETH), stakers are empowered to use their holdings in DeFi with greater flexibility.
Frax’s ETH staking platform delivers APYs of ~3.8% at the time of writing.
Launched in May 2023, Origin Ether is designed to turbocharge liquid staking yield.
Users can mint OETH by depositing ETH collateral on the OETH dapp. OETH maintains a tight peg to ETH, meaning that stakers can transact OETH widely throughout DeFi. Thus, stakers can earn rewards without having to lock up their capital.
Aside from staking rewards, the protocol’s ETH reserves are put to work through cutting edge strategies that harness DeFi’s most robust protocols. These yield generating strategies include a Curve AMO, which earns yield by providing liquidity through Curve and Convex.
OETH’s conquest of LSTfi aims to mitigate yield compression by targeting higher APYs and offering LST holders a robust platform to compound their returns.
These mechanics have allowed OETH to scale rapidly while still offering impressive yields. The protocol boasts a trailing 30-day APY of >4%, substantially higher than many of its competitors.
As ETH staking gains further momentum, it’s likely that raw staking rewards will continue to decrease. For context, under 25% of ETH is currently securing the network. While substantial, this figure pales in comparison to other proof-of-stake blockchains, which regularly see more than 40% of tokens staked.
With this demand in mind, LSTfi protocols like OETH become even more important.
Depositing ETH to Origin Ether offers higher staking APYs than solo staking or pure liquid staking. At the same time, stakers retain full control of their capital, drastically lowering barriers to entry.
As with any investment, staking Ethereum carries risks. New stakers should be careful when choosing to solo stake, given the complexity and resources required.
However, the rise of liquid staking and LSTfi has greatly broadened access to staking while also minimizing risks for participants. Using a liquid staking protocol allows you to earn a steady stream of passive yield without being forced to surrender your capital or figure out how to maintain a validator node.
Investors should conduct extensive research before committing to a staking platform. In the rapidly shifting landscape of DeFi, first class security is essential.
OETH, for example, is built with an unwavering emphasis on transparency and security. The protocol boasts an open-source codebase, allowing anyone to monitor how funds are being managed. Additionally, OETH has been audited by industry leading firms including OpenZeppelin, and AI security firm Narya.
Discover how Origin Ether can help you stack ETH faster: app.oeth.com
Origin Ether (OETH) offers higher staking yields than other methods thanks to its unique strategies. OETH places a strong emphasis on security and usability, allowing users to earn rewards with greater peace of mind.
ETH staking rewards are primarily generated by transaction fees on the Ethereum network. Validator nodes also earn block rewards for helping to confirm new transaction blocks. LSTfi protocols like OETH boost these rewards by deploying reserves to blue-chip protocols like Curve.
