Do Ethereum staking rewards with Lido compound? | Lido: Help (2024)

FAQs

Is it worth staking ETH with Lido? ›

Staking ETH via Lido has inherent risks tied to liquid staking, including slashing, stETH deviating from its ETH peg, and potential smart contract vulnerabilities.

After fulfilling withdrawal requests, the rest of rewards are restaked on a daily basis. Therefore, you don't need to do anything to for your ETH staking rewards to compound. To see the compounding effect, check out Lido dune dashboard. How do Lido on Ethereum withdrawals work?

ETH staking involves locking up ETH in a node to support the Ethereum network and earn rewards. To maximize earnings, strategies like auto-compounding can be used to reinvest the rewards and compound the returns. This can lead to significant growth in the staked ETH over time.

Protocol fee — Lido applies a 10% fee on staking rewards that are split between node operators and the DAO Treasury. More about Lido staking APR for Ethereum you could find on the Ethereum landing page and in our Docs.

Users risk an exchange price of stTokens which is lower than inherent value due to withdrawal restrictions on Lido, making arbitrage and risk-free market-making impossible. The Lido DAO is driven to mitigate the above risks and eliminate them entirely to the extent possible.

Lido and the Solana Blockchain

In general, Lido for Solana offers the same potential benefits as the Ethereum staking service: liquid staking, a simplified user experience, instant liquidity, and DeFi integrations that can amplify yields. Lido for Solana is a liquid staking protocol governed by the Lido DAO.

The current estimated reward rate of Lido Staked ETH is 3.46%. This means that, on average, stakers of Lido Staked ETH are earning about 3.46% if they hold an asset for 365 days. 24 hours ago the reward rate for Lido Staked ETH was 3.62%. 30 days ago, the reward rate for Lido Staked ETH was 3.50%.

Your stETH balance increases daily as staking rewards come in. The most popular way of utilizing stETH right now is by providing liquidity on the ETH/stETH-pool on Curve. You can also use stETH as collateral to take out a loan on Aave.

Similarly, on Lido, stakers receive stETH. Wrapping tokens is a gray area in DeFi taxes, and the IRS has not provided guidance. The safest approach is to treat wrapping staked ETH as a taxable event as the blockchain records that ETH was exchanged for cbETH.

However, these funds cannot be accessed or traded during the staking period. If the market price of Ethereum drops significantly, stakers cannot sell their staked Ethereum to prevent losses. This lock-up period could therefore lead to potential losses if the market conditions are unfavorable.

Do I pay taxes on staking rewards? ›

Yes, taxes apply to crypto staking. In 2023, the IRS clarified that staking rewards are considered income upon receipt, which subjects US taxpayers to income tax on crypto received from staking. Additionally, when you sell or dispose of staking rewards, capital gains taxes typically come into play.

Lido. Lido is an open-source ETH staking pool, providing users with a decentralized staking solution. It's also the biggest Ethereum staking pool.

Your rewards from staking Ethereum are subject to income tax upon receipt and capital gains tax upon disposal.

Ethereum withdrawals are live on Lido Protocol, allowing users to unstake their stETH 1:1 directly through the Lido UI.

However, these funds cannot be accessed or traded during the staking period. If the market price of Ethereum drops significantly, stakers cannot sell their staked Ethereum to prevent losses. This lock-up period could therefore lead to potential losses if the market conditions are unfavorable.

Tax laws vary depending on where you live, but most tax offices have issued guidance clarifying that staking rewards, like mining rewards, are subject to Income Tax. That means you'll pay Income Tax based on the fair market value of your staking rewards in your fiat currency on the day you receive them.