Ethereum Staking Rewards Aren't Yield: How to Optimize Your ETH Rewards [2024] (2024)

What is Ethereum Staking?

Ethereum staking involves locking up increments of 32 ETH to activate a validator that stores data, processes transactions, and adds new blocks to the Ethereum blockchain.

Requiring validators to secure and operate with staked tokens by design disincentivizes malicious behavior that could harm the network. As decentralization on a network increases and more validators join the active set, networks become more resistant to attacks. Learn more about how staking improves network security.

In exchange for securing the network, Ethereum validators earn staking rewards in the form of freshly minted ETH coins and a portion of network fees.

This Proof-of-Stake model aligns incentives between token holders, validators, and the Ethereum protocol itself,all working together to strengthen the network.

What are Ethereum Staking Rewards?

Ethereum staking involves locking up increments of 32 ETH to activate a validator that stores data, processes transactions, and adds new blocks to the Ethereum blockchain.

When Ethereum transitioned to Proof-of-Stake with the Merge, staking became the consensus mechanism that underpins network security. ETH holders can now earn rewards for staking their tokens to activate validator software that stores data, processes transactions, and adds new blocks to the chain.

The rewards come from two sources:

• Execution layer rewards: Validators only receive them when they are proposing blocks, which is a random and infrequent event (happening, typically, once every 64 days or so). Even if a validator is randomly selected to propose a block, the size of the rewards are determined based on the cost of transacting on the network. These costs include priority and Maximal Extractable Value (MEV) fees in that block. The EL fees are volatile and primarily driven by the traffic on the network at the time of the transaction.
• Consensus layer rewards: Allocated to validators for attesting, proposing blocks, and participating in the sync committee. Attesting blocks is a frequent occurrence and is primarily driven by the participation rate of a validator.

Validators receive rewards each time they are selected to propose a new block. The more ETH staked on the network, the more validators can be supported and decentralized.

Ethereum Staking Rewards vs Ethereum Staking Yield

It’s important to understand that Ethereum staking rewards are fundamentally different from yield earned on DeFi platforms such as Uniswap or Compound Finance.

With protocol staking, you retain ownership and control of your ETH at all times. You are simply earning rewards from the protocol for helping secure the network.

Yield from liquidity pools and other DeFi actions is different – you have to deposit your ETH into a smart contract based pool to provide liquidity. This comes with potential risks like impermanent loss. The yield represents your share of trading fees from the pool proportional to your share of the pool.

This fundamental difference poses risks for yield strategies that don’t exist in protocol staking. Impermanent loss can drain significant value when asset ratios change in a trading pair. Smart contracts can have vulnerabilities that lead to exploitations and loss of funds. Centralized governance of protocols presents administration risks.

So, while DeFi yields may appear attractive in booming markets, they ultimately represent speculative returns rather than direct participation in blockchain consensus. Protocol staking ensures your ETH secures Ethereum itself – aligning incentives for a sustainable long-term model without risky locked liquidity pools.

Ethereum investors can better evaluate how to productively put their ETH to work: through decentralized staking supporting the network or yield farming introducing market vulnerabilities. Leading staking providers like Figment provide staking services to optimize rewards safely.

How Much Can be Earned Staking ETH?

Ethereum staking rewards currently average around 4-7% annually but can fluctuate depending on network activity. Here are some estimates:

• Staking 32 ETH (1 validator) – ~4-7% SRR = 1.6 – 2.24 ETH per year
• Staking 1,000 ETH – ~4-7% SRR = 160 – 224 ETH per year
• Staking 10,000 ETH – ~4-7% SRR = 1,600 – 2,240 ETH per year

Factors like transaction volume impact rewards as well, so they can vary significantly from month to month. Platforms like Figment optimize uptime and also optimize rewards earned through services like MEV-Boost.

Staking ETH

Here are some of the key benefits of staking your ETH:

• Increase your ETH holdings with rewards paid out in ETH
• Support the security of the Ethereum network
• Aligned for long term holders

Ethereum staking provides attractive rewards on a valuable asset you likely plan to hold long-term anyway. It’s a win-win for supporting the network and your portfolio.

ETH Staking Methods

Staking-as-a-Service

Staking-as-a-Service (StaaS) platforms, like Figment, build and maintain staking and validator infrastructure for their users. These platforms give users the ability to stake 32+ ETH through an easy-to-use platform.

Pros:

• Simple and easy for beginners. No technical expertise needed.
• Non-custodial, so you always maintain ownership of your crypto and keys.
• Robust security features such as slashing protection.
• Higher rewards through optimizations like MEV-boost.
• Portfolio tracking, monthly reports, and staking insights.
• On-chain billing, providing a transparent method for fees

Cons:

• Some platforms take fees on rewards earned.

Learn more about staking with Figment here.

Solo Staking: Running Your Own Validator

Solo staking involves running validator infrastructure independently by setting up the required hardware and using staking software like Teku. Solo staking gives users full control of the private keys and withdrawal addresses.

This requires staking 32 ETH yourself directly through an Ethereum client. Solo staking aligns with decentralization values but requires technical expertise in operating validators.

Pros:

• Full control over validator keys and infrastructure.
• 100% of rewards earned go to you.

Cons:

• Need to maintain infrastructure 24/7.
• Risk of penalties if validation is improper.
• Requires technical expertise in Ethereum.
• Upfront investment of 32 ETH and ETH for fees.

Staking Pools

Staking pools allow users to aggregate funds together to collectively stake below the 32 ETH minimum required for typical validation. This makes staking accessible for smaller token holders.

A pool operator handles running the validator to validate transactions and propose blocks on behalf of the participants. The operator takes a percentage fee and rewards are shared proportionally among pool depositors.

Pros:

• Stake any amount of ETH.
• Operator handles infrastructure.

Cons:

• Custodial – you don’t control withdrawal keys.
• Pool smart contracts can be a risk.
• Rewards diluted across larger pool.

Liquid Staking Pools

Liquid staking protocols like Liquid Collective allow token holders to stake any amount of coins in exchange for liquid staking tokens. For example, staking ETH on Liquid Collective returns liquid LsETH tokens in a 1:1 ratio.

These tokens can then be freely traded or used in DeFi protocols while still representing the staked assets earning rewards in the background.

Pros:

• Stake any amount of ETH.
• Receive liquid staked tokens to use in DeFi.
• Receives the same rewards as protocol staking ETH.

Cons:

• Smart contract risks.

Centralized Exchanges

Popular centralized exchanges offer built-in staking services – users keep assets on the exchange which are staked on their behalf with a share of rewards provided back to the depositor.

Pros:

• Simple to enable for users of exchange.

Cons:

• Fully custodial – keys held by exchange.
• Lower rewards shared with exchange.
• Prone to centralization risks.
• High fees taken by exchanges.

The optimal approach depends on specific user priorities and risk tolerance. Solo staking and decentralized platforms provide excellent security with user-owned keys. Liquid and exchange staking prioritize convenience and accessibility in a centralized manner.

Leading staking-as-a-service providers like Figment bridge these benefits to optimize rewards through secure user-controlled infrastructure optimized for rewards and protections.

How to Stake Your ETH with an ETH Staking Platform

Ready to dive into staking your ETH? Here is the step-by-step process:

Navigate to the Figment app to get started staking Ethereum.

Locate the “Stake” button on the right. Here we can see the available protocols, and for this guide, we will be choosing Ethereum.

Below this, we can see the latest benchmarked price, Staking Rewards Rates (SRR), and how often rewards are distributed. As a reminder, when staking ETH, it must be in increments of 32. With the Figment app, you can create up to 100 validators at one time.

Click the “Stake” button and proceed.

Now, let’s connect your wallet. Within the Figment app, you can connect any MetaMask or WalletConnect compatible wallet or clone. We recommend only having one wallet extension enabled at a time while using the app.

Through WalletConnect, there are several different custodian solutions available such as Bitgo, Fireblocks, Ledger, and more.

Here you can put in how many validators we wish to provision, and then input your withdrawal address. It is absolutely vital that this address is correct. You will lose 100% of your deposits in ETH If you don’t have sole custody of this Ethereum address.

Once we have triple-checked that the address is correct, we can click “Continue.”

Review one more time to ensure that all your information here is correct and that you have provided the right withdrawal address, and then click “Confirm Stake.” Again, it is very important to ensure all of this information is accurate.

Once you click “Confirm Stake,” a pop-up will appear indicating that your validators are being fetched. Please note that this step can take up to five minutes – do not close or refresh the pop-up window during this period.

Once the validators are fetched, you will see the pop-up change to “Waiting for Signature,” message and your MetaMask should pop up on the right-hand side of your screen. If not, go ahead and check your wallet to sign the transaction.

If you use WalletConnect, you will need to go to your wallet and sign the transaction just like any other transaction.

Once signed, the popup will say “Confirming Transaction.” Once the transaction has been confirmed, you will see a confirmation message. You will also receive an email shortly after you stake confirming the transaction went through, and then another email after the validators have become active.

Don’t worry if you don’t see the address added to your “Positions” table in the dashboard. As soon as your validator earns rewards for the first time and has passed through the withdrawal queue, the address will be included under “Positions.”

Congratulations, you just staked Ethereum with Figment’s industry-leading staking infrastructure.

Downsides of Staking ETH

While staking ETH offers significant advantages, there are some downsides to consider:

• Illiquidity – Staked ETH is locked up, limiting liquidity.
• Minimums – Solo staking requires 32 ETH to activate a validator.
• Slashing – Validators are penalized ETH for downtime and double-signing. Robust staking providers like Figment provide slashing coverage to help mitigate slashing risks. Learn more about our slashing coverage here.
• Complexity – Staking can still be seen as technical, especially for solo staking. User-friendly platforms like Figment abstract away complexity.

By selecting a reputable staking service, users can enjoy the benefits of Ethereum staking while mitigating the associated risks.

More About Ethereum Staking Rewards

Is there an ETH staking calculator?

​​Yes, Figment offers a handy Ethereum staking rewards calculator to estimate your earnings based on amount staked and other parameters.

The calculator leverages Figment’s Rewards Rate API to provide accurate, up-to-date rewards rates. Users can input their ETH amount, duration, and customize assumptions.

It simplifies the process of estimating potential staking income across protocols like Ethereum. As the calculator evolves, it will support additional reward components as networks expand functionality.

How often does ETH staking pay out rewards?

Ethereum staking rewards are calculated and distributed at the end of each epoch, which is approximately every 6.4 minutes.

When a validator proposes and attests to new blocks, it receives the rewards for those blocks. This means rewards fluctuate significantly day-to-day based on activity.

Platforms like Figment optimize your uptime and chances of being selected to propose blocks more often, earning higher rewards.

Do Ethereum staking rewards compound?

Ethereum staking rewards do not auto-compound. The ETH earned from staking rewards is sent to the validator’s withdrawal address and needs to be manually re-staked to compound gains.

Is It Worth It To Stake Ethereum?

For most long-term ETH holders, exploring staking is definitely worthwhile. Staking allows you to generate rewards on a valuable asset you plan to hold anyway while supporting a blockchain you likely utilize.

Platforms like Figment make getting started with Ethereum staking easy and rewarding for any user. With robust security features, you can stake ETH with confidence.

Ready to start securing the Ethereum network while earning rewards on your investment? Get started staking ETH with Figment today and take advantage of this innovative way to tap into Ethereum’s potential.

Use the Best Staking-as-a-Service Provider

Staking-as-a-Service allows cryptocurrency holders to earn staking rewards without needing to become staking experts or take on the operational burdens. By leveraging a trusted provider like Figment, institutions and users alike can access enterprise-grade staking infrastructure to optimize rewards on tokens like ETH, SOL, MATIC, and more.

Staking with Figment offers unparalleled benefits:

• Non-custodial staking maintains user control
• Robust security and infrastructure uptime
• Portfolio-level rewards tracking and reporting
• Proactive slashing protections to prevent losses
• Seamless API integrations with core systems
• Dedicated support and staking expertise

The combination of technology, infrastructure, and team makes Figment the ideal staking partner.

To learn more about how Figment’s Staking-as-a-Service can benefit yourself or your organization, meet with us. Figment’s staking experts are ready to answer any questions and explain how our solutions can help you optimize staking rewards on your digital assets.

The information herein is being provided to you for general informational purposes only. It is not intended to be, nor should it be relied upon as, legal, business, tax or investment advice. Figment undertakes no obligation to update the information herein.