Blockchain
Exploring the Intricacies of Ethereum Staking
James DingJul 15, 2024 7:16 PM
A comprehensive overview of Ethereum staking, covering types, risks, rewards, and future projections according to Galaxy.
Ethereum staking has attracted considerable attention as the blockchain network continues to evolve. According to a comprehensive report from Galaxy, Ethereum stakeholders must navigate a landscape filled with both opportunities and risks. This report is the first in a three-part series that delves into various staking activities, including restaking and liquid restaking.
Ethereum Staking Overview
As of July 15, 2024, Ethereum (ETH) holders have staked over $111 billion in ether, representing 28% of the total ETH supply. This amount staked is often referred to as Ethereum’s “security budget.” Stakers contribute to the security of the network and are rewarded through protocol issuance, priority tips, and maximum mineable value (MEV). However, high demand for staking has led developers to consider changes to issuance policies to address this trend.
Staker Types
There are six main types of Ethereum users who earn rewards from staking. Managed stakers, who delegate their ETH to professional staking node operators, are the most numerous. Liquid staking protocols like Lido also play a significant role, with approximately 29% of total ETH staked delegated via such platforms.
Staking Risks
The risks of staking vary depending on the method used:
- Direct staking: Involves the use of proprietary staking hardware and software, with risks including staking penalties and slashing.
- Delegated Staking: Involves delegating ETH to another entity, adding counterparty risk.
- Liquid Staking: Involves delegating ETH and receiving a liquid token, adding liquidity risks.
Regulatory risks also loom, especially for delegated and liquid staking methods. Protocol risks include offline node penalties, initial slashing, and related slashing penalties.
Staking Rewards
Stakers can earn around 4% APY on their staked ETH deposits, derived from new ETH issuance, priority tips, and MEV. However, rewards have declined over the past two years due to increased staking and reduced transaction activity on the network.
Staking rate projections
Ethereum staking is expected to exceed 30% in 2024. Liquid staking services have streamlined the staking process, bypassing traditional limitations such as entry queues. Developers are considering changes to issuance policies to curb staking demand and maintain a balanced network.
Discussions on emission changes
Developers are considering several options to reduce Ethereum’s staking rate, including short-term reductions in staking yields and long-term targeting of the stake ratio. Discussions have been contentious, with concerns about the profitability of staking providers and the lack of data-driven analysis for the proposed changes.
Conclusion
The economics of Ethereum staking are still experimental and evolving. As the network undergoes further changes, stakeholders must carefully weigh the risks and rewards associated with staking. The growing stakeholder base makes frequent changes to the dynamics of staking difficult, but Ethereum remains a relatively new proof-of-stake blockchain that is expected to evolve significantly in the coming years.
For a detailed overview of Ethereum staking and future projections, read Galaxy’s full report Here.
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