STAKING

How to generate an ETH return after the Merge

Someone staking ETH on an exchange
Investors require a minimum of 32 ETH to become a validator and stake funds on the blockchain – Photo: Shutterstock

The Ethereum merge, completed on 15 September has opened up new ways of making money through the cryptocurrency via staking, as the blockchain changes fundamentally.

Ethereum’s switch to proof-of-stake has left behind miners and exchanged them for validators. This group is responsible for processing transactions and will earn yield in return.

At the time of writing, there is more than 14 million ETH staked by more than 400,000 validators.

Currently, the annual percentage rate (APR) earned by staking ETH and validating transactions is 4.1%. But there are several methods to access these earnings.

How to become a validator and earn ETH

To earn the APR on their own, investors will need to lock away 32 ETH, roughly $51,978.24 at the time of writing. Users will also need a dedicated computer, which is connected to the internet every day

However, various “staking as a service” options have propped up. Services like BloxStaking, Kiln and Abyss Finance have simplified the process for users.

Stakers will still need to lock up a minimum of 32 ETH, worth as of the morning of 15 September around $50,700. But there is no need for hardware running all day, with the associated costs.

There are certain factors investors will need to consider, as the services usually require handing over cryptocurrency keys.  

The official Ethereum website said: “This method of staking requires a certain level of trust in the provider. To limit counter-party risk, the keys to withdrawal your ETH are usually kept in your possession.”

Criteria for stakers to review include whether it is open source, audited, permissionless and uses self-custody.

Staking alternatives

Not all staking methods require processing transactions, which means higher APR rates are possible.

Before the move to proof-of-stake, liquidity pools were utilised by investors to earn passive income from their ethereum.

By lending ETH to these pools, investors could earn yield from a variety of different third parties.

This method is usually more accessible with the amount required as low as 0.01 ETH. However, investors will have to be wary of the risks associated with lending cryptocurrencies to third parties.

Ethereum’s website notes: “There are many ways to participate in Ethereum staking. These paths target a wide range of users and ultimately are each unique and vary in terms of risks, rewards, and trust assumptions. Some are more decentralized, battle-tested and/or risky than others.”

Further reading

Representation of a silver Ethereum (ETH) token on a pile of bitcoins

Ethereum 2.0 logo, which depicts a blue pyramid in reflection, on dark background


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Traciwininger
Author: Traciwininger

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