Ethereum (ETH) Liquid Staking Guide

This guide will give you an overview on Ethereum and how to stake your ETH.

Last updated on May 12, 2022

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Ethereum is a distributed blockchain computing platform for smart contracts and decentralized applications. Its native token is ether (ETH), which primarily serves as a means of payment for transaction fees and as collateral for borrowing specific ERC-20 tokens within DeFi. Ethereum has pioneered the concept of a blockchain smart contract platform. Smart contracts are computer programs that automatically execute the actions necessary to fulfill an agreement between several parties on the internet. They were designed to reduce the need for trusted intermediates between contractors, thus reducing transaction costs while also increasing transaction reliability.

The Ethereum network has been plagued with high transaction fees, often buckling at seasons of high demand. In addition, the network also suffers from scalability issues. Currently, Ethereum is using a Proof-of-Work (PoW) consensus mechanism. However, to combat the scaling issues, Ethereum is planning to move to Proof-of-Stake (PoS) with the Ethereum 2.0 Beacon Chain going live in the beginning of December 2020.

With the launch of the Beacon chain, it became possible to stake on the Ethereum 2.0 network. With ETH deposits on the Ethereum 2.0 deposit contract, stakers help to secure the network by storing data, processing transactions and adding new blocks to the blockchain.

With the minimum requirements for an Ethereum stake at 32 ETH (roughly $100,000 at the time of writing) and your Ethererum stake locked up on the network for months, if not years, until the Ethereum 2.0 upgrade is completed another solution was needed.

While centralized exchanges allowed users to stake smaller amounts and circumvent long lockup times, there was no non-custodial option.

As a result, liquid staking was born to address the following issues:

  • Amount of ETH needed to stake is too large
  • Stakers have no access to their assets
  • Inability to use asset productively across the DeFi ecosystem

What is liquid staking?

Liquid staking is the process of participating in the validation of Proof-of-Stake (PoS) blockchains by staking and then receiving an interest-bearing asset in return. Liquid staking allows stakers to earn rewards while retaining liquidity through the tokenized version of the staked funds, which can be traded or used to earn additional rewards elsewhere.

What is Lido?

Lido is a liquid staking solution for ETH 2.0 backed by industry-leading staking providers. Lido lets users stake their ETH without locking their assets or requiring users to build their own staking infrastructure. Lido attempts to solve the problems associated with initial ETH 2.0 staking - illiquidity, immovability and accessibility, making staked ETH liquid and allowing for participation with any amount of ETH to improve the security of the Ethereum network.

Why should I stake my ETH?

Staking is the process of locking up a digital asset (ETH) to provide economic security for a public blockchain. Staking your ETH helps secure the PoS Ethereum network, currently separate from the mainnet and called the “Beacon Chain”. Further, most PoS blockchains are initially inflationary in nature, so staking your ETH prevents you from getting inflated out of your position as you earn rewards for helping secure the network and validate transactions. Lastly, you can participate in network governance.

  • Secure the network – With ETH, you have the power to contribute to the security and governance of Ethereum through staking and voting on governance proposals.
  • Earn rewards – When you stake to a validator, you are contributing to the security of the network and are rewarded with ETH through staking rewards.
  • Vote for the future – Staking ETH allows you to vote on governance proposals and contribute to making decisions on the future and direction of the network.
What happens when I stake my ETH?

As Ethereum 2.0 utilizes a PoS consensus mechanism, you can participate in securing the network by becoming a validator. Validators on the Ethereum blockchain (and most other PoS blockchains) validate the network by approving transactions. The more ETH a validator holds the more powerful they are and the more "vote" the have in the network, which allows them to validate more transactions, thus earning more rewards. Ethereum does not have a delegated PoS model, so in order to directly participate you will need 32 ETH and setup a validator.

However, alternatives like Lido allow you to delegate your ETH to a pool of respected validators and with that earn rewards. From the earned rewards, the validator pool gives a certain percentage (stipulated by the network) back to the delegators (in this case holders of stETH) that have delegated (staked) their ETH to them via Lido & Steakwallet.

When using Lido, users receive secure staking rewards in real-time, allowing for participation in the securing of Ethereum without the associated risks and downside potential.

How much can I earn from staking my ETH?

At the time this post was published, the APY (Annual Percentage Yield) for staking ETH is 4.7%.

Ethereum staking rewards are determined by a distribution curve (the participation and average percent of stakers): some ETH 2.0 staking rewards were at 20% for early stakers, but will be lowered to end up between 7% and 4.5% annually.

For the most up-to-date rewards rate, you can check out the Steakwallet app.

What is the minimum amount of ETH I can stake?

As Ethereum’s Proof-of-Stake model does not include delegation, the minimum to stake ETH directly to a validator is 32 ETH. However, as this is a sizable amount, liquid staking offers the opportunity to stake with no minimum. You should always consider Ethereums currently high transaction fees so make sure to have enough ETH available to pay for network fees, as all blockchain interactions (such as sending a transaction, staking, unstaking, or interacting with other dApps) require you to pay gas. Learn more about gas fees here.

How do I stake my ETH?

When you stake your ETH, you are able to choose how much of your ETH you want to delegate to the Lido validator pool. You can stake any amount of ETH, for which you receive stETH tokens on a 1:1 basis representing your staked ETH. Your stETH balance is updated on a daily basis to reflect your ETH staking rewards and your stETH balances can be used like regular ETH to earn yields and lending rewards. This is different from traditional staking where your assets are locked up and can’t be used while earning staking rewards.

Make sure you have enough ETH in your wallet to pay for network transaction fees.

What is staked ETH (stETH)?

stETH is a token that represents staked ether in Lido, combining the value of initial deposit + staking rewards - penalties. stETH tokens are minted upon deposit and burned when redeemed. stETH token balances are pegged 1:1 to the ETH that is staked with Lido via Steakwallet. stETH token balances are updated when the oracle reports changes in total stake every day. stETH tokens can be used as one would use ETH, allowing you to earn ETH 2.0 staking rewards whilst benefiting from, among other things, yields across decentralized finance products, such as borrowing or lending.

Which validator is my ETH staked to?

Currently, if you stake your ETH with Steakwallet your stake gets delegated to a pool of validators selected by the Lido DAO. Among them are companies such as Chorus One, p2p, StakeFish, Staking Facilities, Everstake, and more.

How do I unstake my ETH?

Currently, you cannot unstake ETH that has been staked on the Beacon Chain. This will only be possible after the current Proof-of-Work mainnet chain is merged with the PoS based Beacon Chain.

However, as the stETH you received for staking is a liquid asset you can simply trade out of your position by swapping it to ETH (or any other token) on a number of decentralized (and centralized) exchanges, such as Uniswap, SuhshiSwap or Curve.

Simply use your Steakwallet and WalletConnect to connect to any of the exchanges supporting stETH and swap away.

When will I start earning rewards?

You will start earning rewards 24 hours after depositing your ETH with Lido and without needing to wait for the validator activation queue.

How do I claim my staking rewards?

Since stETH is an interest bearing asset you are automatically accumulating your staking rewards in the token. No need to manually claim rewards. If you wish to realize earned rewards you can simple swap out of your stETH position as explained in the “How do I unstake my ETH” section.

Does Steakwallet take a cut of my rewards or charge a fee?

No. Steakwallet never charges a fee on your staking rewards. However, Lido applies a 10% fee on a user’s staking rewards. This fee is split between node operators, the DAO, and a coverage fund and is similar to validators on other networks taking a comission.

Is ETH staking safe?

Given that you always maintain custody of your assets (as Steakwallet is non-custodial), you always remain in full control. While staking ETH is relatively safe, and while Lido has a great track record (as one of the most reliable liquid staking providers in the industry), there's always a risk.

Specifically, there is a number of potential risks when staking ETH using liquid staking protocols:

  • Smart contract security
    • There is an inherent risk that Lido could contain a smart contract vulnerability or bug. The Lido code is open-sourced, audited and covered by an extensive bug bounty program to minimise this risk.

  • ETH 2.0 - Technical risk
    • Lido is built atop experimental technology under active development, and there is no guarantee that ETH 2.0 has been developed error-free. Any vulnerabilities inherent to ETH 2.0 brings with it slashing risk, as well as stETH fluctuation risk.

  • ETH 2.0 - Adoption risk
    • The value of stETH is built around the staking rewards associated with the Ethereum beacon chain. If ETH 2.0 fails to reach required levels of adoption significant fluctuations in the value of ETH and stETH could occur.

  • DAO key management risk
    • Ether staked via the Lido DAO is held across multiple accounts backed by a multi-signature threshold scheme to minimise custody risk. If signatories across a certain threshold lose their key shares, get hacked or go rogue, funds risk becoming locked.

  • Slashing risk
    • ETH 2.0 validators risk staking penalties, with up to 100% of staked funds at risk if validators fail to validate transactions. To minimise this risk, Lido stakes across multiple professional and reputable node operators with heterogeneous setups, with additional mitigation in the form of cover that is paid from Lido fees.

  • stETH price risk
    • Users risk an exchange price of stETH, which may be lower than its 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. Despite this, they may still exist.


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