Maximizing Profits with ETH Staking in 2023
The crypto-verse has been on a significant downtime for almost two years, as most investors are moving their tokens from one project to another in search of maximum profits. The proof of stake protocols allows crypto enthusiasts to earn passively by staking on the projects and earning commissions from transaction fees and profits.
Ethereum made the shift to a proof of stake chain in 2022, and staking has never been better. The Ethereum project is one of the largest by market cap and is definitely the most popular blockchain in the cryptocurrency market. Hence, staking your assets in Ethereum and knowing how to maximize your profits through staking is crucial to staying in the green despite the bearish market trends.
In case you're wondering what Ethereum staking entails, hang on. You got the mail!
What is Ethereum Staking?
As stated above, Ethereum operated the more energy-intensive proof of work protocol for years, where validators and miners had to compute complex figures to earn block rewards. By September 2022, the blockchain moved on to a proof of stake platform in an event called the 'Ethereum Merge' and formally introduced staking for all crypto users and investors.
However the withdrawal of staked rewards came quite later in 2023, as the Shanghai Update now allows validators and users to withdraw their staked rewards from the platform any time they wish. Like other blockchains, staking helps the Ethereum network upgrade its security and achieve sustainability and environmental compliance by minimizing energy usage.
For the users, your staked rewards result from your activity in verifying and proposing blocks on the network. You get block rewards, as well as commissions from the transaction fees on Ethereum. There is an Annual Percentage Rate (APR) that indicates how much a user will get on their deposits if they keep staking their assets for 365 days.
And the calculation is pretty straightforward. The APR at this time is about 3.6%, so if you stake, say, 32 ETH, you will get 0.96 ETH as a staking reward at the end of the year. Remember, you can withdraw your staked assets and rewards anytime, but you get value for your staking process when you hold for long periods.
How Does Ethereum Staking Work?
Before getting down to maximizing profits with Ethereum staking in 2023, here's a brief overview of how to stake on Ethereum.
There are various methods of participating in Ethereum staking in 2023, and they vary in risks and difficulty. From staking to owning a validator node to sharing a node with others, there's an option for everyone, and we'll review them all in a bit.
- Solo Staking
As the name goes, you run a validator node when you enter through the solo staking option. The node represents a processing unit on the Ethereum network, where the validator verifies transaction blocks and maintains the network's security with their activity.
To run a validator node on Ethereum, you must deposit 32 ETH as your staking asset. You must also know about blockchain technology and its software and hardware applications to successfully run the node without suffering penalties.
Your node responsibilities require a full-time commitment, as you will get commissions from the gas fees from the transaction blocks you approve. On the bright side, you stand to gain:
- All your ETH without giving any cuts to an exchange or middleman.
- Control of all your keys. Security could be a challenge with other forms of staking.
- Contribute more efficiently to the running of the Ethereum network while you earn portions from the gas fees.
The risks involved in solo staking are minimal, as most of the factors depend on your skill and availability, although you need to have a sound knowledge of blockchains before delving into them.
- Staking As A Service (SaaS)
You must be wondering what the case will be for those who don't have blockchain expertise but still want to get full validator rewards. That's where the Staking As A Service option comes in!
Here, you deposit 32 ETH through a third-party company to run the node on your behalf. The firm agrees to a fixed price with you, and your staking is underway.
There are a variety of firms offering such services, especially to busy crypto enthusiasts, and you need to choose a transparent deal with a suitable company to secure your assets and mitigate risks. For this, you have ChainLabo, a Swiss-hosted ETH staking firm that offers you complete control of your assets while they help run your node at fixed rates.
At ChainLabo, you don't surrender your withdrawal keys; the node operators only need your signing keys to access the node's hardware and software functions.
- Pooled Staking
The pooled staking option allows crypto enthusiasts who can't stake up to 32 ETH to run a node. Several users pool resources to make 32 ETH and deposit on a decentralized platform. The platform activates a node on Ethereum, and the pool members share the staking rewards.
The decentralized platforms, called staking protocols, are outside of the Ethereum network, so there is no need for the pool members to worry about setting up a validator. Also, the staking protocols could offer users liquidity tokens representing their Ethereum stake.
The pools require a flat rate from users' rewards, so you don't get all your ETH stake rewards. Also, you can't access the validator node since it's not just your ETH at stake.
- Staking with Centralized Exchanges
Like decentralized staking protocols, centralized exchanges like Binance and Coinbase allow users to access the staking functionalities on Ethereum by allowing them to stake via their wallets. The issue with the centralized exchanges is that they maintain full custody of the signing and withdrawal keys.
Essentially, your staked assets and rewards are still under their control, and you can't access any of the keys. This could pose risks to you as a user, as the security of your assets depends on that of the exchange. Also, having too many centralized exchanges on the Ethereum network doesn't help the platform's strength.
The staking protocol on centralized exchanges is very easy to set up, but the exchanges charge transaction and withdrawal fees.
Crypto expert Mark Farfan on YouTube adds two more forms of Ethereum staking, which are essentially modifications of one of the aforementioned options. According to Mark, we have:
- Leveraged Staking
You can carry out your Ethereum staking using a liquidity service provider such as the decentralized platforms stated above, where you collect ETH loans and use them to purchase staked ETH (index co-op ETH, or icETH) and pay the loans back from the APRs on your staked assets.
Leveraged staking offers a higher APR than conventional staking, rising up to over 20% most times. Hence, users will always be able to pay back their loans and make profits alongside.
With rewards like that, you can expect significant risks, including:
- the security of the smart contracts involved, which could enable hackers to steal user assets,
- liquidation risks, where the loans are over-leveraged and the ecosystem is filled with too much ETH, causing a dip in staking yields,
- A prolonged dip in the price of the staked ETH (icETH) against Ethereum, leading to reduced profits.
- Being a staking validator
This definitely sounds like solo staking, where you run your own validator node, but it’s another variation. Here, you register with a decentralized staking protocol to run a validator node, but this time, with 16 ETH. The platform provides you with the other half, pooled from several other users, and you will be entrusted with a validator node to contribute to the Ethereum ecosystem.
This method simply offers Ethereum enthusiasts another opportunity to run validator nodes on the blockchain even if they can’t spare the 32 ETH capital. It bears the same difficulty, risk and rewards as solo staking.
Overall, you should understand the merits and risks of each staking option before opting for them. The easier ones often bear the most risks, and you must be proficient in navigating blockchains before you can handle a node independently.
How to Maximize Your Profits with ETH Staking
Ethereum staking is one of the few remaining means of scaling through the bearish cryptocurrency market. Maximizing your profits with Ethereum staking is a key way to stay afloat, especially as the token prices have been quite unstable recently.
While it's a relatively new area, several ways exist to increase your potential staking rewards. Some clues from the Binance feed include:
- Diversifying your investment
While staking, you don't have to put all your eggs in one basket. Staking, like every other aspect of crypto trading, requires intensive research, and you can stake in various promising projects to boost your Annual Percentage Rate.
It is important to pick stable, consistent projects in the market over trending tokens. Trends might not last a year, and your assets could lose their value if there is a sharp plunge in a token's price.
- Timing your entry
While carrying out your research, you should check tokens with the current highest APRs and look out for the potential for their APR and coin price after a while. This will help you determine when to stake a platform, and, along with the project's reputation, you can maximize your staking profits.
What are the risks involved in Ethereum Staking? How do you curb them?
Before depositing your assets in the Ethereum staking protocol, you have to understand the basic risks involved in staking and the risks associated with each staking option.
For one, staking involves locking your funds on a platform. At least for a while, these funds are unavailable for immediate usage, and you have to understand that withdrawal could depend on network speed on individual blockchains. Also, staking long-term is a more profitable option, as the compounded interest yields better when it takes a longer time.
You also need to consider the security risks associated with the staking option you are using. Locking your funds long-term is a risk, and you want to have the most secure system in place to keep your assets safe.
There's also the risk of getting your assets slashed by the Ethereum network, especially when there are Suspicious activities going on in your node. Slashing occurs if validators:
- Sign two blocks to the same slot.
- Double vote by attesting to two candidates on a single block.
- Attest to a block around another one.
1/32 of the validator's total ETH will be burned upon slashing and they will begin a 36-day removal period.
Ethereum's recent move to a proof of stake protocol has paved the way for crypto users to earn passively from securing the platform. There are various options for participating in the staking protocol on Ethereum, from solo staking to using Staking as a Service (SaaS) firms and staking through intermediaries.
ChainLabo is an ideal SaaS platform to help busy crypto investors and those with limited knowledge of navigating blockchains run their validator nodes at minimal risk. The platform handles the installation and maintenance of the node for a flat rate, requiring only your signing key to access the node's hardware and software.
Here, we compiled an overview of ETH staking and some tricks you can employ to maximize your profits with ETH staking in 2023.
Disclaimer: The information provided in this blog is for informational purposes only and should not be considered financial or investment advice. Readers should research and consult with a professional before making investment decisions.
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