Ethereum staking - Here's where your ETH yields the most

With bank interest rates so low on your savings, many people are starting to look for alternatives. Staking Ethereum often provides a higher return than leaving your money in the bank, making it a good alternative. But where is the best place to stake Ethereum? In this blog, we list the options, pros and cons for you.

Brief summary:

1. Staking Rendement: Ethereum staking has become popular because of its attractive returns compared to traditional savings accounts, due to its transition from proof-of-work to proof-of-stake.

2. Risks of Liquid Staking: Liquid staking offers flexibility and integration with DeFi, but it also comes with its own risks, such as smart contract or hacker risks.

3. Different Staking Methods: There are several methods to stake Ethereum, including solo staking, liquid staking and staking on a crypto exchange. Each has its own advantages and disadvantages.

4. Liquid Staking: Liquid staking, combined with DeFi protocols, is considered the most efficient way to earn high staking rewards due to liquidity and integration with DeFi.

5. Top Liquid Staking Pools: There are several liquid staking pools with different yields, including Rocket Pool rETH, Lido Finance stETH, Stader Labs ETHx, Frax Ether sfrxETH and Interest Compounding ETH (icETH) Index. All of these offer different returns and have their own benefits and risks.

Table of Contents

1. These Ethereum staking methods are
2. These are the liquid staking pools with the highest returns
3. Conclusion

But what does this increase mean in practice for the Ethereum ecosystem and its stakers? An increased amound of stakers strengthens the security and integrity of the Ethereum network and indicates how much confidence investors have in the second largest cryptocurrency after Bitcoin. At the same time, more staking reduces the supply of available Ether on the market, which has a positive effect on the ETH price if demand stays the same or increases.

However, greater staking participation also leads to lower stake rewards for stakers. The reason: more ETH strakers spreads staking rewards over a larger number of investors, resulting in lower individual returns.

These Ethereum staking methods are

APR in the following stands for Annual Percentage Rate. The ratio is used to calculate the average annual return that can be earned on one's ETH as a percentage using the respective staking method.

1. Solo staking: 3,92 procent APR

Description: This is where a user deploys their ETH on their own, without joining a pool or other platform.

Requirements: 32 ETH are required to act as a validator. The staker must also have technical expertise to run a stake node and ensure that it is always online.

Advantages: Full control of proprietary funds, no brokerage fees and consequently relatively high stake returns .

Disadvantages: High barrier to entry as 32 ETH are required (currently equivalent to about $52,000), higher risk of slash in case of misconduct and technical knowledge required.

2. Ethereum Liquid Staking: 3 to 4.5 percent APR

Description: Here the deployed ETH is converted into a representative token (rETH, BETH, stETH...). This token can then be traded or used in DeFi protocols, while the original ETH remains fixed.

Requirements: Web3 wallet such as MetaMask.

Advantages: Flexibility because fixed ETH is converted into stakable tokens (e.g. stETH) that can be traded, ability to use DeFi services while receiving return from staking. As a result, APR can be even higher than with solo staking.

Disadvantages: Complexity of the concept depending on the security and integrity of the provider.

Why does Liquid Staking offer the highest returns?

Liquid Staking, combined with DeFi protocols, is the most efficient straking method to earn the highest stake rewards. Here are the reasons:

Liquidity: In traditional staking, the invested capital is often tied up for a certain period of time. In Liquid Staking, on the other hand, investors receive a representative token (e.g., stETH or rETH) that they can trade in the market while continuing to earn stake returns. This gives investors the freedom to use their capital more efficiently, depending on market conditions.

Integration with DeFi: Liquid Staking tokens can be used in DeFi protocols, enabling additional revenue streams. For example, an investor can make stETH available in a liquidity pool and earn additional trading fees or use it in a yield farming protocol.

3. Staking on a crypto exchange: 3 to 3.5 percent APR

Description: Many crypto exchanges offer staking services for their users. This means that you keep your ETH on the exchange and the exchange does the staking in the background.

Requirements: An account with an exchange that offers this service and enough ETH.

Advantages: Simple process; no technical knowledge required; often special offers allowing one to get higher returns for a certain period of time.

Disadvantages: Lack of control over own funds. Dependence on exchange security and often higher costs and thus lower overall staking rewards.

These are the liquid staking pools with the highest returns

1. Rocket pool rETH: APR ≈ 3.5 percent

Description: Rocket Pool is one of the oldest and relatively decentralized ETH liquid staking protocols. RETH generates stake rewards over time that directly benefit the value of rETH.

Advantages: It allows users to stake any amount of ETH and rETH can be purchased on an exchange or mined directly using the Rocket Pool protocol. Moreover, Rocket Pool is much more decentralized organized than Lido and other liquid stake providers.

Disadvantage: relatively low stake rewards, as the Rocket Pool protocol includes 14 percent of staking revenue.

2. Lido Finance stETH: APR ≈ 3.6 percent

Description: Lido is a prominent platform in the liquid staking segment and also offers staking for other cryptocurrencies such as Polygon and Solana. Unlike rETH, however, the stake rewards here do not directly benefit the value of stETH, but investors who receive stETH in their wallet persist over time automatically generated more stETH through stake rewards.

Advantages: Most liquid and widely used Ethereum Liquid Staking token. Available on various Ethereum L2 protocols and deeply integrated into the DeFi ecosystem.

Disadvantages: Lido is comparatively seen as a centralized organization and has often been criticized as Lido increasingly contributes to the centralization of ETH Staking because of its dominance in the Liquid Staking sector.

3. Stader Labs ETHx: APR ≈ 3.8 percent

Description: ETHx is a Liquid Staking token developed by Stader Labs that has only been available since July 2023. It is similar to rETH in how it works, but with the big difference. Stader currently incentivizes ETHx extra, which means its staking returns are currently higher than most other liquid tokens.

Advantages: More decentralized than Lido, because the power of Stader Labs is more limited in the protocol's governance system. Higher stake returns through additional token rewards in the form of the Stader Labs Governance Token SD.

Disadvantages: A new ETH liquid token for staking that has yet to prove itself in the market. It remains to be seen how long Stader Labs can keep yields artificially higher than competitors.

4. Frax Ether sfrxETH: APR ≈ 4.44 procent

Description: Frax Finance has developed an innovative approach to liquid staking where users receive two different tokens: frxETH (represents the initial ETH deposit) and sfrxETH (collects staking rewards). This structure provides Frax ETH users with increased capital efficiency. Frax Finance leverages the proprietary DeFi ecosystem to take advantage of high Ethereum stake returns. By deploying ETH stakes within the ecosystem, the DeFi generates additional revenue on top of regular ETH staking returns.

Advantages: Increased capital efficiency by directly leveraging Frax Finance's proprietary DeFi ecosystem to generate additional returns. It currently offers the highest non-leveraged yield among the aforementioned Liquid Staking tokens.

5. Interest Compounding ETH (icETH) Index: APR ≈ 4,57 procent.

Description: IcETH is a leveraged liquid staking token developed by Index Coop. Using the Set Protocol and Aave lending protocol, leveraged stETH is used to acquire additional stETH and generate more staking rewards.

Advantages: Offers high returns thanks to its leveraged strategy. It is ideal for investors willing to take higher risks for higher returns.

Risks: As already indicated, IcETH uses a leveraged strategy which entails additional risk. Thus, liquidation and interest rate risks must be taken into account because it is a leveraged strategy.

Conclusion

Ethereum Liquid Staking tokens offer an exciting opportunity to generate returns on Ether. Especially when combined with other DeFi protocols, impressive stake returns can be achieved that may even exceed the returns of a solo staker. Despite these advantages, it is essential to be aware of the risks. Compared to solo staking or staking on central exchanges, liquid staking carries its own risks, such as smart contracts or danger of hacker attacks.

Moreover, the staking landscape is constantly changing and new methods, such as restaking, have the potential to further increase the return of liquid staking tokens. DeFi protocols such as EigenLayer and Stader Labs are pioneers of this staking method and could further increase the returns that can be earned from Liquid Staking Tokens. So far, the restaking of both EigenLayer and Stader Labs not yet fully live on the Ethereum mainnet. But for those who thoroughly inform themselves in the future and weigh the opportunities against the risks, restaking ETH Liquid Staking Tokens could be an interesting option to increase their stake yields in the future.