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How do ETH Staking Withdrawals Work?

Jon Ganor
Jon Ganor
How do ETH Staking Withdrawals Work?
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  • Ethereum's shift to proof-of-stake (PoS) marked a new era for staking and earning opportunities.
  • Ethereum's transition to PoS marked the full transition of Ethereum from PoW to PoS, resulting in a wave of new ETH staking platforms, including Hord.
  • ETH staking rewards come from network security and transaction fees.
  • Validators propose and confirm blocks, earning rewards primarily from newly issued ETH tokens.
  • Users should familiarize themselves with specific withdrawal procedures and any associated fees or cooldown periods to ensure a smooth and successful withdrawal experience

An Introduction to ETH Staking

The rise of Ethereum staking platforms originated from Ethereum's shift from proof-of-work (PoW) to proof-of-stake (PoS). Lido, the pioneering ETH staking platform, emerged in December 2020 alongside Ethereum 2.0's Phase 0 launch. Unlike the traditional requirement of locking up ETH in multiples of 32, Lido's innovation allowed staking any amount, democratizing participation.

By September 15, 2022, Ethereum completed "The Merge," transitioning entirely to PoS. This transformation reshaped the network's consensus mechanism, leading to the emergence of new stakers and platforms like Hord. The transition to PoS not only marked a pivotal moment in Ethereum's evolution but also expanded opportunities for users to actively participate and earn rewards by securing the network.

What are ETH Staking Withdrawals?

ETH stakers or validators earn rewards for their role in maintaining the Ethereum ecosystem in the form of ETH. ETH staking withdrawals refer to the partial or full withdrawal of their funds from the PoS mechanism.

ETH staking withdrawals represent a key development in Ethereum's proof-of-stake ecosystem, offering participants greater control over their staked assets. Before the Shanghai/Capella upgrade on April 12, 2023, ETH stakers could not withdraw their staked ETH, rendering their assets illiquid. However, the introduction of staking withdrawals transformed this landscape, allowing stakers to initiate withdrawals at any point, albeit subject to a 28-day unbonding period.

What is the Shanghai/Capella Upgrade?

The Shanghai/Capella upgrade, affectionately known as Shapella, represents a monumental moment in Ethereum's trajectory. Activated on April 12, 2023, this distinctive upgrade exerts influence over both Ethereum's execution layer and its consensus layer. 

At the forefront of its features is the groundbreaking ability for validators to initiate staked ETH withdrawals. Validators now possess the authority to retrieve their ETH from the Beacon Chain, contingent upon a mandatory 28-day unbonding period. This change is pivotal, affording greater autonomy and flexibility to those participating in Ethereum's proof-of-stake mechanism.

The Shapella upgrade is far from a one-trick pony. Alongside staked ETH withdrawals, it introduces several other enhancements. Firstly, an augmented gas limit facilitates more complex and resource-intensive transactions. Secondly, Ethereum Improvement Proposal 1559 (EIP-1559) takes the stage, fundamentally altering how transaction fees are calculated by introducing a base fee that's burned. This not only enhances fee predictability but also curtails ETH's inflation rate. 

How to Withdraw ETH Staking Rewards

Ethereum stakers are incentivized to validate transactions by earning ETH rewards. When a validator starts generating rewards, withdrawing them is sometimes necessary. Stakers can choose to withdraw only profits or shut down the validator 

Updating ETH Withdrawal Credentials

When it comes to Ethereum staking, updating your ETH withdrawal credentials can be a complex process. Initially, when launching a node or validator, you're required to designate an Ethereum withdrawal address. However, a more involved procedure ensues if the need arises to alter this address. To update your withdrawal address, you must initiate the creation of a new validator key. This involves executing a voluntary exit on your current validator key and utilizing the resulting funds from the full withdrawal to create the new key.

The voluntary exit process, though, is no swift affair. It demands patience as it unfolds and mandates that the exiting validator remains active during this period to steer clear of inactivity penalties. A crucial point to underscore is ensuring ownership of the current Ethereum address before initiating the exit, as this is imperative for accessing your funds. It's important to note that this complex process is bypassed when staking through an LSDfi platform, such as Hord. In such cases, the platform manages these intricate technical aspects, simplifying the staking experience for users.

Full Withdrawals and Excess Balance Withdrawals 

Two primary categories of ETH staking withdrawals exist, full withdrawals and excess balance withdrawals.

With excess balance withdrawals, validators can withdraw any ETH exceeding the 32 ETH staking requirement. This can occur automatically as validators accrue rewards over time or through manual actions.

Validators can select a full withdrawal, which entails unlocking their entire validator balance. This can occur voluntarily or in response to a penalty, such as slashing due to malicious behavior. The process of a full withdrawal can take time, depending on the number of validators exiting the network.

The withdrawal process unfolds as follows:

1. The validator initiates a withdrawal request within the Beacon Chain.

2. The withdrawal request undergoes processing, resulting in the transfer of ETH to the validator's withdrawal address. The duration of the withdrawal request may vary depending on the congestion of the exit queue, although the process rarely takes longer than a few days.

3. The validator's validator balance diminishes by the withdrawn ETH amount.

Afterward, the withdrawn ETH is fully accessible to the validator.

Staking withdrawals substantially enhance the Ethereum ecosystem, as they empower stakers with greater agency and convenience over their ETH holdings. This development is anticipated to bolster the attractiveness of staking, potentially attracting a broader range of participants to the network. It's essential to note that the withdrawal process may differ when using liquid ETH staking platforms from the user's perspective.

How to Withdraw ETH Staking Rewards on LSDfi Platforms

When it comes to withdrawing ETH staking rewards on LSDfi platforms, it's important to note that each platform may have different rules and procedures in place. In the case of Lido, the withdrawal process involves two steps. First, the user must issue a withdrawal request and lock their stETH or rtETH. ETH is then sourced to fulfill the request, and the locked stETH is burned, marking the withdrawal request as claimable. This process can take anywhere between 1-5 days under normal circumstances.

On the other hand, Hord's withdrawal process involves the user requesting a withdrawal and inputting the amount of ETH they wish to withdraw. hETH holders can directly withdraw from the Hord app by requesting a withdrawal and then claiming their ETH. Depending on the withdrawal queue, this can take up to 4 days but is usually quicker. Behind the scenes, the hETH is burnt, and ETH is sent to the holder's address. Alternatively, users can directly swap their hETH for ETH on Uniswap at any time.

Regardless of the platform, it's crucial for users to familiarize themselves with the specific withdrawal procedures and any associated fees or cooldown periods. Additionally, hETH holders on Hord can always liquidate their holdings on Uniswap.

Withdrawals are an important part of the staking process and can be a primary way for users to realize the rewards of their investment. By understanding the withdrawal procedures and any associated risks, users can ensure a smooth and successful withdrawal experience.

Final Thoughts

The implementation of withdrawals in Ethereum's proof-of-stake consensus method has notably enhanced the network. 

Withdrawing staked assets provides users with increased flexibility and liquidity, empowering them to access and utilize their holdings easily. This improvement fosters a more dynamic and user-friendly ecosystem, encouraging wider participation. Stakers can now easily navigate their engagement with the network, contributing to Ethereum's broader goal of creating an inclusive and efficient blockchain platform.