In September 2022, the Ethereum network went through an event called “The Merge.” The Merge was a substantial change to the Ethereum network and marked its transition from a Proof-of-Work consensus model to a Proof-of-Stake model.
Proof-of-Stake offers a flurry of benefits, including better energy efficiency, improved scalability, and a lower barrier to participate in network security. Any Ethereum holder with 32 ETH, technical knowledge, and a dedicated computer with 24/7 internet connectivity can become a validator. On Ethereum, validators confirm blocks and earn transaction fees as a reward.
While staking may be easier than setting up specific mining computers as required on Proof-of-Work, systems, it is rather difficult for the average person. This difficulty gave rise to liquid ETH staking platforms.
Liquid ETH staking platforms provide stakers with a “liquid” token representing their stake while simplifying the staking process. While many of these platforms offer high APRs, stakers can maximize rewards further by using a handful of tools and tricks.
This blog post will elaborate on a how to maximize rewards with liquid ETH staking platforms.
Ethereum staking rewards are the incentives paid to users who participate in the Ethereum network as validators by staking their ETH. Staking involves holding a certain amount of ETH as collateral to validate transactions and create new blocks on the Ethereum blockchain.
Validators are rewarded with transaction fees in the form of ETH as an incentive for providing security and processing transactions on the network. The amount of staking rewards depends on various factors, including the total number of ETH staked in the network, the current network participation rate, and the current supply of ETH.
It's worth noting that staking rewards are denominated in ETH, meaning that if the price of ETH goes up, the value of the staking rewards in fiat currency also goes up. Conversely, if the price of ETH goes down, the value of the staking rewards in fiat currency goes down as well.
Before staking your Ethereum, it's essential to understand what is Ethereum staking and how the process works. Staking involves locking up a certain amount of Ethereum as collateral to validate transactions and create new blocks. In return, stakers earn rewards in the form of more Ethereum.
To start staking, you'll need to run a validator node or join a staking pool that will handle the technical aspects of staking for you.
Here’s how Hord’s ETH staking pool works.
There are several different staking pools dedicated to Ethereum staking. Each pool offers different APRs, requires different fees, and provides a different liquid token.
Choosing the right staking pool is critical to maximizing your staking rewards. Look for a pool with a good reputation, high APRs, a solid track record, and low fees. You can check the pool's reputation by reading reviews, checking its history, and talking to other stakers.
The fees charged by the pool can eat into your rewards, so choosing a staking pool that charges reasonable fees is essential.
Most ETH staking pools include a precise APR or annual percentage rate clearly outlining anticipated staking rewards. The APR is usually based on previous results, such as a rolling average.
Calculating ETH staking rewards can be a bit complex and depends on a variety of factors. Here are the steps to calculate your potential ETH staking rewards:
The first step is to check the current staking reward rate, which is the ETH validators receive for participating in the network. This rate varies based on the total amount of ETH staked on the chain and can fluctuate over time. Some various websites and tools provide the current staking reward rate, including Etherscan, Staking Rewards, and Beaconcha.in.
Your share of the network is the percentage of ETH that you have staked relative to the total amount of ETH staked on the chain. This share can affect your potential rewards, as validators with larger shares are more likely to receive rewards more frequently. You can calculate your percentage of the network by dividing the amount of ETH you have staked by the total amount of ETH staked on the network.
You can estimate your validator earnings based on the current staking reward rate and your network share. For example, if the current staking reward rate is 5% and you have staked 1,000 ETH, your estimated earnings would be 50 ETH per year. However, it's worth noting that the actual reward rate and your earnings may vary based on network conditions and other factors.
To obtain liquid ETH staking tokens, you'll need to stake your ETH on the Ethereum network by joining a staking pool. On ETH staking pools like Hord, you receive a liquid ETH staking token once you’ve staked your ETH. The liquid token hETH is tradable and transferable but is also required to unstake ETH at Hord, so make sure it is secure.
Once you have your liquid ETH staking tokens, you can use them on any DeFi platform that supports ERC-20 tokens. Choose a DeFi platform that aligns with your investment strategy and risk tolerance. Popular options include lending and borrowing platforms such as Aave or Compound and decentralized exchanges such as Uniswap or SushiSwap. Yield farming platforms such as Yearn Finance or Harvest Finance are also popular choices.
To use your liquid ETH token on DeFi platforms, you will need to connect your wallet and deposit your tokens on the platform. While using DeFi platforms can increase rewards substantially, they also contain certain risks. The staker loses access to their staked ETH if the liquid staking token is lost.
Once you start generating profits on DeFi platforms using your liquid ETH token, there are a few actions you can take. Some stakers may choose to take profits, while others may like to convert the tokens they have earned into ETH and re-invest it into a staking pool. By reinvesting profits into a staking pool, the staker can generate even more Staking rewards and still use the liquid token on DeFi platforms.
Are Staking Rewards Taxable?
In most jurisdictions, staking rewards are taxable as income. This means that if you earn staking rewards from staking your ETH or any other cryptocurrency, you may need to pay taxes on those rewards.
The tax treatment of staking rewards can vary depending on the jurisdiction and the specific tax laws in place. It is always recommended to look into local laws and regulations regarding cryptocurrencies. Hiring a tax professional such as a CPA may also be beneficial for tax purposes.
How are staking rewards paid?
ETH staking rewards are paid out in ETH directly to the validator's staking account on the Ethereum network. Validators receive their rewards every time they successfully propose and validate a new block on the network.
How Often do you get Staking Rewards?
The frequency of staking rewards can vary depending on a number of factors, including the current staking reward rate, the amount of ETH that a validator has staked, and network conditions.
How to Track Staking Rewards?
Most ETH staking platforms provide a dashboard which transparently tracks staking rewards. Solo stakers can track their rewards by viewing the details their staking transactions on websites like Etherscan.
Are Staking Rewards Halal?
Whether staking rewards are considered halal or not depends on the interpretation of Islamic finance principles by Islamic scholars.
Some scholars argue that staking rewards can be considered halal if the staking pool or platform is transparent, the rewards are distributed fairly, and the investments are made in permissible assets. Others may consider staking rewards to be haram, regardless of the staking pool or platform's transparency and fairness.
Why are Staking Rewards so High?
ETH staking rewards are relatively high compared to some other investment options because the Ethereum network is designed to incentivize validators to participate in the network and secure its operations.