The Shanghai hard fork is projected to unfold this spring around March or April, with the anticipated upgrade affording the capability to withdraw Ethereum from staking for the first time.
Ethereum staking rewards participating in network consensus, and in order to participate, one needs to run an Ethereum validator.
The Ethereum network needs validators to remain secure and reliable. These validators confirm transactions on the blockchain by verifying the digital signatures on each transaction to guarantee that the rules in the protocol code are followed before the transaction is added to the blockchain. To become a validator, you must add 32 ETH as a deposit to support a specialized staking node for the proof-of-stake blockchain.
Once a deposit is made, the validator gets rewards from the network in exchange for their participation in consensus. However, these staked assets are locked and cannot be unlocked until the Shanghai upgrade.
Act Now, Ahead of Shanghai
It’s crucial to stake your ETH in the lead-up to Shanghai. Here’s why:
- Earn Reliable Staking Rewards
If you don’t stake your ETH right now, it remains idle, resulting in a real opportunity cost.
Consider, if you take the initiative to stake your ETH now, you will receive an estimated ~5% return in rewards (based on historical averages) once your validator is up and running. Staking is also a way for you to support decentralization. When more people stake their ETH, it helps to distribute the network’s control among a larger group of people and capital.
The time to act is now.
- Boost the Ethereum Ecosystem
The amount of people staking Ethereum is ever-increasing with the total number of validators on its network surpassing 500,000, as confirmed by the data on BeaconScan. This is a significant milestone and shows the growing enthusiasm, user trust and security in the network as it prepares for the Shanghai upgrade.
The amount of Ethereum currently staked is more than 16 million ETH (valued at more than $22 billion), which makes it increasingly difficult and costly for any potential attackers to disrupt the Ethereum network.
- Avoid Activation Delays
When you stake ETH, your validator goes into a waiting line for activation.
This process can be long, due to the fact that only seven validators can join the network each epoch (6.4 minutes). This means that approximately 1600 Ethereum validators can be added each day. If your validator is outside this limit, they will be queued up. Large institutional investors, such as crypto funds, are eager to stake after the lock-in is abolished since their investment rules prevented them from engaging before.
As more of these larger buy-side players stake, you may find yourself stuck in a holding pattern while early birds enjoy rewards.
If a staker wants to completely remove their stake and related rewards post-Shangai, they must ask to be removed from the validator group. There are three stages with variable length, but it will generally take from a few days up to a week. However, there is a way to get instant access to Ethereum liquidity, without the need to unstake your ETH.
Enter Liquid Staking
Liquid staking is the perfect solution to remain staked, while participating in the future accretion of Ethereum’s decentralized economy.
Post-Shanghai, the value of liquid staking promises to be strong. Firstly, the ‘unbonding’ period is not instant. For certain customers, the ability to have instant, on-demand liquidity is always relevant (e.g. neo-banks offering staking services to their retail users). Second, there are advantages of using the receipt tokens issued by liquid staking protocols, including the ability to leverage your staking position, or have it be used for other purposes, like collateral for lending. Finally, the capital efficiency – being able to stake any amount of ETH completely while participating in Ethereum’s ecosystem – is a big value add. The liquid staking use case will continue to gain traction for these reasons and beyond.
Since liquid staking solutions were not available in the early days of Ethereum staking, some of the currently locked stake might actually be withdrawn to be re-staked in either retail protocols like Lido, RocketPool or StakeWise, or other products.
Wherever you net out on this impending milestone for Ethereum (and the larger digital asset ecosystem), the ripest opportunities favor those that acknowledge this first-time opportunity and act swiftly to enjoy the full upside that first-mover status can bring.
Note from Blockdaemon:
Blockdaemon does not believe the recent actions by the SEC regarding staking will impact us or our institutional staking customers. Blockdaemon customers are always in control of their own tokens as we are a non-custodial service provider. Blockdaemon follows the rules of the protocols that we offer and engages with our customers in full transparency about the amount and structure of participatory rewards that may be generated from the protocol, as well as the service fees our team charges for enabling this direct participation. We believe that this transparency allows us to provide best-in-class institutional-grade blockchain infrastructure technology. But just in case, we publish audited financials, are properly governed, hold insurance for our infrastructure, are ISO certified (which requires an external audit of security policies and procedures), and are in partnership with the largest financial institutions in the world both as investors and customers.
Camyar Matini, Head of Staking Strategy @ Blockdaemon