Intro to Ethereum Staking and Validators
What is Ethereum Staking?
Ethereum staking allows individuals and businesses to participate in consensus and earn ETH rewards.
Staking is a core pillar of Ethereum’s roadmap.
This roadmap refers to a set of interconnected upgrades that will make Ethereum more scalable, more secure, and more sustainable.
This page highlights the major opportunities that Ethereum staking offers both ﬁnancial institutions and individuals.
These opportunities begin with running a validator node. The network of validators is the backbone of Ethereum’s Proof-of-Stake future. They will be responsible for securing billions of dollars in the new industry Decentralized Finance (DeFi).
What is a Validator?
As defined by Ethereum.org, a validator is a node in a proof-of-stake system responsible for storing data, processing transactions, and adding new blocks to the blockchain. To active validator software, you need to be able to stake 32 ETH.
Ethereum Staking Roadmap & Timing
Beacon Chain Launched (December, 2020)
The Beacon Chain was the start of Ethereum using Proof-of-Stake to secure the blockchain, operating independently of Ethereum’s Proof-of-Work chain.
The Merge will mark the end of Proof of Work and the original Ethereum execution layer will unite with the consensus layer.
Going forward the chain will be secured by Proof-of-Stake consensus chain (the Beacon Chain). This is an accelerated and simple shift to Proof-of-Stake. The current, original Ethereum consensus mechanism (Proof-of-Work) will be made obsolete in the upcoming merge.
Originally, it was proposed that the original Ethereum chain would be a shard of the new post-merge chain. However, this plan was replaced with a better solution. Ethereum’s Proof-of-Stake will now form the consensus engine for the blocks produced by Ethereum’s execution layer, in order to process transactions.
This completely removes the need for Ethereum miners, as stakers now perform miners’ duties.
Following a minimalistic and simple merge, further updates will be required to ‘clean up’ the outstanding requirements.
After The Merge there will be a Shanghai fork which will allow validators to be able to withdraw funds and rewards. This will also allow for auto compounding rewards to earn more yield
3 Ways to Stake ETH?
Validator nodes can be operated by solo staking, staking-as-a-service, pooled staking or centralized exchanges.
An ETH validator node participates in consensus. They generate valuable ETH staking rewards.
Validators must stake 32 ETH (or multiples of 32 ETH). This high capital requirement ensures validators have ‘skin-in-the-game’ to perform well.
Advantages of solo staking:
- 100% control of your private validator keys
- Receive ETH rewards directly from the protocol, rather than through a third party
- No management fee
Advantages of staking-as-a-service:
- 100% control of your private validator keys
- Your 32 ETH
- Outsourced node operations
Advantages of pooled staking:
- Stake any amount
- Earn passive rewards
- Simple, easy-access to ETH staking
Advantages of centralized exchanges:
- Outsourced key management
- Earn passive rewards
- Simple, easy-access to ETH staking
Solo staking is when a person operates an Ethereum validator by themselves.
Staking, however, is not a “set it and forget it” process for most Ethereum enthusiasts. For many, the barrier to entry to participate in staking is high, as it requires monitoring staking performance, updating client software and in some cases having their return on investment harmed by slashing.
There is an extensive list of requirements you need to understand before becoming an Ethereum validator.
These are found on launchpad.ethereum.org, and include:
- Posting 32 ETH as collateral
- Committing to locking up your ETH for an indefinite period of time, until post-merge
- Running commands in your terminal, including installing validator software
- Guaranteeing constant network uptime
- Managing and generating your private keys
Furthermore, there are risks you must face when solo staking:
- Constantly monitoring your node
- Risk becoming slashed and losing your funds
- Maintaining your node on a constant basis
- Inactivity penalties
Staking-as-a-Service has emerged as a way for institutions and consumers to generate a healthy yield on their Ethereum asset investments.
Staking-as-a-Service means letting holders of ETH tokens participate in consensus via a trusted third-party staking provider.
These third party entities provide such a service to maximize returns for their customers, while also receiving a fee for doing so.
This service allows holders of ETH assets to participate in staking without needing the knowledge or expertise to do so.
Entities such as financial institutions could return staking rewards to holders by pooling individual holders’ resources together to act as validators on their behalf.
This would apply where small holders wouldn’t be able to meet the 32ETH limit to run their own validator.
If you have less than 32 ETH, pooled staking lets you earn ETH rewards. Here’s how:
- Clients (with ETH balances lower than the required 32) can have their resources pooled by a financial institution’s validator node to earn money
- An institution’s validator node can earn clients ETH through running the validator correctly
- Clients’ balances grow as their holdings are bonded to the institution’s validator node.
- These earnings can be redeemed at a later date. Institutions which allow for pooled staking often charge a commission for their service. Make sure you compare commission fees before picking a service.
Centralized exchanges offer Ethereum staking for clients who do not want to manage their own funds or keys. This generates ETH staking rewards with minimal effort on clients’ behalf.
This method of staking relies on a trusted third party to operate Ethereum staking successfully, while maintaining full custody of both keys and crypto.
Ethereum Staking Risks
Here are the potential risks associated with outsourcing your Ethereum staking:
The function of Slashing is to make it prohibitively expensive to attack Ethereum, and to penalize validators for not performing their duties well in consensus. Behaving maliciously contributes to the likelihood of slashing. Slashing takes place when validators act against the best interest of the blockchain, and as such a portion of their stake is destroyed. Slashing penalties range from over 0.5 ETH to a validator’s entire stake. If a staking provider is ill prepared, they might incur slashing.
Due to Blockdaemon’s top of class staking service slashing is a rare event. Regardless all our client’s funds are backed by Blockdaemon’s 100% insurance guarantee to compensate for any slashing penalties incurred. Our node infrastructure is configured with full node redundancy and only manual failover. This greatly reduces the risk of double-sign violations and slashing.
- Offline Penalty
Being offline causes an offline penalty, which doesn’t result in slashing. However, if a validator goes offline for a number of days, you’ll lose the amount of ETH roughly equivalent to what you would’ve gained if you had remained online. You could lose out on valuable rewards if your validator provider goes offline.
Blockdaemon maintains 24/7 monitoring with human coverage, and 99.99% uptime.
Staking-as-a-service removes some of the transparency around staking, as an individual doesn’t control their own validator node.
Blockdaemon has developed an easy-to-use ETH staking dashboard, to grant full transparency into key validator statistics, such as validator performance, rewards and validator lifecycle.
By staking ETH, you’ll be locking up 32 ETH for an indefinite period of time. This effectively removes the possibility of participating in DeFi on Ethereum. Furthermore, there may be delays which push out the highly anticipated ‘post-merge cleanup’.
Liquid staking frees staked crypto from lockup periods. This lets you participate in Ethereum staking, while also earning yield in Ethererum’s DeFi ecosystem. Blockdaemon and StakeWise are building an institutional-grade, permissioned liquid staking solution to provide this liquidity to companies.
How do you earn ETH rewards running a Validator Node?
Penalties and rewards are issued roughly every six minutes, which is an epoch of time in ETH. Within each epoch the network judges a validator’s actions and issues rewards or penalties in line with this. Here’s how rewards are generated:
Proposers (those validators selected randomly to propose the next block in the blockchain) are given a sizable reward when their block is finalized. Consistently being online and performing well earns validators a ~⅛ boost to their total rewards for proposing blocks with new attestations. Proposers also receive a small reward for adding slashing evidence in a block.
In summary, there are three ways proposers are rewarded:
- Adding a proof to a block from a whistleblower that results in a validator being slashed.
- Adding new attestations from other validators.
- Tips: As part of EIP1559, senders of a transaction can include a tip. The tip has two functions. First, if there are far more transactions than expected, miners will include transactions with higher tips first. Second, it compensates miners for uncle risk (the increased risk their block will not be included in the main chain because adding one more transaction will slow it down).
Attestations are votes of confidence that show a validator agrees with a decision in ETH. This means validators will receive rewards for making attestations that the majority of other validators agree with. Finalized block attestations are worth more. There are different ways that attesters can be rewarded:
- Getting your attestation on-chain
- Agreeing with other validators about the history of the chain
- Agreeing with others about the head of the chain
- Getting your attestation on chain quickly
|Network type||Pure Proof of Stake|
|APR||Variable from 1.82% to 18.10% depending on level of validator participation|
|Reward Distribution||Every ~6 minutes (approximately 1 epoch)|
|Unbonding||The Beacon Chain deactivates (“forced exit”) all validators whose balance reaches 16 ETH; stakers will be able to withdraw any remaining validator balance but not in ETH Phase 0.|
Validators can also “voluntary exit” after serving for 2,048 epochs, around 9 days.
In any voluntary or forced exit, there is a delay of four epochs before stakers can withdraw their stake. Within the four epochs, a validator can still be caught and slashed. Once the Shanghai fork enables withdrawals, an honest validator’s balance is withdrawable in around 27 hours. But a slashed validator incurs a delay of 8,192 epochs (approximately 36 days).
Blockdaemon Managed Ethereum Validator Nodes
You can earn staking rewards with Blockdaemon’s managed Ethereum validator nodes.
Our team of Etheruem experts will walk you through the entire process, from start to finish.
Blockdaemon caters to anyone interested in staking Ethereum, from 32 ETH upwards.
Why choose Blockdaemon for your Ethereum validator nodes?
- 100% Ethereum slashing insurance
- 24/7 Ethereum validator node monitoring
- 99.99% Ethereum validator node uptime
Blockdaemon’s Branded Ethereum Validators
We can ‘brand’ your Blockdaemon managed Ethereum validator nodes if required.
By branding your staking services, you can generate a return for your clients’ ETH assets, totally under your own brand name.
With a branded Ethereum staking solution, you can add value to your clients’ bottom line. Here’s how:
Staking ETH is a value-add beyond simply holding assets. It allows your customers to enjoy returns as they hold on to their assets. Help your customers put their Ethereum assets to work by participating in proof-of-stake.
Build Your Brand
By using branded Blockdaemon managed Ethereum validator nodes, you can enhance your market position. Blockdaemon’s stellar performance allows your customers to earn yield and builds your reputation.
Establish Trust & Assurance
You can rest assured that your branded Ethereum validator nodes are being managed correctly. Blockdaemon’s gold-standard security and Ethereum protocol experts guarantee you total peace of mind.