This guide will introduce you to how staking with Rocket Pool works (how your ETH is put to work and your rewards are generated) and summarize the ways in which you can stake.
NOTE
If you're not interested in how staking works and just want to learn how to stake, click here to skip to that section.
# How Ethereum Staking Works
Before getting into Rocket Pool, let's talk about staking on Ethereum in general.Since the Merge(opens new window) on September 15th, 2022, Ethereum now comprises two blockchains in parallel: the Execution layer (formerly ETH1), which contains all of Ethereum's transaction data, and the Consensus layer (also known as the Beacon Chain(opens new window), formerly ETH2) which consists of a network of validators that collectively determine the validity of each transaction and each block broadcast to the network.
Staking is the process of creating and maintaining one (or more) of these validators on the Beacon Chain to help the network maintain the consistency and security of the Ethereum blockchain.Validators do this by listening for transactions and new block proposals, and attesting that the proposed block contains legal, valid transactions by doing some number crunching and verification behind the scenes.Occasionally, they get to propose new blocks themselves.
To ensure that the network is resilient against malicious validators that lie about the current state of the chain, each validator is required to lock exactly 32 ETH up as a "stake" in the networks.Performing their duties correctly and agreeing with the majority of the other validators will earn them rewards; performing incorrectly and attacking the chain will cost them some of their locked 32 ETH balance.The amount taken depends on the severity of the attack and the number of validators that participated in it.
Validators in Ethereum are assigned attestations and block proposals on a schedule.This is very different from the old Proof of Work (PoW) system, where everyone is constantly trying to race each other and come up with the next block before everyone else.This means that unlike PoW where a miner isn't guaranteed to earn a block reward unless they find the next block, Proof of Stake validators are guaranteed to have slow, steady income as long as they perform their duties.
Initially, validator rewards simply accrued on the Beacon Chain against each validator and were inaccessible by their operator. As of the "Shapella" hard fork, validator rewards are routinely "skimmed" to the Execution Layer address defined by the validator's withdrawal credentials.
Additionally, now that the Execution and Consensus layers have merged, validators are also awarded with priority fees for transactions included in blocks they propose.These priority fees are paid directly on the Execution layer according the "Fee Recipient" set by the block proposer.If the validator is participating in a MEV network(opens new window) to propose a block built by someone else, that builder will provide a supplemental tip to the validator known as a MEV reward.This is also available directly on the Execution layer and is provided at the same time as priority fees.
# How Rocket Pool Works
Unlike solo stakers, who are required to put 32 ETH up for deposit to create a new validator, Rocket Pool nodes only need to deposit 16 ETH per validator.This will be coupled with 16 ETH from the staking pool (which stakers deposited in exchange for rETH) to create a new Ethereum validator.This new validator is called a minipool.
To the Beacon chain, a minipool looks exactly the same as a normal validator.It has the same responsibilities, same rules it must follow, same rewards, and so on.The only difference is in how the minipool was created and how withdrawals work when the node operator decides to voluntarily exit the minipool or gets slashed.All of the creation, withdrawing, and rewards delegation is handled by Rocket Pool's smart contracts on the Execution layer.This makes it completely decentralized.
# The rETH Token
As a Rocket Pool staker, your role is to deposit ETH into the deposit pool which will enable a node operator to create a new Beacon Chain validator.You can stake as little as 0.01 ETH.
In doing so, you will be given a token called rETH. rETH represents both how much ETH you deposited, and when you deposited it.The ratio includes rewards that Rocket Pool node operators earn from:
The Beacon Chain itself
Priority fees from block proposals
MEV rewards from block proposals
More specifically, the value of rETH is determined by the following ratio:
rETH:ETH ratio = (total rETH supply) / (total ETH staked + total rETH contract balance + total rETH share of priority fees + total rETH share of MEV rewards)
Since the Beacon Chain rewards, priority fees, and MEV rewards will constantly accumulate, this means that rETH's value effectively always increases relative to ETH.The rETH/ETH exchange rate is updated approximately every 24 hours based on the Beacon Chain rewards earned by Rocket Pool node operators.
To illustrate this point, here is a chart of rETH's value (relative to ETH) over time - as expected, it demonstrates slow but steady growth:
Let's do a simple example as a demonstration.
Say you stake at the very beginning when 1 ETH = 1 rETH.You deposit 10 ETH and receive 10 rETH back.
After a few years, the balances on the Beacon Chain grow due to validator rewards.Say 128 ETH had been staked with Rocket Pool and the sum of all validator balances on ETH2 was 160 ETH.Then 1 ETH would be worth (128/160) = 0.8 rETH; conversely, 1 rETH would be worth (160/128) = 1.25 ETH.
At this point, you could trade your 10 rETH back to Rocket Pool's smart contracts and receive 12.5 ETH in return.
This means as long as you are holding rETH, you are staking with Rocket Pool!You do not need to get it from Rocket Pool directly.For example, you can purchase rETH on an exchange; as every rETH token is exactly the same, you will automatically receive the benefits of staking just by holding the token!
NOTE
Trading rETH back for ETH directly with Rocket Pool is only possible when the staking pool has enough ETH in it to handle your trade.ETH in this pool comes from two sources:
ETH that other stakers have deposited, which hasn't been used by a node operator to create a new validator yet
ETH that was returned by a node operator after they exited one of their validators and received their rewards from the Beacon Chain (note that this is not possible until after the ETH1-ETH2 Merge occurs and withdrawals are enabled)
It's possible that if node operators have put all of the staking pool to work on the Beacon chain, then the liquidity pool won't have enough balance to cover your unstaking.In this scenario, you may find other ways to trade your rETH back to ETH (such as a decentralized exchange like Uniswap(opens new window)) - though they will likely come with a small premium.
As an alternative to holding onto and eventually returning your rETH to the Rocket Pool, you are also free to use it in DeFi applications.You can trade it, lend it, use it as collateral... as rETH is a standard ERC20 token, you can use it in any way you could use any other token.
# Tax Implications
Each country has its own tax laws, and it would be impossible to document them all here. In some countries, depositing ETH for rETH may be considered a taxable event.However, because rETH inherently accumulates value while the actual amount of the token you hold remains constant, simply holding it usually does not generate any taxable events.
This may make rETH a preferable staking token for long-term holding if your country separates short-term and long-term capital gains taxes.
Tax laws related to cryptocurrencies are in their infancy; each user should do their own research and consider speaking with a tax professional.
Below are some helpful sites that offer tax assistance to users related to Ethereum.This is not an official endorsem*nt - users are advised to do their own research regarding tax implications and strategies:
As described above, as long as you are holding the rETH token, you are a Rocket Pool Staker.We will summarize several common ways to acquire it here.
NOTE
All of the methods described here rely on the usage of an Ethereum wallet such as MetaMask(opens new window).If you have never used an Ethereum wallet before, we strongly encourage you to learn more about them and practice using them before staking with Rocket Pool.The sections below include some steps that are demonstrated with MetaMask as an example; they should translate to your wallet of choice easily enough for you to follow along.
# Via Rocket Pool Directly
With this method, you will use a web3 wallet (such as MetaMask) and interact with Rocket Pool's website to swap ETH for rETH and vice-versa.This method is guaranteed to provide you with the exact amount of rETH that your ETH is worth, since it's coming directly from Rocket Pool's smart contracts, but it can be somewhat expensive if the network's gas prices are high and you're staking a relatively small amount of ETH.
NOTE
If you are practicing staking on the Prater Testnet, the direct method above is the only option currently supported.
Click here to learn how to stake via Rocket Pool directly.
# Via a Decentralized Exchange on Ethereum (Layer 1)
With this method, you will access a decentralized exchange such as Balancer(opens new window) or Uniswap(opens new window) and purchase rETH using your token of choice, just like you would do any other token swap.
Rocket Pool has officially created a Balancer composable stable pool(opens new window).Composable stable pools are ideal for tokens like rETH, because they honor the true exchange rate reported by the Oracle DAO - this means exchanging with it will have much lower slippage and lower fees than a conventional decentralized exchange, so you get a much better deal when buying or selling rETH.
Because of this, and because it has a smaller transaction fee than swapping directly via Rocket Pool's website, we strongly recommended using Balancer if you want to stake via this route.
If Balancer doesn't work for you, there is also an ETH-rETH liquidity pool on Uniswap.Note that this is a conventional pool, so you will be affected by slippage and higher fees if you use it, but the gas fee will still be lower than staking directly via Rocket Pool's website.
Click here to learn how to swap ETH for rETH via a decentralized exchange on Layer 1.
# Via a Decentralized Exchange on a Layer 2 Network
With this method, you will start by bridging your existing ETH (or other tokens of choice) onto an Ethereum Layer 2 network such as Optimism(opens new window) or Arbitrum(opens new window) and then use a decentralized exchange on the network to purchase rETH. If you already have tokens on a Layer 2 network, this method is compelling because the transaction fees are ~10x smaller than on the Ethereum mainnet. However, if you have not used a Layer 2 network before, it does require a few additional steps to get set up.
Click here to learn how to swap ETH for rETH via a decentralized exchange on a Layer 2 network.
# Video Demonstration
Community member Kevster has put together a helpful video that demonstrates each of these options step-by-step:
For a more detailed writeup, select which method you would like to use from the links above and follow the guide for that section.
For providing this insurance promise, the protocol also rewards the node operator with RPL rewards generated by the inflation built into the protocol. The more RPL staked as insurance, up to a maximum of 150% of the staked ETH's value, the more RPL rewards the node operator receives.
staker, your role is to deposit ETH into the deposit pool which will enable a node operator to create a new Beacon Chain validator. You can stake as little as 0.01 ETH. In doing so, you will be given a token called rETH. rETH represents both how much ETH you deposited, and when you deposited it.
Staking rewards for non-liquid staking pools are usually around 4%-6% APY. While these rewards are not as high as liquid staking pools, they are still a great way to put idle ETH to use and staking pools don't require a balance threshold of 32 ETH.
As with staking, enter an amount of rETH to unstake and click the Unstake button. Once again, a confirmation dialog will appear in MetaMask. Confirm the transaction, and once it's been mined, you will see the proper balances in your wallet.
Staking is the action of depositing your asset into a DeFi platform to earn some interest and rewards over time. Pooling is similar to staking but requires the deposit to be paired with another asset to earn dynamic rewards. Many Ethereum assets can be staked to earn interest in the same denomination of your deposit.
Pool Staking Is a Great Option for Smaller Crypto Owners
You don't need to put a lot of effort into the process, and doing your research can ensure that you join a profitable pool that could earn you big bucks over time.
The value of the staking rate should lie between 30% and 60% - ideally at 50%. If it falls, the security is compromised, so we should give strong incentives to DOT holders to stake more of their assets.
You can unstake your eGold at any time. The entire unstake process takes 10 days: you first have to initiate the unstake process, through an unstake transaction. and 10 days later, you will need to finalize the withdrawal of your unstaked eGold.
To withdraw using this method, click the three dots in the top-right of your staking holding, and click 'Withdraw'. From here, input the amount of your liquid staking token that you'd like to withdraw, and then click 'Withdraw'.
The reason your crypto earns rewards while staked is because the blockchain puts it to work. Cryptocurrencies that allow staking use a “consensus mechanism” called Proof of Stake, which is the way they ensure that all transactions are verified and secured without a bank or payment processor in the middle.
Staking Rewards is the leading data provider for staking and crypto-growth tools. We are currently tracking 177 yield-bearing assets with an average interest rate of 7.12% and 253 trusted providers.
You can get as low as 1-2% profit from staking or as high as 150% per annum. The longer you stake, the higher your profit tends to be. Typically, coins and tokens with high market caps offer lower annual percentage yields (APYs) than cryptocurrencies with lower market caps.
One of the biggest disadvantages of staking crypto is that it can tie up your assets for a long period of time. For example, if you stake your coins for a year, you will not be able to access them during that time.
There are a few risks of staking crypto to understand: Crypto prices are volatile and can drop quickly. If your staked assets suffer a large price drop, that could outweigh any interest you earn on them. Staking can require that you lock up your coins for a minimum amount of time.
Staking is one way for crypto users to generate passive income. Staking can offer returns that exceed those you could earn in a savings account. Crypto is a volatile currency, and staking does carry risks.
However, even if you're in a staking pool, validator error can also be a problem. Users in a staking pool rely on its validators to process blocks and earn rewards, so an inconsistent validator could make for some pretty disappointing returns.
It's a murky issue, but in general, staking rewards are subject to Income Tax based on the fair market value of the coins at the point you receive them. You'll also pay Capital Gains Tax when you dispose of your staked coins by selling, trading, or spending them - like you would with any other crypto.
Coinbase is perhaps the best crypto staking platform to consider if you are a beginner that is also looking to buy and sell digital assets in a secure environment. This is because, in addition to staking services, Coinbase offers a regulated and user-friendly exchange platform.
Some of the most popular stablecoins include Tether (USDT), TrueUSD (TUSD), Dai (DAI), and Gemini Dollar (GUSD). Furthermore, stablecoins can be traded to other cryptos such as USDT to USD through crypto exchanges like KuCoin.
OKX is the best place to stake Cardano because it offers the highest APY for ADA in the entire crypto industry. OKX is a beginner-friendly crypto exchange with support for more than 350 tokens. Like Binance, OKX offers multiple staking options for ADA, and the staking rewards depend heavily on the lockup period.
The amount you can earn through staking varies based on the platform and the cryptocurrency. For example, Coinbase offers staking opportunities for Ethereum with a 4.00% APY offering. Coinbase's top offer for staking is 5.75% APY when you stake Algorand.
It tells you after how many days of accruing rewards you should restake to gain the maximum possible reward, taking your staking duration and estimated network fees into consideration. The optimal restaking frequency for a $5,824 stake and a subsequent transaction fee of 0.00014 eGLD ($0.01) is 6d 18h.
Crypto exchange Kraken agreed to shut down its U.S. cryptocurrency staking service and pay $30 million in penalties to settle U.S. Securities and Exchange Commission charges that it failed to register the program, the agency said on Thursday, in a move that could cause headaches for platforms with similar offerings.
Real yields are higher than usual on Cosmos since early 2021. The high yield aims to incentivize ATOM stakers, so the staking ratio increases from 63% to 67%.
With staking, you can put your digital assets to work and earn passive income without selling them. In some ways, staking is similar to depositing cash in a high-yield savings account. Banks lend out your deposits, and you earn interest on your account balance.
A staking pool allows multiple stakeholders (or bagholders) to combine their computational resources as a way to increase their chances of being rewarded. In other words, they unite their staking power in the process of verifying and validating new blocks, so they have a higher probability of earning the block rewards.
One of the main questions people have when it comes to cryptocurrency staking is whether or not it is legal in the US. The short answer is yes; crypto staking is legal in the US. The Internal Revenue Service (IRS) recognizes cryptocurrency as an asset.
Staking is generally more secure because stakers are participating in the underlying blockchain's strict consensus method. Any attempt to trick the system may actually result in the perpetrators losing their staked funds.
Staking could be more profitable for the average user because the only thing required is money. Mining requires special hardware, access to cheap electricity, and some technical knowledge. The value of the coin in question is also important.
Ethereum 2.0 (ETH) offers anywhere from 4% to 10% or more in staking rewards. Polkadot (DOT) offers 14% staking rewards with a 28 day lockup period. Cardano (ADA) offers 4% to 8% in staking rewards without a lockup period.
To get started with 'CRO staking' you need to stake a minimum of 10,000 CRO tokens for a minimum of 6 months. The rewards for CRO staking are rebates, 10% APR, and syndicate access.
Here's all you need to learn regarding generating income from day trading if you're only commencing out with cryptocurrency. By investing roughly $1000 while monitoring a 10% increase solely on a single combination, it is possible to earn $100 every day in bitcoin.
Overall, staking crypto is a much better option for beginners to earn stable returns compared to yield farming. Investors can stake the most popular tokens such as Ethereum, Solana, and Cardano to earn attractive APY's long term, due to having stable market capitalization.
It's best to remove staking materials as soon as the root ball is anchored enough to stand up without them (usually after about one year), so that the trunk may begin building optimal taper.
Another risk is the potential for your staked coins to be stolen. If you are staking your coins on a platform that is not secure, or if you are using an insecure wallet to store your staked coins, there is a chance that your coins could be stolen by hackers.
Both yield farming and staking have led to better outcomes for crypto investors. Yield farming in particular is a highly lucrative option, but only if you accept the risks that come along with it. Staking is on the other side, where you can earn a steady stream of income with a relatively low risk of losses.
If you want to stake crypto with minimal risk, buy and stake stablecoins. They're designed to maintain a stable price, such as $1. Several crypto staking platforms offer rewards rates of 5% or more on stablecoins.
The value of your staked assets can go up or down, just like any other crypto asset. Loss of control. Once you've staked your assets, you won't be able to access them until you unstake them (which usually takes a set period of time). Slashing.
Custodial staking risks: If you stake with a crypto exchange or a staking service, then staking options are custodial, meaning that your ETH is not in your private wallet but held by the exchange or the service you use. These types of services could be susceptive to hacks, counterparty failure or government actions.
As an incentive for helping to safeguard the network, you can earn up to 5% APR on each ETH you stake on Coinbase. Staking payouts for Eth2 are calculated based on how much ETH is validating and what rewards the network is paying over time.
What is the average ETH staking APY? The average ETH staking APY is roughly 4% for validators that do not utilize MEV-Boost. Validators with MEV-Boost enabled average roughly 5.69%.
OKX is the best place to stake Cardano because it offers the highest APY for ADA in the entire crypto industry. OKX is a beginner-friendly crypto exchange with support for more than 350 tokens. Like Binance, OKX offers multiple staking options for ADA, and the staking rewards depend heavily on the lockup period.
The higher the value of a coin the higher the reward. Typically, the calculation is usually based on the interest likely to be accrued over some time. However, the amount of reward varies from one blockchain network to another.
When will my rewards be paid out? Your first rewards payout should appear a few days after each purchase or transfer. After that, you will receive regular payouts of the ETH staking rewards that will be added to your balance every 3 days.
Staking is the act of depositing 32 ETH to activate validator software. As a validator you'll be responsible for storing data, processing transactions, and adding new blocks to the blockchain. This will keep Ethereum secure for everyone and earn you new ETH in the process.
Long term commitment: Once you have staked ethereum and are done with the process, you will not have access to liquidate your staking. Ethereum blockchain does not have this feature as of now.
The bottom line—ETH staking is a good choice for long-term holders. Ethereum staking is worth it if you're an ETH holder and plan to hold your coins over the long term. This is already the position of many ETH holders, as Ethereum is widely perceived as one of the best cryptocurrencies to hold for the long term.
It's a murky issue, but in general, staking rewards are subject to Income Tax based on the fair market value of the coins at the point you receive them. You'll also pay Capital Gains Tax when you dispose of your staked coins by selling, trading, or spending them - like you would with any other crypto.
You can get as low as 1-2% profit from staking or as high as 150% per annum. The longer you stake, the higher your profit tends to be. Typically, coins and tokens with high market caps offer lower annual percentage yields (APYs) than cryptocurrencies with lower market caps.
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