What is staking?
Staking is a mechanism that allows you to earn rewards in exchange for helping to secure the blockchain.
In a nutshell, it’s a process where you can delegate your tokens to validators who secure the blockchain by validating transactions on proof-of-stake networks like Ethereum.
By staking your tokens, you are backing a specific validator to only certify valid transactions, and in return, a portion of the network fees are distributed back to validators and those who delegate their tokens to them.
Staking may be as simple or complicated depending on your preference – do you want to run a dedicated blockchain node yourself, or are you good with just earning rewards and letting someone else do the hard work of setting up and maintaining the infrastructure.
Nevertheless, let’s take a look at an overview of the process.
Step-by-step guide on how to stake Ethereum
Step 1: Buy or obtain ETH
Before you begin staking, you need to make sure that you have ETH available to stake.
If you want to stake ETH solo, it requires a minimum of 32 ETH to participate – this is required by the Ethereum blockchain, as a validator has the ability to propose and attest to blocks for the network.
To prevent dishonest behaviour, users must have their funds at stake where the protocol can penalize malicious actors. Staking is a means to keep you honest, as your actions will have financial consequences.
If you have less than 32 ETH, you can still participate in staking by pooling your funds with other users.
You can obtain ETH through any popular centralised exchange service like Binance, Coinbase, Gemini, Kraken, Bybit etc – we have referral links at the bottom of the article where you can get discounts on trading.
Step 2: Choose a staking service
There are several options available for staking Ethereum, including using a staking service provided by a centralized exchange, a decentralized staking platform, or running a validator node yourself.
Option 1: Staking with a centralized exchange
One of the easiest ways to stake Ethereum is to use a staking service provided by a centralized exchange.
These centralized exchanges provide staking services if you are not yet comfortable holding ETH in your own wallet. They can be a fallback to allow you to earn some yield on your ETH holdings with minimal oversight or effort.
For example, Coinbase offers cbETH, which is a secure and liquid ETH staking token that lets you earn Ethereum staking rewards without lockups.
This option is convenient, as it allows you to stake your Ethereum without the need for technical knowledge or hardware. However, it also comes with some risks, such as the exchange being hacked, as we have seen relatively often.
Option 2: Pooled staking with a decentralized staking pool like Lido or RocketPool
Decentralized staking pools like RocketPool or Lido allow you to stake your Ethereum with a pool of users, since this functionality is not natively supported within the protocol, solutions had to be built out separately to address this need.
They are a collaborative approach to allow many with smaller amounts of ETH to obtain the 32 ETH required to activate a set of validator keys.
Most of these pools operate using smart contracts, where funds can be deposited to a contract, which trustlessly manages and tracks your stake and issues you a collateral token that represents this value.
For example, RocketPool issues rETH, while Lido issues stETH – liquid staking derivatives – in exchange for your ETH. These tokens grow in value over time, as they accrue rewards from staking. Furthermore, these tokens can be used in DeFi, allowing you to realise value.
This option is more secure than using a centralized exchange, as it eliminates the risk of the platform being hacked or engaging in malicious behaviour. However, you shift the risk towards smart contract bugs with these liquid staking platforms.
Option 3: Running a validator node by yourself
If you have the technical knowledge and resources, you can choose to run a validator node yourself.
This option is the most secure, and it is also deemed the gold standard for staking as it allows you to have full control over your Ethereum node, provides full participation rewards, improves the decentralization of the network, and never requires trusting anyone else with your funds.
However, it also requires significant technical knowledge and resources, as you need to run your own hardware and maintain your own node. It may cost anywhere from US$200 to $1500 per month to buy the necessary hardware to operate a node and establish redundancy services so that your node doesn’t go offline.
Step 3: Stake your Ethereum and collect rewards
Once you have chosen your approach, you can stake your Ethereum by following the instructions provided by the service.
This typically involves sending your Ethereum to the staking service, locking it up for a certain period of time, and participating in the network’s decision-making process. In exchange, you will receive rewards in the form of newly minted tokens and transaction fees.
For most staking services, rewards will automatically accrue to your liquid staking position – either through a rebase of the token where the quantity of the token goes up, or the exchange rate at which you can swap the token for more ETH.
Stake by swapping for LSDs on exchanges
The most straightforward way to stake ETH is to simply swap ETH for liquid staking derivatives (LSDs) like rETH and stETH. This allows you to hold the LSD itself which accrues staking rewards.
You can do so either via an exchange that lists rETH or stETH. For example, Huobi, Bybit and MEXC list stETH.
Alternatively, you should be able to obtain rETH and stETH on DeFi exchanges like Uniswap, Balancer or Curve.
Stake LSDs via a decentralized front-end
Since most liquid staking protocols are decentralized, technically any third-party service can build front-ends to route traffic and liquidity to them.
Metamask recently launched a service where you can stake ETH with Lido and Rocketpool directly from your Metamask wallet.
This is just a more convenient option instead of finding individual decentralised staking pools on multiple websites and exposing yourself to scams.
However, while the service is currently free now, Metamask might charge a convenience fee in the future.