Now that Ethereum 2.0 is finally set to go live, people face a crucial decision: whether or not to stake. It comes down to balancing the age-old calculus of risk and reward. Ethereum 2.0 holds out the promise of steady if not “moon”-like staking returns – but the network upgrade also creates illiquidity through lockups and real risks in running infrastructure.
For a network with a market cap north of $40 billion, there is now a lot at … stake. Admittedly, we will only be at the inauspicious-sounding phase 0. But after delays and more delays, at last it’s time for crypto investors to make a decision on staking. And if you do choose to join the Ethereum 2.0 Beacon chain launch, do you run your own nodes or farm that complex, demanding work to a 24/7 service provider?
Ethereum’s transition to proof-of-stake has seemed existential for the crypto community. It is by far the biggest network to opt for proof-of-stake (PoS) over proof-of-work (PoW). But over a year of inspections and testnets, the network seems robust, the “final final” audits are complete. This month a deposit contract opened. In a few short weeks, as early as Dec. 1, Ethereum 2.0 will ship.
In all the excitement, it’s easy to forget participants face hard choices with immense ramifications.
First of all, of course, the network needs to be secured for Ethereum to thrive. Everybody staking 32 to run a node is playing their part to strengthen the blockchain’s security.
These true believers, who were in at the ground floor when Ethereum’s ICO launched, finally have an opportunity to help the network progress to the next level of security. Long-term ETH holders no doubt believe a secure network can support the health of the blockchain – and with it the price of their prized assets. All the while, they can earn some yield along the way.
Standing up nodes in multiples of 32 ETH and running them with barely any downtime while the assets are locked up for what could be years won’t be for everyone – and it shouldn’t be. Whether staked alone or via a pool, once an asset is put on the Beacon chain, there is no going back to the original. Stakers whose ETH will remain locked up until a later phase must be willing to be locked into a long-term commitment.
In the world of decentralized finance (DeFi) with its breakneck speed of change and innovation and often eye-popping returns, speculators may well feel their assets are put to best use elsewhere. Still, the estimated yield, depending on how many stakers join the network, is 8%-15%. That will not match some of the more exciting, and risky, decentralized finance (DeFi) staking projects. But it is solid, and way better than familiar rates found in centralized finance.