The days of high returns from Ethereum (ETH) staking seem to be numbered. More and more Ether is being staked to secure the network, and staking returns are falling. The annual staking yield, which was recently 5%, is expected to drop to 3% by the end of the year and could even fall below 1% later on.
After a major update to Ethereum last September, returns from staking Ether fluctuated between 5% and 6%. Since then, the percentage of Ether in circulation that is staked has increased from 11% to nearly 20%. This month recorded a return from staking of about 4.5% to 5%.
Some researchers predict that eventually the majority of Ethereum will be staked. If that happens, returns could fall below 1%, according to Mike Silagadze, founder of the staking protocol ether.fi. “No one is going to stake for 70 basis points of yield,” he said. This would force protocols to find new ways to boost yields.
One of those innovations could be something called “restaking.” Restaking allows users to rebind their staked Ether – with so-called liquid staking tokens like Rocket Pools rETH – on other decentralized applications on Ethereum and other blockchains. This method recently made its debut through U.S.-based EigenLayer. “The staking space is ripe for innovation and the Ethereum blockchain ecosystem is constantly evolving,” said Darren Langley, CEO of Rocket Pool. “Eigenlayer serves as a prime example of how these advancements can further increase the potential rewards for stakers.”
Nonetheless, the possibility remains that stakers could enjoy attractive annual returns even if Ethereum goes mainstream. That’s because staking rewards also increase with network activity. “Rewards could rise again as network activity increases, so it’s difficult to predict where ETH staking APYs will end up in the long run,” said Josh Fraser, co-founder of Origin Protocol.
It remains to be seen if falling yields will prompt people to pull their Ether out of staking at some point. Some experts expect 25% of all ETH to be staked by the end of this year, a return of about 3%. And the safety of staking means that returns can go very low before investors start looking elsewhere for yields.
Overall, it can be said that Ethereum staking is in a period of transformation. The days of high returns seem to be over, but that doesn’t mean the end of staking. New technologies and concepts such as restaking could help maintain the attractiveness of staking while ensuring the security and stability of the Ethereum network. So it remains an exciting time for everyone active in the Ethereum world.