In the world of Ethereum staking, validators face various limitations and tradeoffs when choosing a staking method. While self-staking provides control and participation in network consensus, it also brings challenges such as the immobility of staked funds and a minimum requirement of 32 ETH.

On the other hand, exchange staking offers flexibility but comes with concentration risk and lower returns. However, a champion has emerged in the form of liquid staking.

Liquidity staking helps bring liquidity back to the market. It returns power to users by being able to offer them an APR while maintaining the ability to leverage their collateralized assets. Instead of having banks hold your assets and loan them out at a higher percentage, you can now be your own bank!

Self-staking

Validators considering staking ETH encounter several limitations, including the immobility of staked funds, a minimum requirement of 32 ETH to participate, and the personal liability associated with running a validator.

However, users who deposited ETH into the Ethereum deposit contract for network security will not be able to withdraw ETH until trading is enabled. Since no official date has been set for this phase of the upgrade, users may face a long waiting period, even years, to regain their staked ETH.

Exchange Staking — Competitors

Exchange staking refers to the process of staking tokens through centralized exchange services (i.e. Binance, Gemini, Kraken, Coinbase). This method allows users to stake and unstake their tokens at any time with minimal oversight and effort from the user.

When a centralized provider collects a large amount of ETH to run many validators, it creates potential risks for the network and its users. Having such a centralized target makes the network more vulnerable to attacks or errors, which can also be detrimental.

Therefore, the reward rate for exchange staking on Ethereum 2.0 is estimated to be much lower compared to self-staking or liquidity staking.

The chart below shows the average annual interest rate for staking ETH on Binance over the past 2 months.

Liquid Stake (LS) — Champion

LS provides an alternative to locking up user stake, allowing them to stake any amount of Ethereum and be able to efficiently unstake ETH without enabling trading.

This is achieved by creating a tokenized version of the collateral funds, similar to derivatives, which can be transferred, stored, spent or traded like regular tokens. Users deposit their ETH into third-party applications, which then deposit ETH into the Ethereum deposit contract on behalf of the user by running their own validators.

In return, these applications mint representative ETH tokens, such as stETH, which enable users to maintain liquidity of their ETH while earning Ethereum staking rewards. For example, Lido allows users to stake any amount of Ethereum and receive stETH in return.

This collateral token can be used for lending, staking, etc., while accumulating collateral rewards every day. Lido's method also allows users to cancel collateral at any time through the stETH-ETH liquidity pool. After the future Ethereum upgrade enables trading functions, the representative ETH will be returned to the third-party issuer. The issuer then provides the user with ETH equal to his original collateral interest, plus the rewards earned by protecting the network.

Liquidity staking statistics on Lido

• Lido currently has approximately $14.2 billion in ETH staked

• About 225,000 wallets stake ETH on Lido

• The average annual interest rate is 3.8%

The best part about blockchain is that you can verify this

stETH contract address:

https://etherscan.io/token/0xae7ab96520de3a18e5e111b5eaab095312d7fe84

Staking Options Review

The future of Ethereum staking

Liquid staking offers users all the benefits of self-staking while reducing the associated risks and complexity. It is a viable alternative to self-staking and exchange staking, skillfully balancing risk, reward, and convenience. Liquid staking services such as Lido meet the needs of all types of Ethereum holders.

For smaller wallets, liquid staking allows them to stake any amount of Ethereum and enjoy the flexibility to unstake at any time. Larger holders can use liquid staking services to hedge against Ethereum volatility without having to maintain a complex staking infrastructure.

Liquid Stake is committed to the idea of ​​decentralization, ease of access, and rewards for staking, and will grow in sync with the broader DeFi movement. It embodies the purest essence of DeFi.