This is Part 6 of a six part series called A Beginner’s Guide to Staking
Staking is a spectrum
Whether you’re looking to stake only your own assets or learning about staking to get your company involved or wanting to stake as a service for others, these are all important concepts that are relevant to you.
For the sake of clarity, let’s separate staking into four separate camps, from most recommended to least recommended:
Solo staking
Running a minipool
Staking with a decentralized service
Custodial Staking (centralized)
Think of these four options as a spectrum. Solo staking is on one end of the spectrum, custodial staking on the opposite. The space in between them is a range of options where a staking service could lie.
How much is “too much network share”?
Our answer is 22%. The ideal is more like all entities controlling less than 10%, but EthStaker is comfortable with the idea that no operator should control more than 22% of the network.
70
32 ETH is unattainable for a lot of people
Solo staking is operating a 32 ETH validator - you hold the keys for that validator, and there’s no smart contract between you and the Beaconchain. It’s the safest way to stake because the only risk is Ethereum itself imploding. Once you start adding contracts between you and the Beaconchain, you start adding risk.
As I’ve mentioned before, the number 32 was chosen for good reason, but it unfortunately prices out a large swath of the world from running their own validator. For this reason, there have been a ton of products and services that are seeing this need and working to create solutions. There are some that are far along in their development and many more that are running on testnets and / or very early in their development.
The staking spectrum
Solo staking
Solo staking is the most direct relationship between an operator and Ethereum and is the gold standard for staking. It’s securing the network with no middle man, no protocol, no extra risk. On the technical side, it’s a little complex at the moment. It was originally only possible by using command line interface (CLI), which can be a little intimidating to someone who’s never used it before. Now there are a host of tools available to make this process easier - some of which still use CLI, but automate some of the processes involved, and some remove the need for CLI entirely by creating a user interface (UI).
Requirements:
32 ETH
Stable internet (but you don’t need 100% uptime!)
A computer with a 2 TB hard drive & at least 16 GB RAM (Hardware guide)
Caveats:
None! This is the best way to stake. Go to the EthStaker discord or subreddit for help if you get stuck in the process.
Guides:
The EthStaker Knowledge Base list of guides
Running a minipool
A minipool is a term specific to the decentralized staking service Rocket Pool. Rocket Pool will allow you to run a validator with less than 32 ETH. How does this work?
Rocket Pool allows people to stake with any amount of ETH - Ana, Elena & Muhammed can deposit their 0.02 ETH in order to stake it with Rocket Pool. But who is running the validator that uses Ana, Elena, & Muhammed’s ETH to stake?
The answer is… maybe you! Rocket Pool has a permissionless validator set. Each Rocket Pool validator needs to put down 8 ETH and then Rocket Pool pairs you with the rest of the ETH needed to make a validator. So you’re using Ana, Elena, & Muhammed’s ETH to run a validator. You don’t actually get custody of their ETH - there’s a smart contract that lets you use it for your validator but also ensures that it goes back to the rightful owner if the validator is exited.
So there are two ways to stake with Rocket Pool:
Run a minipool
Stake any amount of ETH, no hardware required
This second option is staking with a decentralized service, which is the next section in this post. Running a minipool is as close to solo staking as you can currently get without having the necessary 32 ETH. There’s still some smart contract risk, but you actually earn more as a Rocket Pool validator than you do as a solo staker. How?
When you take Ana, Elena, & Muhammed’s ETH in your validator, it’s a win / win. You get to run a validator and earn rewards even though you don’t have 32 ETH and those three folks get to stake and earn rewards even though they don’t have the 32 ETH and they don’t have to run hardware. Because you’re the one running the validator (the computer), you get a commission from their rewards (15%), but the initial amount they put down always belongs to them. So you earn 100% of the rewards on your 8 ETH, but also 15% of the rewards on Ana, Elena, & Muhammed rewards.
Requirements:
10.4 ETH (8 ETH + 2.4 ETH worth of RPL, you can look at the explanation for that here)
Stable internet (but you don’t need 100% uptime!)
A computer with a 2 TB hard drive & at least 16 GB RAM (Hardware guide)
Caveats:
Smart contract risk. If Rocket Pool has a bug, it could be exploited
Examples:
So far, Rocket Pool is the only decentralized staking service with a permissionless operator set with a lower-than-32-ETH bond requirement that EthStaker can heartily recommend. We are actively seeking to support new protocols that create permissionless operator sets - the more, the better!
Staking with a decentralized service (pooled staking)
Decentralized pooled staking is simply depositing your ETH to a pool, and then that pool is used to create validators. Someone else runs the validator and you’ll be charged a fee to use the service.
Requirements:
Any amount of ETH
Caveats:
Smart contract risk. If the service has a bug, it could be exploited. Reputable audits, time live on Ethereum, and low complexity decreases this risk.
Many services claim to be decentralized when they’re actually not. It’s your responsibility to do your research here and learn
What to consider when using a service
The variables that determine where that service is on the spectrum include:
Who holds the validator key? You, the service, or both?
Who holds the withdrawal key or what is the withdrawal address?
If the withdrawal address belongs to the service, is the contract upgradable
What percentage of all ETH staked on Ethereum are in validators operated by this service? Have they committed to self-limiting?
Examples:
Rocket Pool (fully decentralized, most recommended*)
StakeWise (semi decentralized, recommended*)
Lido (semi decentralized, not recommended*)
EthStaker’s recommendations take into account their network share, impact on Ethereum, security and audits, level of complexity and risk, and time that they’ve been live on the Ethereum mainnet.
Custodial staking
This is absolutely the easiest way to stake but it’s also the least recommended. Custodial staking is handing your assets to someone and saying ‘can you please do this for me? I trust you to do it right and to give all my assets back to me’. It’s trust-based and it’s antithetical to the concept of crypto.
Banks are custodial. FTX was custodial. Coinbase staking is custodial. One of the basic tenets of crypto is that it is an asset that you can have complete self-sovereignty over. Meaning - when you hold decentralized assets in an onchain wallet and keep your key safe, there’s not a person in the world who could freeze or steal your funds. I could rant about this for a long time - I’ll write another section later that will help you understand the origin of the devastating crypto events you’ve likely seen a lot in the media and how keeping decentralized assets onchain and in your custody is the thing that keeps you safe from these events.
Requirements:
Any amount of ETH
Caveats:
You could get rugged at any point by the custodian who holds your ETH. There’s no guarantee that you get it back. You have to rely on the custodians reputation.
Examples:
Coinbase
This is the end, my friend
This is the end of the A Beginner’s Guide to Staking series.
As always, if you find any inaccuracies in these blog posts, please contact nixo and let her know so she can hastily correct them.
- Loading comments...