Understanding Ethereum staking: how it works, rewards and risks

What is Ethereum staking?

Given their decentralised nature, blockchains need a system to ensure that the entire network agrees on the latest state of the ledger. To achieve this, they use consensus mechanisms, which determine how transactions are processed and encourage participants to follow the rules. The two most popular mechanisms are proof-of-work (PoW), used by 191 protocols, notably Bitcoin and Litecoin, and proof-of-stake (PoS), used by 90 protocols, the biggest of which is Ethereum.

Ethereum switched from PoW to PoS in 2022, an event the crypto community dubbed the Merge. One of the reasons for this transition was to improve its energy efficiency. Processing PoW transactions requires substantial amounts of computer power, whereas the equivalent PoS software can run on a laptop. The Merge reduced energy consumption by an estimated 99.95%.

Another reason was scalability. One reason Ethereum is quicker than Bitcoin is picking validators takes less time than solving the complex mathematical problems involved in PoW. As of August 2025, the number of transactions it can process per second (21.4) is more than double Bitcoin (9.16).

PoS requires participants in the network, known as validators, to deposit or ‘stake’ funds for the right to process transactions. In the case of Ethereum, the minimum stake is 32 ether, worth €116,637 (as of August 2025). The network appoints a new set of validators for every ‘slot’ of 12 seconds using a random number generator called RANDAO:

• A block proposer is responsible for compiling transactions and recommending that the network add them to the next block.

• Attesters (typically 128) confirm the validity of each block.

• Sync committees ensure that every participant has the latest version of the ledger.

How does Ethereum staking work in practice?

Before validators can participate in the network, they need to send the minimum stake of 32 ether to the deposit smart contract and run the necessary software (execution and consensus clients). The validator is then added to an activation queue to limit the rate at which validators join the network. The length of this queue varies, lasting five hours as of August 2025.

To explain how staking works, let’s start at the very beginning of a transaction. A user opens their digital wallet and submits a request to send tokens to another wallet. The network confirms that the sender has sufficient funds and then adds the transaction to a pool of pending transactions called a mempool.  

The block proposer uses the execution client to batch and execute transactions and the consensus client to create the block. Each block contains a vast amount of information, including the identities of the proposer and attesters and a list of penalties issued.

The block is then broadcast to the network, and attesters use their execution clients to process the transactions again to confirm their validity. If confirmed, the proposer recommends adding the block to the chain. However, it only achieves ‘finality’ (the transactions become irreversible) if validators holding two-thirds of the total amount of staked ether agree on the state of the blockchain between two ‘milestones’ or checkpoints which occur every 32 slots (known as an epoch).

Consensus mechanisms also play a role in a network’s security. If a validator controlled 33% of total staked ether, it could prevent finality; it could censor future transactions with 51%; and with 66% it could reverse transactions. But these attacks are highly unlikely due to the cost- the total value of staked ether is €131B as of August 2025 (attacking Bitcoin would be cheaper). What’s more, honest validators can remove malicious parties and forfeit their stake.  

Ethereum staking rewards: returns and how they’re calculated

Ethereum incentivises validators to participate in the network by paying three types of rewards.

1) At the end of each epoch, block proposers and attesters receive consensus rewards in return for the service they provide. As every validator serves as an attester during an epoch, these rewards are the most regular and account for the majority of a validator’s income.

Validators can be penalised for being offline or failing to meet their obligations. For instance, an attestor doesn’t just miss out on the reward; the network deducts the equivalent amount from their stake. More serious offences, such as proposing two different blocks in the same slot, lead to harsher penalties known as slashing, which may involve the removal of a validator from the network and the loss of their stake.

2) The network also compensates sync committee members. These rewards are large but infrequent, so they account for a relatively small share of a validator’s yield.

The value of consensus and sync committee rewards depends on the base reward, calculated using the validator’s balance and the total amount of staked ether. It also takes into consideration the validator’s activities. Serving as block proposer, attester and sync committee earns the full base reward, but the validator loses a proportion for each role it doesn’t fulfil.

3) Execution rewards vary based on the volume of transactions. They come in the form of tips paid by users (in addition to gas fees) to increase the chances of their transaction getting added to the next block, or maximal extractable value (MEV), which validators earn for reordering or omitting transactions. Third parties called searchers identify MEV opportunities, such as frontrunning a profitable trade or claiming liquidation fees when a borrower’s collateral fluctuates, forcing the lending platform to sell it. 

Wallets and platforms to start staking

Getting started with staking requires holding ether in a digital wallet that is compatible with Ethereum. They come in two forms: hot wallets, like MetaMask, are connected to the internet, so they’re convenient but vulnerable to hacks. Cold wallets, such as Ledger, are offline, so they’re considered safer.

There are several ways to take part in staking.

The first is solo, or what Ethereum refers to as ‘home’, staking, which was briefly outlined earlier in this article. To recap, this involves depositing 32 ether and setting up a validator from scratch. Solo staking allows participants to earn rewards directly from the protocol and ultimately contribute to the network’s decentralisation because it increases the number of validators. That said, it presents the highest barriers to entry due to cost and requires technical expertise.

The next option is using a staking service, which effectively outsources the running of a validator to a third party. These services lower the technical barriers and allow users to earn rewards. But they still require the minimum stake of 32 ether, and the service provider charges a fee. Additionally, users could lose part of their stake if the provider gets penalised for breaking the rules, stakefish is an example of a staking service licensed to operate in Germany.  

Staking pools are another alternative. These pools combine funds from users who can’t afford the minimum stake and run validators on their behalf, sharing the rewards in proportion to the size of each user’s deposit. The main advantage of this option is it makes participation in the network much more accessible, while some pools like Lido offer liquid staking, issuing tokens that represent the staked ether (stETH in Lido’s case). Holders can use these tokens elsewhere, such as in decentralised finance apps. However, pools make the network more centralised because a small group control a high proportion of the total staked ether (Lido controls nearly a quarter as of August 2025). Some crypto exchanges, including Coinbase, also allow users to stake directly from their accounts.  

Finally, investors can gain exposure to Ethereum staking through exchange-traded products (ETPs) that trade on Xetra exchange. These products can sit in a portfolio alongside traditional assets like shares and bonds and contribute to overall performance. The CoinShares Physical Ethereum Staked ETP is fully backed by ether stored with Komainu, an institutional custodian, and pays staking rewards of 1.25% per annum (as of August 2025).

Advantages and risks of staking Ethereum

Staking offers the potential to generate an income by earning rewards. The reward is variable but according to Ethereum’s website, the annual percentage return (APR) is 3.1% (as of August 2025). This income can also be considered passive if generated through a pool or by investing in an ETP.

As the network issues rewards in ether, investors gain exposure to the token’s potential upside. Like most cryptos, ether experiences its fair share of volatility, although its price has risen in the summer of 2025 as inflows into US-listed spot exchange-traded funds surged, companies increasingly used it as a treasury asset, and the SEC provided guidance that reduced some regulatory uncertainty. Of course, past performance doesn’t guarantee future returns.

Another benefit is validators contribute to the network’s security. The more ether staked, the harder it becomes for a malicious party to mount an attack. Solo staking also increases the network’s decentralisation, which counters the influence of the dominant pools mentioned in the previous section.

There are risks too, primarily losing funds through penalties, which apply whether the ether is staked directly or via a pool. The ultimate penalty could lead to the loss of the entire stake.

Hackers targeting vulnerabilities in smart contracts pose a further risk. Liquid staking protocol Meta Pool lost €24.5M in June 2025 after a bug allowed a hacker to mint mpETH, the protocol’s liquidity token. Third-party solutions, offered by crypto exchanges, also face cyber risk, along with the potential for mismanagement of funds, as experienced by FTX customers in 2022. 

One final consideration is how long it takes to withdraw funds. Since the Shapella network upgrade in April 2023, Ethereum doesn’t force validators to lock up their stake for a minimum period. However, withdrawals can be slow, which may cause problems if a validator needs to sell their holding at short notice. When staking directly, withdrawals are variable, taking seven days as of August 2025, whereas Lido had an average withdrawal time of over 10 days.

Staking Ethereum vs. Other staking options

For context, let’s compare Ethereum with the two next-largest PoS blockchains by market capitalisation, Solana and Cardano.   

Firstly, a quick explanation of how these protocols operate differently to Ethereum. They both employ a delegated PoS mechanism, a variation that involves electing validators. In Solana’s ecosystem, holders of its native token, SOL, assign their tokens to the validators they consider the most trustworthy. Cardano’s approach is slightly different. Holders of its native token, ADA, can either delegate their tokens to a staking pool or set up a pool of their own. In both cases, the entities with the most tokens have the most influence.

Here are some key differences based on the features discussed previously in this article.

Minimum stake - Staking on Solana and Cardano is more accessible than Ethereum. Solana doesn’t have a minimum stake, while Cardano’s is only four ADA, worth €2.76 (as of August 2025).

Rewards - As of August 2025, Solana’s yield (between 5-7%) is higher than Ethereum, although Cardano’s is lower (2.39%). In terms of the factors influencing the calculation of the rewards, Solana takes into account SOL’s inflation rate and validator uptime, whereas Cardano relies on the total transaction fees generated each epoch (lasting five days) and the size of the protocol’s reserve. These figures are historical and variable. Past performance does not guarantee future results.

Penalties - Solana doesn’t automatically punish malicious behaviour as of August 2025, but if a validator breaks the rules, they can be penalised. Cardano prefers to rely on reputation and economic incentives to encourage honest participation instead of slashing.   

Withdrawals - When a holder undelegates a stake in Solana, it enters a deactivation period which lasts until the start of the next epoch (lasting roughly two days). Participants can also withdraw a maximum of 25% of the total active stake each epoch. Cardano, on the other hand, allows users to withdraw their tokens at any point.

Frequently asked questions 

What is Ethereum staking?

Blockchains rely on consensus mechanisms to process transactions and ensure the whole network shares the latest version of the ledger. There are various types of mechanisms, but Ethereum uses proof-of-stake, which requires validators to deposit its native token, ether, for the right to process transactions. They receive rewards in return for their participation, but they can be penalised if they fail to follow the rules.

Can you stake Ethereum with a small amount of capital?

The minimum stake for a validator is 32 ether, worth €116,637 (as of August 2025). While this makes staking prohibitive for some, there are other options. Pools like Lido make staking more accessible because they don’t impose a minimum stake. Investors can also gain exposure by purchasing staking ETPs that trade on the Xetra stock exchange.

How high are the rewards for Ethereum staking?

The APR paid by Ethereum is 3.1% as of August 2025, although it varies. Users can earn similar yields through other platforms, like crypto exchange Bitstamp, which includes a 15% commission. These figures are historical and variable. Past performance does not guarantee future results.

Is Ethereum staking secure?

The PoS consensus mechanism helps to secure the network. To mount an attack that would allow a malicious party to prevent finality, censor transactions or reverse transactions, it would need to control 33%, 51% or 66%, respectively, of the total ether staked. Given this amounts to €131B (as of August 2025), the cost of such an attack is prohibitively expensive. What’s more, the network could slash the malicious party, eliminating their stake and forcefully removing them.