Ethereum 2.0 has been years in the making, and investors are eagerly frontrunning the technology by participating in ETH staking. With a minimum of 32 eth, you can now stake directly in the Ethereum network, earning ether rewards for helping to decentralize the network.
Rewards for staking your ether are approximated to be around 10% per year, give or take. This may seem like great money for a person coming from traditional finance or comparing these rewards to bank interest rates. For crypto, though, 10% per year is hardly anything to write home to momma about.
Stakers hope that staking will take ether out of circulation, increasing the price through lowered supply. It remains to be seen, however, if the network will be able to attract enough stakers to actually affect the supply. The question remains — should you stake your ether directly into the network? Let's take a look at some of your alternatives.
Staking with Liquidity
One of defi's major breakthroughs is the use of custodial collateral — meaning you can hold or stake your crypto with a protocol and simultaneously borrow against it or use it as if it were still a free liquid asset. Programs like Stkr from the Ankr project promise to allow investors to stake their ether while retaining liquidity. Apps like cream.finance serve as banks with automated yield harvest functions that produce an interest rate while allowing investors to borrow against the collateral. Both of these options, barring technical risk, are better than staking directly with the Ethereum network. Direct staking locks up the liquidity of the collateral for the staking period.
Micropools
Although many investors are now using the 32 eth direct staking minimum as a benchmark for their portfolios, those with that minimum still constitute a minority of ether holders. Less than 1% of individuals with ether wallets actually have the 32 eth minimum. This doesn't bode well for direct staking or affecting the supply of ether in any meaningful way. Enter micropools, a way for stakers to pool their resources within a protocol to stake with the network.
Many micropools also preserve the liquidity of investor eth, which allows for greater utility and activity within the network. It remains to be seen, but many of the larger ether holders may choose to split their stack between micropools to diversify the technical risk while retaining the lend/borrow power of indirect staking.
Technical Risk
One might think that an investor would reduce technical risk by staking directly in the ethereum mainnet. This is not necessarily the case. Investors may be compensated for any hiccups that occur from the mainnet, because ether has an unlimited supply. However, the length of the testing process has shown the market that the mainnet has a long way to go before it is bug free.
The rollout of the 2.0 mainnet is expected to take years. The first iteration of the project is just that — the first iteration. Word is that liquidity will remain locked until transactions are fully implemented, which could take a number of years according to experts on the subject. In the meantime, indirect stakers will enjoy the benefits of direct staking without any of the downside, including technical risk.
The Eth 2.0 developers are rightfully spending most of their time trying to determine if there will be overriding technical issues in 2.0 deployment. It may benefit the network, however, to spend some time on the social and economic ramifications of its staking program. After all, the network must achieve a certain level of adoption through staking in order to stabilize and decentralize it, for technical and legal reasons.
