In brief

  • Collin Myers, global product strategy at ConsenSys, explained what kind of returns stakers can expect to make on Ethereum 2.0.
  • The Ethereum 2.0 network must reach a few important milestones before ETH holders could see profits from staking.
  • Potential stakers need to take the cost of running a validator node into consideration.

“What kind of economic returns can stakers expect to make?” was, perhaps, the most anticipated question during today’s “Ethereum 2.0 Staking Panel” at Ethereal Virtual Summit 2020—at least from a retail investor’s perspective. The answer, however, is far from simple, according to Collin Myers, global product strategy at ConsenSys (which funds an editorially independent Decrypt).

Ethereum 2.0 is a massive network upgrade that will bring many improvements to the current blockchain, starting with “phase zero.” Among other things, it will pave the way for Ethereum to transfer to a proof-of-stake (PoS) consensus algorithm, moving away from the current computationally intensive proof-of-work (PoW) algorithm.

The main difference is that in PoS users will be able to “stake”—basically lock up—their Ethereum, which will be used to verify new blocks, consequently helping support the network. Of course, stakers will receive rewards for their contributions, and the greater their stake is in the ecosystem—the greater the reward will be.

Myers said that the Ethereum 2.0 network must reach quite a few important milestones before ETH holders could even begin to wonder about potential profits from staking. First and foremost, 2.0’s first—or ”genesis”—block won’t be discovered until the total amount of staked Ethereum reaches over 524,000 ETH—which is around 16,000 validators.

“No one will receive any rewards until that point is reached,” Myers added.

He also noted that “phase zero” is a continuum and not a set time period, although the developers expect it to last somewhere between 12 and 18 months—or even 24 months, according to some projections. The next important milestone is five million staked ETH—by which time “phase one” will probably already begin, Myers added.

So, what profit could early stakers expect?

“At a network-level perspective, at genesis it’s 20.3%, and at five million ETH staked it drops down to 6.6%—and that’s without cost built into your structure. There’s a variety of different setups that people can choose. We’ve mainly focused on the ‘at home’ individual approach,” Myers said.

He explained that, starting from the genesis block, expenses for maintaining a validator node will cost users 4.75% of their rewards. As more Ethereum is staked on the network, this percentage will get higher since the rewards themselves will begin to shrink.

“At five million ETH staked, the cost will rise to about 14.7%,” Myers stated. “Which results in your net issuance essentially being between 17% and 3.7% from genesis until five million ETH staked,” he added.

Myers also warned all potential stakers that the Ethereum 2.0 network is designed to be “highly open,” which results in a variable rate of return. While the rewards shouldn’t be seen as volatile, they still do vary as “anyone can come in and out of” the system.

As Decrypt reported recently, EthereumPrice.org has also released a new UI tool to calculate Ethereum staking rewards after the network moves to Ethereum 2.0 later this year.