What will the real returns on stacking in Etherium be once the blockchain moves to Proof-of-Stake?
Ethereum’s transition to a consensus algorithm called Proof-of-Stake (PoS), also known as a merge, was previously pushed to the second half of 2022. A key feature of the updated Ethereum 2.0 blockchain will be stacking, a transaction validation process that will completely replace ETH mining with the usual crypto farms. Initially, it was expected that validators – i.e. the owners of the stacks – would earn between 12 and 15 per cent per annum for their activities. However, in the end, their real returns could turn out to be noticeably lower. We tell you about the situation in more detail.
Traditionally, let's start with the logic behind determining the profitability of PoS networks. The issuance rates of such blockchains are fixed, meaning that a certain amount of coins must appear in circulation over a certain period, with little variation.
Accordingly, the average reward per validator per year may be X, but if their number is doubled, the reward will be 0.5X, because the same amount will simply be distributed among more people. This is why the profitability of an Etherium staking falls as new entrants join the sphere.
According to data from the steering platform Everstake, the annual return on ETH steering is currently around 8 per cent. For illustrative purposes, here are the figures for other cryptocurrencies. For example, Solana yields 7 percent at the moment.
Stacking yields in different blockchains
Although such figures seem small, they are much higher than those offered by European banks and US financial institutions. In addition, investors have the opportunity to earn more in dollar terms if the value of the cryptocurrency rises. Staking is therefore popular, even though the yields are not the most attractive.
How much can I earn on Ethereum 2.0?
To get the role of validator, you need to lock in at least 32 ETH or about $93,500 at the current exchange rate of the coin in a deposit smart contract. It has now accumulated over 11.5 million ETH – almost 1.5 million ETH more than the previously estimated number of blocked coins. Accordingly, mining ethers using the new method is indeed popular.
It is important to note that the earned ethers cannot be withdrawn yet. The withdrawal function will be earned after the migration to the new version of the network. In other words, the current validators are working on the initiative, because they really want to participate in the historical event.
Volume of blocked ETH in deposit smart contract in dollar equivalent
While the transition to Ethereum 2.0 has been delayed, the amount of ETH on deposit smart contract will continue to grow. While this is positive for the cryptocurrency itself – its network will still be more secure against all sorts of attacks – for each individual validator this means a drop in projected annual profitability. At that rate, it could fall by at least a few percent.
The price of Bitcoin and Etherium
A more detailed breakdown of the situation has been published by analysts on Medium. As you can see, if the number of ETH in a smart contract reaches the 14.71 million mark at the time of the transition to Ethereum 2.0, the annual validator revenue, together with commissions, would be around 7.4 per cent. In the table below, the projected annual yield is highlighted in green for the different estimated number of ETH in the smart contract.
Estimated yield of the staking
The amount of ETH in a deposit smart contract is one of three key factors affecting the post-merger staking reward. They also include the amount of gas commissions paid by users and the percentage of commissions destroyed.
According to CryptoSlate’s sources, the rate of ETH growth in the smart contract can only accelerate. This is due to the launch of the stETH token, i.e. stashable ethers.
stETH represents the balance of the user's ETH in the smart contract for stacking, along with accumulated rewards or penalties. stETH can already be exchanged for free ETH and accumulated rewards, so stackers free up their coins and can conduct transactions with them now. So it's more convenient than just locking up ethers in a smart contract and waiting a long time for potential rewards.
How much are Etherium miners earning now?
To illustrate, let’s calculate the current approximate profitability of mining using a single Nvidia GTX 1080Ti video card as an example. In this case, we only care about the profitability of the card compared to its average cost. This way we can get an approximate percentage of the annual return on investment in mining. To calculate we will use 2CryptoCalc calculator.
So, the average price of GTX 1080 Ti on eBay is $658. It is impossible to find anything on DNS: the last recorded price for an affordable model was 74.5 thousand rubles, i.e. $938 at the current exchange rate.
Nvidia GTX 1080 Ti price last in stock
With the current hash of the Etherium network and the price of ETH, the card could bring in about $53 a month or $636 a year, not including the cost of electricity. As you can see, the payback period of an investment in a crypto farm of such cards is a little over a year if you take into account the additional maintenance costs of the equipment.
However, if you consider the aforementioned $938, the payback period at current rates would take almost 18 months or a year and a half. And even then, the payback is 67 per cent per annum, which is significantly higher than the current 8 per cent of ether-stacking.
The profitability of mining
But it is important to understand that stacking is much easier than mining, and it can be done by almost anyone. Yes, there is a limit of 32 ETH minimum deposit into smart contract, but now there are a lot of pools for steaking, where there is almost no entry threshold. So you may invest 0.3 ETH and get proportional income minus commissions.
From a global perspective, the move to Etherium 2.0 – albeit with a new postponement – will result in a significant increase in network capacity, as well as making it more “green-friendly” due to reduced network power consumption. However, from the perspective of the average miner, this change will only lead to the search for a new coin to mine.
Ethereum Classic is a good replacement here. It can be mined so far even on video cards with 3 GB of memory, in addition, the remuneration can be automatically converted into Bitcoin. Read more about that in a separate article.
We believe that Etherium stacking really won't surprise cryptocurrency owners with its profitability - especially taking into consideration the serious profitability of ETH mining in the current environment. However, it will happen sooner or later, so it's worth considering mining the cryptocurrency at this point while the opportunity remains. It should be noted that it is even possible to mine Etherium with a single video card.
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