In September, the Ethereum Merge took place, with which the blockchain switched from a proof-of-work algorithm to a proof-of-stake. This means that everyone can now actively participate in securing the blockchain via so-called Staking and is rewarded with new ETH Coins.
But what things should you pay special attention to when deciding where to stake your ETH? Here are 3 important criteria when choosing a platform!
1. Transparency of the returns generated
Celsius, Hodlnaut… formerly very popular crypto platforms where many investors lost their money. The platforms advertised high returns, but there was little transparency about where the returns actually came from and how they were earned.
Still, most platforms give little transparency on how they actually generate their returns. With Ethereum staking, it is therefore especially important to make sure that you can verify the nodes themselves. That means you need to be able to see that your ETH are actually being staked, and you need to see your rewards coming in.
Otherwise, you simply won’t know what exactly is happening with your ETH. Theoretically, the platform could take a trading risk with your ETH, which you have to bear – in the best case, you get your promised “staking” return here, in the worst case, you lose your money. Therefore, transparency is especially important.
Ideally, of course, you’ll choose a platform that offers transparency and, at the same time, low fees and thus a high return. At my company Cake DeFi you currently get a whopping 4-5% APY also because of our special compound interest feature!
2. Location of the nodes (often neglected!)
Most stakers hardly pay attention to where their nodes are physically operated in the end. But the location of the nodes is extremely important!
Because the country and the laws there naturally have an extreme influence on the network. Currently, there is quite a bit of pressure coming from the U.S. – where most providers host their nodes. For example, there are discussions about introducing sanctions.
The country where the staking nodes are hosted should best meet the following conditions:
- Have strong crypto regulation and security
- Be open and independent
- Crypto-friendly, customer-friendly
If you’re staking, it’s best to do it in a country that makes cryptoregulatory sense for you. After all, in the worst case scenario, the network, in this case the Ethereum blockchain, could fork out your coins – and you lose your ETH. This is unlikely, but possible, so why take that risk?
At Cake DeFi, for example, the staking nodes are operated directly in Singapore – a country that meets all 3 of the above conditions.
3. Liquidity / Unstaking of your ETH
By design, it is currently not possible to unstake Ethereum. This means that once you have staked your ETH, you will be locked in on most platforms and will not be able to get out again.
This will only be possible with the long-term planned Shanghai upgrade. For the unstaking you will then be in a queue – in short, it is easily possible that a once staked ETH can only be unstaked again in 1-2 years. But there is a solution!
Good staking platforms should offer a secondary market where someone else can buy your staked ETH. For this, of course, you have to accept a small discount for liquidity, the amount of which is decided by the free market, but at least you can get your capital out. So if you want to stake and it may be that you also want to sell your ETH within the next 1-2 years, make sure that your staking platform offers a secondary market.
At Cake DeFi, a secondary market for selling ETH staked by us is planned and will be launched within October 2022.
Conclusion: Where would be the best place to stake your ETH?
The 3 most important points when choosing your staking platform are:
- Transparent, attractive returns
- The location of the nodes
- The liquidity of your investment
I personally put a lot of emphasis on these three points, which is why we have designed the staking at my own company Cake DeFi to fulfill all of these points. There are of course other staking providers – just pay attention to the three points and evaluate what is most important to you.