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How to Make Passive Income Liquid Staking Ethereum

Updated: Nov 7, 2023

You’ve seen the headlines— Ethereum's price is on the rise because the Ethereum 2.0 network is here and the bridge to the new format has been deployed. You’d like to join the party, but you don’t have thousands of dollars to invest, or the technical expertise to buy, store, and secure cryptocurrency yourself. What do you do? This is your chance to get in on the ground floor of a new alternative investment class with massive potential and little downside. This post will show you how you can stake your Ethereum 2.0 on Binance or Coinbase to make money on a consistent basis, plus gain additional passive income through appreciation.



What is Ethereum?


The Ethereum network is a decentralized platform that runs smart contracts: applications that run exactly as programmed without any possibility of downtime, censorship, fraud, or third party interference. These apps run on a distributed platform of many thousands of computers around the world, each running its own copy of the app. The blockchain is stored across all of these computers rather than within any one of them. Because these apps can be run on many computers at the same time, they are extremely secure. This enables developers to create markets, store registries of debts or promises, move funds in accordance with instructions given long in the past (like a will or a futures contract) and many other things that have not been invented yet, all without a middleman or counterparty risk.


ETH is Ethereum's cryptocurrency token— a unit of value used by app developers to pay for transaction fees and computational services on the Ethereum blockchain. Over 75% of all ETH tokens already exist in the system.


What is Staking?


Staking is a way of earning Ethereum tokens (ETH) without mining. You don't have to buy and maintain expensive hardware and use a ton of electricity. Instead, to earn a return, you stake your ETH tokens, and in turn they will give you a proportional share of all the fees paid on the Ethereum network. This is an alternative to buying and holding ETH tokens, which is the more common way to buy Ethereum and the predominant way to earn a return on your investment.


Staking is what keeps the Ethereum blockchain up-to-date and running smoothly. By staking, users validate transactions and produce new blocks. In doing so, they help the Ethereum network. The results of staking are more fees collected on the transaction fees in each block. Each consensus round requires 1000 gas. With Ethereum's upgrade to Ethereum 2.0, Ethereum can now be staked and ETH can be used as a reward: fees you receive for the work you did as part of the Proof of Stake process


How Much Can You Earn Staking Ethereum?


Staking is attractive to investors because of the speed and security it offers, as well as the guaranteed passive income. The gains from staking are directly tied to the amount of coins in your staking account. So whatever Ethereum you stake, that’s how much you earn for each Ethereum block reward.


The starting reward for staking is 1% per year or around 1% each time Ethereum blocks are solved. The limit is based on the total amount of your ETH tokens. When you stake more than 30% of your tokens, your annual interest rate goes up to as much as 10%.


What are the Advantages of Staking?


Staking has several advantages over the other ways of earning a return on your ETH. First of all, every staking operation has a chance to get the reward for a block directly, in the form of a stake that earns compounding interest based on that block output. Block rewards are paid to a stake contract, and not to individual wallets. This means that stakers don’t have to wait for a payout; instead their rewards are instantly issued as ether tokens.


Second, staking returns are guaranteed. The Ethereum network provides a way to trustlessly report the amount of the reward you receive to the blockchain so that it can be credited correctly. This means you don’t have to trust the staking pool to be fair and pay ample rewards.




How Do I Stake Ethereum with Liquid Staking?


Before we dive into the details of how to stake Ethereum with liquid staking, let's first define what liquid staking is. Liquid staking is a process of staking your cryptocurrency holdings to earn rewards while still being able to use them for other purposes.


Traditional staking involves locking up your assets in a smart contract for a set amount of time, which can range from a few days to several years. This means that you won't be able to use those assets for anything else during that time.


Liquid staking, on the other hand, allows you to stake your assets and still have access to them for other purposes. This is achieved through the use of staked assets as collateral to mint a new token that represents your staked assets. This new token can then be used for other purposes while still earning staking rewards.


Why Stake Ethereum with Liquid Staking?


Staking Ethereum with liquid staking has several advantages over traditional staking:

  1. Flexibility: Liquid staking allows you to stake your Ethereum holdings and still have access to them for other purposes. This means you don't have to choose between staking your assets and using them for other things.

  2. Liquidity: With traditional staking, your assets are locked up for a set period of time. This can be a problem if you need access to those assets before the staking period is up. Liquid staking provides liquidity by allowing you to use your staked assets for other purposes.

  3. Additional Rewards: Some liquid staking platforms offer additional rewards beyond the staking rewards. This can include rewards for providing liquidity to a staking pool or rewards for participating in governance decisions.

How to Stake Ethereum with Liquid Staking


Now that we've covered the basics of liquid staking, let's dive into how to stake Ethereum with liquid staking. Here are the steps:


Step 1: Choose a Liquid Staking Platform


The first step is to choose a liquid staking platform. There are several options available, including Rocket Pool, Lido, and Ankr. Each platform has its own benefits and drawbacks, so it's important to do your research before choosing one.


Step 2: Connect Your Ethereum Wallet


Once you've chosen a platform, the next step is to connect your Ethereum wallet to the platform. This will allow you to transfer your Ethereum holdings to the platform and stake them.


Step 3: Transfer Your Ethereum Holdings to the Platform

After connecting your wallet, you'll need to transfer your Ethereum holdings to the platform. This is typically done by sending a transaction to a smart contract on the Ethereum network.


Step 4: Mint Liquid Staking Tokens

Once your Ethereum holdings are on the platform, you can mint liquid staking tokens that represent your staked assets. These tokens can be used for other purposes while still earning staking rewards.


Step 5: Monitor Your Staking Rewards

Finally, it's important to monitor your staking rewards. Liquid staking platforms typically provide a dashboard where you can track your rewards and see how much you've earned.


Ethereum's Expansion


Staking will only become more popular as the Ethereum network expands. In its protocol is the ability to use staking not just to incentivize, but to also validate all network transactions. In parallel, the company behind the Casper Foundation is trying to build a scalable solution for staking and bringing it to the average user.


Making Ethereum and other cryptocurrencies more scalable will make both blockchain performance and the staking process more successful. Staking is a smart investment because the returns are predictable. There are no trading fees, security risks, or brokerage fees. You don’t even have to manage a complete wallet. Just keep in mind, the price of Ethereum is often volatile.



Conclusion


Staking Ethereum with liquid staking is a great way to earn staking rewards while still having access to your assets for other purposes. By following the steps outlined in this guide, you can start staking your Ethereum holdings with a liquid staking platform of your choice. Just be sure to do your research and choose a platform that meets your needs and preferences.


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