How high could ETH staking rewards get, post-Merge?
12:44, 12 September 2022
The most-anticipated event in Ethereum’s history, The Merge, comes with many promises.
Many will undoubtedly be happy that Ethereum’s switch from proof-of-work (PoW) to a less demanding proof-of-stake (PoS) consensus mechanism will drastically lower the network’s energy consumption – potentially by more than 99%.
The Merge is also good news for ETH validators, who keep the network secure by staking their coins, as rewards for their service are widely expected to go up after the upgrade. So how high could ETH staking yields get after The Merge?
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Switch from miners to validators
After the PoW to PoS switch, validators rather than miners will be in charge of verifying transactions on the Ethereum network. ETH holders validate the network by staking their coins. In return, the validators earn yields on their staked ETH holdings.
The Annual Percentage Rate (APR) is a key metric measuring these staking rewards, and shows how much can validators earn in a year on their staked holdings. The APR for ETH solo stakers is currently 4.1%, according to the Ethereum website.
This rate is expected to increase after The Merge, once Ethereum’s switch to PoS is finalised. But analysts’ estimates of how high the APR could rise differ.
Yields post-The Merge
Tom Dunleavy, senior analyst at Messari, calculated that APR could grow to from 6.8% in a ‘very conservative’ scenario to a 13.7% ‘very aggressive’ scenario.
The merge is going to bring ~7%-14% yields day one.
— Dunleavy (@dunleavy89) August 17, 2022
Just to showcase how conservative the very conservative scenario is (80k fees per month is or current levels)-->Network fees have averaged 200k-300k ETH with a high of 425k historically. pic.twitter.com/LKz1s1YX7d
Lucas Outumuro, head of research at IntoTheBlock, concluded that – based on data from the last 30, 90 and 180 days – staking yields will range between 5.8% and 6.9% following The Merge.
6/ What about staking rewards?
— Lucas (@LucasOutumuro) September 7, 2022
In proof of stake, transaction fees that are not burnt are paid to those staking
Thus, decreasing fees = decreasing staking yields
Based on data from the last 30, 90 and 180 days, staking yields will range between 5.8% - 6.9% following the merge pic.twitter.com/T96MhEXGE0
Another pseudonymous analyst, writing under the name Pintail, calculated that medium rewards will be “6.1% APR, with a lower quartile of 5.3% and an upper quartile of 7.3%.”
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