Ethereum Staking: Revenue Streams, MEV and inclusion fees


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Ethereum staking is already here and it represents an opportunity to generate a passive income, or a substantial income depending on how much Ethereum you stake. Stakers participate in transaction validation and network security, earning rewards for running a node. At the time of writing, Ethereum has over 300,000 validators and more than 12 million in staked ETH, with the staking APR hovering at approximately 4.4%.

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Whilst the above is not new information to industry insiders, the question of whom to stake with continues to prevail when it comes to taking the first step. There is no shortage of Ethereum staking service providers but only a few will let you maximize your returns from your staking operations with MEV and inclusion fees. Keep reading to learn how Ethereum staking works, what are the revenue streams it provides and the revenue streams most staking providers will keep from you.

What is Ethereum Staking?

Crypto staking is the process of selecting validators to produce a new block, so once Ethereum fully implements ETH 2.0/the consensus layer, the staking model will replace mining. That is to say, Ethereum will shift from a Proof-of-Work (PoW) consensus mechanism to a Proof-of-Stake (PoS). Ethereum 2.0 will help the blockchain achieve faster transaction speeds and cheaper fees. What’s more, the Ethereum staking power consumption is less than the PoW model. Yes it is 99% less energy intensive to be precise!

How Does Ethereum Staking Work?

The PoS Ethereum blockchain validates a bundle of 32 blocks of transactions in an average time of 6.4 minutes. A bundle of 32 blocks is referred to as an epoch, and for a casual Ethereum staker an epoch means rewards.

During a validation round, the Beacon Chain chooses a committee of 128 stakers and randomly allocates them a shard block. The chain assigns each committee a slot and requires them to propose a new block and validate its transactions within a set time. Since each epoch has 32 slots, the chain needs 32 committees to finish a validation round.

Only one committee member gets the chance to propose a new block of transactions. The Beacon Chain picks this member randomly. The other 127 members vote on the proposal and confirm transactions. Validators will only add the proposed block to the chain once they all vote in favor of this action.

Stakers receive the reward once they complete the job. The member that acquired block proposal rights gets one-eighth of the base reward, while the rest obtain seven-eighth of the base reward.

How to Stake Ethereum

Staking Ethereum begins with setting up a validator node. A node is typically a computer that runs a software client which communicates with Ethereum. A validator node must connect to a Beacon node client like Prysm, the primary link in the Beacon Chain.

Forms of Ethereum Staking

Ethereum staking is done through custodial, semi-custodial, or non-custodial staking providers. Here’s a description of each option with examples:

Non-Custodial Staking

Non-custodial staking providers eliminate the hassles of solo staking without holding their users’ private validator and withdrawal keys. That means that stakers are in control of their node and the rewards they earn. Non-custodial staking providers help users maximise returns and reduce the risks of running their own hardware. Launchnodes is the only company providing fully non-custodial staking services with Beacon and validator nodes running on Amazon Web Services (AWS) and Azure




This form of staking is perfect for those who are looking to stake 32ETH or its multiples, which is why it has been widely adopted by financial institutions and individuals looking to earn rewards from network participation. Rewards and security are the main driving factors for non-custodial Ethereum staking. So if this grabs your attention, head over to the Inclusion Fee section to find out why you will be earning more with this form of staking.

Custodial Staking

With custodial staking, you’re giving a centralised entity complete control over the staking process. Centralised exchanges like Coinbase offer this service. The drawbacks here are that providers have control over users’ private validator keys and take a hefty cut of the rewards.

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The general opinion on the market is that they also run a massive number of validators, creating a large centralised point of failure. This being said, due to a complete lack of transparency, end users have no way of knowing what is really happening with their ETH and whether they are staked at all.

Custodial staking providers also supply staking pools for users that don’t have 32ETH or aren’t comfortable staking that much money. Pools allow stakers to bring their resources together and jointly stake ether.

Semi-Custodial Staking

Semi-custodial staking providers are platforms that claim they’re non-custodial, but they tie users to web portals or interfaces and other tools that increase third party dependency, and complicate ownership of the nodes. Despite that, most semi-custodial providers don’t keep private node’ keys, nodding towards a safer staking infrastructure compared to fully custodial Ethereum staking. Users that use this option risk receiving fewer rewards, offline fines, and slashing penalties that draw from lack of access and ownership. A slashing penalty occurs when validators act against the Ethereum network, either maliciously or accidentally. On the other hand, software downtime can lead to missed attestations.

Inclusion Fees & Other Revenue Streams

The two main sources of revenue for miners in the PoW model are block subsidies and transaction fees. Ethereum 2.0 will replace additional block proposal rewards with inclusion fees. The latter refers to optional and additional fees that users pay for their transactions on top of the base fees. You can think of them as tips.

Miner extractable value (MEV) is the third and least-known Ethereum revenue stream. Currently, miners can earn MEV thanks to the growth of decentralised exchanges (DEX) on Ethereum.

DEX traders care about the speed and order of transaction execution more than the average user. Consequently, miners can use this to earn more rewards. By definition, MEV is the profit miners can make from arbitrarily including, excluding, or reordering transactions within the blocks they generate.

When Ethereum shifts to PoS, users who use non-custodial Ethereum staking services will receive revenue from MEV, inclusion fees, and staking rewards. Flashbots researcher, Alex Obadia, predicts ETH 2.0 validators will collect 70% more than the current income from network rewards.

Since MEV isn’t widely known, custodial staking providers could keep this income instead of sharing it with their users. Non-custodial staking providers cannot technically do this, making them ideal for Ethereum stakers. Furthermore, stakers can only access inclusion fees when they’re running their own nodes. That makes non-custodial staking a suitable option for anyone that wants to earn via the three staking income streams. Ethereum holders that use alternative methods will only secure their rewards through the standard APY.

Final Words

Non-custodial staking services give Ethereum stakers a better opportunity for making money than most available options. That puts non-custodial staking providers at the forefront of accelerating staking growth in the future. Also, the rising demand for financial freedom in a highly censored world expands the popularity of Ethereum staking, and these trends are already clear, as the amount of staked Ethereum continues to grow at an exponential pace.


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