The Complete 2023 Guide to Lido ETH Staking

Staking is all the rage when it comes to earning a passive income with cryptocurrency. Add that to the fact that Ethereum is now a proof-of-stake blockchain, and you have a chance to earn a passive income from one of the best-performing assets in recent history with options like Lido ETH staking.

While staking your ETH should be a no-brainer, it’s actually quite hard to pull off in practice. That’s why Lido ETH staking is an option that you absolutely need to know about if you have some ETH or are thinking about jumping in!

Keep on reading to learn what Ethereum staking entails and why Lido DAO and Lido liquid staking play such a crucial role in it!

What is Staking?

Proof of stake has existed for a while in the blockchain industry, but many still regard it as an exciting, novel concept. Blockchain technology was synonymous with proof-of-work consensus in its early years, but the energy demands of proof-of-work mining resulted in the development of the far less energy-intensive proof-of-stake consensus algorithm.

Like proof of work, proof of stake is a consensus mechanism that allows blockchains to agree on what transactions make up the ledger. This is no mean feat, given the fact that most blockchains are made up of and upheld by thousands of independent nodes.

Proof of work accomplishes this by letting miners throw raw computing power at the problem. They race to solve a cryptographic puzzle, and the winner is given the block reward. This block reward is lucrative and can make even the most expensive, elaborate mining setups profitable if they produce enough hash power.

Proof of stake cuts back on energy bills massively by eliminating this hardware dependency. Instead, it requires prospective block producers, usually called validators, to buy a certain amount of network coins and bond them to the protocol via a smart contract.

This is called a stake, and it gives the validator the right to start validating blocks for the blockchain.

There’s also a block reward in play to incentivize validators to stake coins and put their hardware to work. Rather than depending on how much computing power they have, though, their chance to win the block reward is proportional to how big their stake is.

To stake coins on a blockchain, you’re also supposed to play the role of a validator. This requires some technical competence since you’re expected to set up your validator node.

In some blockchains, there’s also a minimum number of coins that you have to stake to become a validator. In Ethereum’s case, it’s a princely 32 ETH.

What is Lido DAO?

At current prices, 32 ETH represents a very significant investment. In fact, looking at current trends with respect to rising costs and households increasingly struggling with static wages, 32 ETH is well out of reach for most folks.

There’s also the issue that, until Ethereum staking is fully fleshed out, it remains illiquid. That is, once you stake your Ether, you can’t unstake it until the relevant blockchain updates have been pushed through. So, when you stake your ETH, you have to do so without knowing exactly when you’ll be able to get your funds back.

These issues with ETH staking, contrasting with the sheer popularity of Ethereum as both a technology and an asset, have created a gap in the market for Lido to fill.

Lido is a decentralized autonomous organization (DAO) that not only allows you to stake any amount of ETH but also gives your staked ETH the element of liquidity that native staking lacks.

With the entry barriers of 32 ETH and the technical know-how to set up a validator removed and the risk of funds being locked indefinitely all being removed in a stroke, Lido provides a crucial service to anyone who’d like to earn APY rather than just hodl ETH.

When you stake your ETH with Lido, you receive a staking token called stETH. This token corresponds to the value of your staking deposit, but it increases in balance as your daily ETH staking rewards start to kick in!

The best part is that you can also use your stETH tokens across a range of decentralized finance (DeFi) applications, such as Yearn.finance, Sushi, Curve Finance, and more. This allows you to take part in DeFi just as you could with ETH while also earning a return on your actual ETH.

If you decide you want to unstake, all you need to do is hop onto a decentralized exchange (DEX) and sell your stETH for ETH. So, it’s not technically unstaking per se, but it moves from staking back to liquid, unstaked ETH, so there’s no effective difference.

How to Stake ETH with Lido

Luckily, staking your Ether with Lido isn’t all that difficult. Let’s take a look at the basic steps:

#1. Get a Wallet

Lido is essentially a dApp on the Ethereum blockchain, so you can’t connect to it until you have your own Ethereum wallet. A hot wallet like MetaMask or the GameStop Wallet is ideal since this sort of wallet will allow you to connect to Lido with just a couple of clicks.

#2. Fund Your Wallet

Now that your own private wallet is set up, you’ll need some ETH to stake. There are several ways to acquire ETH for the first time. You could register on a centralized exchange that does fiat-to-crypto transactions, but keep in mind that you may have to fulfill the platform’s Know Your Customer requirements.

Alternatively, you can check your wallet to see if it features any integrated fiat on-ramps. These services charge a fee but do let you buy crypto directly from your wallet interface, bypassing exchanges and the need (and expense) to move funds from an exchange into your wallet.

#3. Navigate to the Lido ETH Staking Portal

With your wallet now flush with ETH, the next step is to visit the Lido DAO platform and the Lido ETH staking portal. Remember that you’re looking for Ethereum staking and not one of the other cryptocurrencies that the platform offers.

#4. Connect Wallet

As you can see from the above image, you’ll have to connect your wallet before you can proceed. If you’ve never connected to a dApp before, the process is simple—just click the big blue button, and choose your wallet.

Your wallet will prompt you to allow the connection, and you can go ahead and do so. This generally means that you need to log into your wallet if you aren’t already. The dApp can’t do anything to your wallet or the funds within just yet, so all it’s doing at this stage is establishing a connection and viewing your balance.

#5. Stake your ETH and Sign the Transaction

With your wallet connected, you can select how much ETH you would like to stake. Remember to leave a little ETH unstaked since staking this way requires you to pay a gas fee.

Once you initiate the transaction, your wallet will ask you for permission to proceed. This is called signing the transaction, which is the final authorization you can give to go ahead with staking.

#6. Enjoy Your stETH Tokens

Congratulations, you’re all done! As soon as the transaction is confirmed, you’ll be sent stETH tokens to represent your Lido ETH staking balance. You can now use these stETH tokens in DeFi to earn additional yield!

Potential Earnings From Staking ETH

The most lucrative way to stake ETH is by running a validator node of your own, but it’s also an expensive, technically demanding method. It stands to reason that if a service or staking platform offers you ETH staking, they’ll keep a certain cut to pay for the costs they incur.

Currently, staking ETH with Lido provides a 4.8% APR. The rate can change from week to week, but you shouldn’t expect it to shift too far from this figure. You may receive a higher rate on other platforms, but Lido is on-chain and decentralized, and you can also earn a yield on your stETH tokens.

How Safe is Staking ETH with Lido?

Lido is a decentralized staking platform that operates on the Ethereum blockchain. This gives it far more security than centralized options or exchanges because there isn’t one single individual in control of Lido DAO.

The organization operates with decentralized governance, so the risk of a single bad actor in top management is removed since there isn’t actually any top management at all.

However, the fact that it’s an on-chain organization does mean that your ETH staking takes place through Lido’s smart contracts. On the plus side, these can be audited by anyone, including you since they’re public, but smart contract vulnerabilities have crippled many protocols in DeFi already.

There’s also the chance that something goes catastrophically wrong and the value of the stETH token craters. This makes exiting your Lido ETH staking position impossible, at least within the value ranges at which you entered it.

Finally, slashing is always a risk when staking cryptocurrency. This is a mechanism that punishes a misbehaving validator by confiscating or destroying their staked coins. If Lido’s validators get slashed, the platform would lose some of its ETH, and the stETH token would lose value sharply.

That said, Lido is one of the best ways to stake ETH outside of native staking on the market currently, and it’s a lot less risky than using a centralized custodian such as a crypto exchange.

Benefits of Staking ETH on LIDO

Let’s take a look at some of the reasons why Lido ETH staking might be a good idea:

• Passive income. It doesn’t get better than stacking additional income streams, does it? If you want to make the wonders of compound interest work for you, staking with Lido and picking up daily rewards is definitely the way to go.
• Liquid stETH token. Once you stake, you don’t just get a receipt. The stETH token has its own utility, and aside from making your ETH stake liquid, it can be used on various DeFi platforms to earn even more yield.
• Blockchain-based DAO. Lido DAO is a decentralized autonomous organization, not some big centralized business. By using the Lido platform rather than a centralized exchange, you’re keeping power in the hands of the many rather than the few.
• No minimums. The Ethereum staking requirement of 32 ETH is extremely steep, and Lido removes this barrier to entry by letting you stake as much or as little as you want to.
• No node hardware or software. You don’t need to run a node to use Lido! All you need is an Ethereum-compatible wallet, which is a huge barrier for prospective ETH stakers.

Cons of Staking ETH on LIDO

Not all ETH holders choose to stake with Lido. This is mainly because of:

• Gas fees. Lido ETH staking is a dApp, and interacting with it via depositing ETH requires you to pay a gas fee. Unstaking via selling your stETH also requires a gas fee. These fees can be quite rough, especially when the network is congested.
• Stake centralization. While Lido is decentralized and a far better venue for ETH staking power than a centralized crypto exchange, it still does create a single locus of power. Many notable individuals, including Ethereum creator Vitalik Buterin, have suggested that this isn’t a good thing.
• Custodial. Lido isn’t a non-custodial service, so it does require you to send your ETH to the platform. There are measures in place to keep your ETH safe, such as multi-signature threshold schemes, but the fact is that the funds aren’t in your control anymore.

Other Options for ETH Staking

Lido is considered one of the market leaders in the liquid Ethereum staking game, but are there other ways to stake ETH and earn some sort of yield on your investment? Here are your options.

#1. Native Staking

As mentioned, you could do it the way it was originally designed and opt to be a validator. That means setting up and maintaining a validator node and staking a rather hefty sum of 32 ETH.

Ethereum is one of the most difficult blockchains to stake for these reasons. Still, if you can afford it and have the skills, this is also the way to ensure you get the maximum yield from staking. Since it’s direct staking, there aren’t any intermediaries in the way to take their cut.

#2. Other Decentralized Staking Platforms

Lido is one of the best decentralized staking platforms out there, but it isn’t the only fish in the sea. If you like what Lido is all about, you may also like Rocketpool. This decentralized platform offers a no-minimum option, just like Lido, but also lets you run a node for 16 ETH.

Many decentralized platforms are also non-custodial, meaning that they don’t hold your crypto. They don’t have direct access to it, so even if they fail or collapse, your crypto is relatively safe since it’s still connected to your wallet and not theirs.

#3. Custodial Platforms and Exchanges

If passive income from staking is all you’re after and you don’t care how you get it, then a custodial staking platform or crypto exchange may be for you.

That said, you should be well aware that crypto exchanges, even the most reputable ones, might try to do sketchy things with your funds. 2022 even saw the outright collapse of several of these, and figures like Sam Bankman-Fried (CEO, FTX) and Alex Mashinsky (CEO, Celsius) went from crypto heroes to villains overnight.

Custodial platforms take custody of your funds, and you have to trust them. The entire point of blockchain is trustlessness, though, so why risk it?

Why does ETH Need to be Staked?

Blockchain technology is also called Distributed Ledger Technology (DLT), a name that emphasizes two core concepts. The first is the fact that a blockchain is nothing but a ledger, or record, of what happens on the network. The second is that it’s distributed in nature.

Even if you might not have realized it, ledgers are everywhere. The entire financial system uses them, and you’ve most likely interacted with them many times thanks to your bank account.

A bank’s ledgers, however, are not distributed. They’re centralized, run, and maintained by the bank’s own infrastructure. Thanks to the fact that all of TradFi’s ledgers are centralized in this manner, trust is needed to operate.

For better or for worse, when you use the traditional financial system, you have to trust it. If you make a bank transfer, you have to trust the bank and its ledgers. If you buy a stock from a broker, you have to trust the broker, their clearing house, and a central depository.

This is where you’re probably starting to get worried. Trust banks and brokers, who pay millions if not billions in fines for wrongdoing just about as frequently as you change your sheets?

Well, the great thing about blockchains (and perhaps why traditional finance hates them so much) is that no trust is required. Since blockchains are distributed across hundreds to hundreds of thousands of nodes, no one centralized entity can manipulate them.

Proof of stake blockchain’s resistance to manipulation increases the more of its native coin is staked. The more that’s staked by different independent validators, the less chance there is for one well-capitalized entity to swoop in and stake enough themselves that they take over a majority of the network’s validating power.

Native staking, or buying 32 ETH and running your own validator node, is probably the healthiest way to stake ETH from Ethereum’s own perspective. Lido DAO isn’t far behind, though, since it does concentrate staking power but is a decentralized organization in its own right.

Future of LIDO ETH Staking

Lido is widely considered one of, if not the outright leader, in liquid ETH staking. However, this market niche itself is due to shrink when Ethereum’s Shanghai hard fork goes through.

Among other things, Shanghai will make native staking liquid, removing Lido’s original raison d’etre. While the 32 ETH minimum will remain, the liquidity of ETH staking post-Shanghai will likely convince many large stakers to strike out on their own rather than resort to an option like Lido ETH Staking.

Therefore, Shanghai will be a fundamental shift not just for Lido itself but for the Ethereum staking landscape as a whole. The Lido DAO is likely to pivot to deal with the effects of the hard fork, but the exact nature of the group’s likely reaction is as yet unknown.

This tectonic shift in the staking landscape, as well as the emergence of decentralized, non-custodial alternatives for ETH staking, threatens to take a huge chunk out of Lido’s market share.

Key Takeaways

Lido is a DAO-based liquid staking platform for Ethereum and a handful of other blockchains that gives you the ability to stake any amount of ETH rather than having to meet the native minimum of 32 ETH.

The platform’s stETH token gives its staking product liquidity because you can simply sell stETH on the secondary market to exit your staking position. Your stETH balance grows over time as your rewards accumulate, and you can use stETH in DeFi across many top protocols.

This ability to gain yield on yield has made Lido’s liquid ETH staking platform one of the market leaders in the industry in a short space of time, and Lido is also a powerhouse when it comes to validation on the Ethereum blockchain thanks to its popularity and wide usage.

The upcoming Shanghai hard fork could spell trouble for Lido since it will make ETH staking liquid across the board. Therefore, it is possible that Lido may lose market share if the upgrade is successful, but the platform is currently in a position of strength and has had plenty of time to prepare.

Lido ETH Staking FAQ

• What are the Lido ETH staking rewards?

  You can expect extremely competitive rewards if you sign up for Lido ETH staking. Native staking guarantees the best rewards, but Lido isn’t far behind since it’s a DAO and not a centralized company.

• Can you stake ETH with Lido from a ledger wallet?

  Yes. Ledger is an extremely well-integrated wallet, and you can visit the Ledger website for more assistance if you want to stake ETH with Lido from your Ledger device.

• Is Lido ETH staking risky?

  Lido is a custodial staking solution, so it’s a little riskier than a non-custodial alternative. The stETH token could lose value, Lido validators could get slashed, or the smart contracts could be proven vulnerable. Still, it’s considered a safer bet than many of the other ETH staking alternatives out there.

• Does Lido ETH staking have good reviews?

  Generally, yes. Lido sometimes receives criticism for the fact that it’s custodial, but its reviews tend to be good. The platform has over $10 billion worth of ETH staked, after all, making it a powerhouse in the world of ETH staking.