ETHEREUM

ETH is all about staking! Independent staking vs. liquidity staking derivatives LSD, how to choose for maximizing returns?

share
ETH is all about staking! Independent staking vs. liquidity staking derivatives LSD, how to choose for maximizing returns?

Is it the low barrier to entry and easy operation of the liquid staking derivative LSD that attracts people, or the high technical and hardware requirements but desirable independent staking that is appealing? Welcome to this issue of "Just Staking", let's explore together how ETH staking can be optimized for the best returns under different quantities and conditions!

Choosing the ETH Staking Method

There are mainly two ways to stake ETH: one requires a minimum of 32ETH with high hardware and technical requirements to run a staking node independently, while the other relies on liquid staking derivatives with lower barriers in the market where any amount of ETH can be staked but with lower security.

Which staking method is more profitable, and under what conditions and restrictions should one choose? Independent staker eridian.eth has provided answers to the crypto community after conducting detailed calculations.

Independent Staking vs. Liquid Staking Derivatives (LSD): Initial Investment of 32ETH

Prior to comparison, it is important to understand the differences in calculations between the two. Both profits are compounded, where LSD reinvests daily earnings, while independent staking requires accumulating an additional 32ETH after the initial 32ETH to reinvest. Both have a set return rate of 4%, but LSD incurs a 10% service fee.

After calculation, when initially investing 32ETH in both scenarios, independent staking yields higher returns in the first five years compared to LSD. From the sixth year onwards, LSD surpasses independent staking due to the additional 10% fee it incurs.

To bridge the initial 10% fee gap, one only needs to invest more than 35ETH initially for LSD to yield more than independent staking. This is because in the initial return calculation, only 32ETH is considered for independent staking, while the remaining 3ETH will be included in the calculation once future earnings accumulate to 32ETH.

Independent Staking vs. Liquid Staking Derivatives (LSD): Initial Investment of Large Amounts of ETH > 128ETH

What if the amount of staked ETH is significantly large?

eridian.eth discovered that if the initial investment exceeds 128ETH (32 * 4), independent staking's returns will almost always surpass LSD, as the fund efficiency is better in this scenario, allowing independent stakers to accumulate the next 32ETH more quickly.

Independent Staking vs. Liquid Staking Derivatives (LSD): Different Base Return Rates

However, in reality, for small independent stakers with only 32ETH, their return rate may be lower than that of large-scale liquidity protocols. Therefore, eridian.eth set LSD's return rate at 4.4%, while independent staking remained at the original 4%.

In this scenario, when initially investing 32ETH, LSD's returns will outperform independent staking in the long run.

What if you don't have 32ETH?

Then there's no need to consider anything else. If you want to stake ETH, LSD is your best option. You can accumulate to 32ETH through LSD and then decide whether to become an independent staker later!

Furthermore, regardless of independent staking or LSD, the return rates may vary depending on the staking conditions and protocols. eridian.eth provides a free calculation template, where you can make a copy and input your own data to find the most suitable ETH staking method for yourself.