Meanwhile, Ethereum’s staking yield just fell below 3%. This amendment should be seen as a big positive development as the network enters its teenage years and more ETH continues to be staked. More than 35 million ETH have been staked, nearly 28% of the total supply. That enormous sum is changing the calculus in Ethereum’s staking rewards. Ethereum once offered some of the richest yields in all of crypto. Take a look at today’s rates and you’ll see that the landscape is changing. This article will dive into why this decline is happening and some other yield-generating opportunities found in the decentralized finance (DeFi) space.
Factors Influencing Ethereum's Staking Yield
Ethereum's yield is derived from two primary sources: consensus rewards, which incentivize validators to maintain the network, and execution-layer rewards, which come from transaction fees. In the past, yields on Ethereum have been very palatable–between 10%-25% APR. At its heights, the total yield was over 5.3%.
The growing ETH staked has diluted these rewards, resulting in today’s sub-3% yield. Solo validators who run their own nodes are the only ones who can earn the full staking yield. In addition, they need to lock 32 ETH to be eligible. As a result, the requirement presents a significant barrier to entry for potential users. Due to this, they tend to prefer pooled staking solutions, which usually come with larger fees and smaller yields.
Exploring Alternative Yield Opportunities
Though Ethereum’s staking yield has gone down, new opportunities to earn yield have opened up in the DeFi ecosystem. Yield-bearing stablecoins, like sUSDe, provide enticing interest rates, usually exceeding those found in typical staking. sUSDe, for instance, now offers about 6% APY, higher than most of its competitors.
The catch Though these higher yields can be alluring, it’s crucial to understand that they typically come with added risks. USDe’s yield is indeed sexy. Since it is contingent upon a more complicated market-driven strategy, it is riskier than other simpler staking options.
The Rise of Yield-Bearing Stablecoins and DeFi Lending Platforms
Demand for yield-bearing stablecoins is huge Newly minted yield-bearing stablecoins are pouring into the market. The five largest players—sUSDe, sUSDS, SyrupUSDC, USDY and OUSG—control over 70% of the $11.4 billion market. These crypto fiats are enticing users with reliable new gears to earn passive income on their digital assets.
New, decentralized lending platforms such as Aave, Compound, and Morpho open up thrilling new avenues. You can receive yield when you supply your crypto assets to their lending pools. These platforms have reduced the barriers to entry into lending markets. They frequently take 10% to 25%+ in fees, reducing the final yield that users earn. Indeed, yields on these platforms have a habit of making headlines, spiking during bull markets or outright craziness like the one we are currently experiencing. The Chainlink DeFi Yield Index tracks average lending returns across major platforms, showing that stablecoin lending rates typically hover around 5% for USDC and 3.8% for USDT.
sUSDS is a product of Reflexer and Sky, formerly known as MakerDAO. As it is collateralized by sDAI and tokenized real-world assets (RWAs), it provides an interesting new way to earn yield in the DeFi ecosystem.
