Compound interest is the eighth wonder of the world, or so goes the quote often attributed to Albert Einstein (who almost certainly never said it). The promise of staking Ethereum (ETH +0.43%) at generous interest-like yields and leaving it for years and years follows the same logic. And that's why it tends to be a popular idea among investors.
But can Ethereum staking really be a generational wealth engine, or is the popular narrative about staking a bit misguided?
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These yields aren't going to be a fast track to wealth
Let's start by clarifying a couple of the most important facts about staking so that we're on the same page.
Ethereum staking currently pays between 2.5% and 3.5% annually, depending on the method. When someone stakes their Ether, they commit it to the protocol and they can't withdraw it without waiting in line. At the moment, the exit queue for staked capital on Ethereum is 46 days.
CRYPTO: ETH
Key Data Points
Suppose you stake $10,000 worth of Ethereum at 3% per year, compounding annually. After a decade, your staking rewards alone would grow your holdings to roughly $13,440. That's $3,440 in yield, or about $28 a month. Meanwhile, a high-yield savings account currently pays up to 4% annually with no crypto price volatility and with the benefit of Federal Deposit Insurance Corporation (FDIC) protection.
To compound $10,000 into $1 million at that same rate would take approximately 157 years. In other words, it would take a few generations' worth of time before staking income becomes generational wealth, which means it probably isn't the best way to pursue wealth-building.
It's still worth doing
There's one final important issue, and it's a bit of a nuance.
Staking rewards are paid in Ethereum. So if the coin's price falls 50% during your marathon hold, your rewards lose half their value in fiat currency terms. The reverse is also true, of course -- it's fully possible that if the coin experiences significant price appreciation, the coins investors were given for staking in earlier periods will become far more valuable relative to when they were disbursed.
That means even if it won't make you rich, staking is far from being pointless if you have substantial holdings of Ethereum and you're planning to retain them for the long term. It's worth getting some yield on an asset at minimal extra cost (tax complications, limited trading flexibility), provided you're willing to lock up some liquidity.
If you build generational wealth holding Ethereum, it will almost certainly be because the coin's price appreciated dramatically over a long period rather than because 3% compounding worked miracles in your sleep. Nonetheless, staking makes holding the asset marginally better, and it can enable your crypto portfolio to generate some income when it wouldn't normally, so it makes sense to take advantage of this return-boosting tool.
