The launch of Etherium 2.0 is scheduled for December 1. How to become a validator of ETH 2.0, why it is necessary and what to do if you can not buy 32 ETH?
On November 24th, 524,288 ETHs were collected on the Ethereum 2.0 deposit contract, which are necessary for stacking and launching the first phase of Ethereum 2.0 - "signal chain" (Beacon Chain). The new version of the network will be automatically launched on December 1, and any member of the cryptovrency industry can become a validator. Editorial staff of Bits.media has prepared a guide on how to participate in the steakage of Etherium 2.0.
What is stealing on Air 2.0?
Etherium 2.0 Stacking is the blocking of ETH in a smart contract to participate in the network as a validator and get reward for block validation. Stacking will be possible after the launch of a new version of the network on a new consensus algorithm proving the share (Proof-of-Stake, PoS).
Stacking is a process similar to mining in PoS-based networks, where validators perform the same functions as miners. They create new blocks and validate transactions for a fee. Instead of using computing resources, validators block coins in the wallet. To become a validator of Etherium 2.0, you must block at least 32 ETH for stacking. At the end of November the value of such deposit is about $18 thousand.
Validator fees
Only actively participating validators are rewarded. Offline Validators are penalized - the fines are equal to those for active participation.
Validator fees are affected by the total number of validators blocked for ETH stacking. Depending on this figure, the maximum annual return of the validator can be from 2 to 20%. You can calculate the approximate yield from stacking here and here.
How to participate in ETH 2.0 Stacking?
Users who want to become a validator have two options for participation in the stacking:
Self-stacking. Lockout from 32 ETH and self-starting the validator node in compliance with technical requirements. Locked ETHs will not be available until Phase 1.5 is launched in 12-24 months, depending on the development speed. After Phase 1.5 start-up, a dynamic lockout time will be set to prevent ETH mass output - 256 epochs (about 27 hours).
Joint Stacking. Provision of available ETH to a stacking service provider - pool, crypto exchange, etc. There are security risks associated with trusting an intermediary. However, it is possible to participate in the stacking without having 32 ETHs and withdraw blocked assets before deployment of Phase 1.5.
Self-stacking
To become an independent ETH 2.0 validator, you must follow the instructions on Ethereum.org, which includes three main steps:
1. Accepting the conditions of participation in the network as a validator. It is necessary to read and accept the nine conditions of the validator's work, including confirmation of realized risks, consequences of malicious and dishonest behavior.
2. Creation of validator keys in autonomous mode. To process incoming validator deposits from the ETH 1.0 chain, you need to run the ETH 1.0 client in parallel with the ETH 2.0 client. At this step, you need to select the ETH 1.0 client and follow the installation instructions on the program's website.
Then you need to select the ETH 2.0 client.
Then you need to specify the number of nodes that the user plans to manage, as well as select the operating system of the device. After that, download the application with a command line interface from GitHub Ethereum Foundation or choose to create a client from the source code on Python.
You need to follow the instructions clearly and generate the keys for the deposit. The validator_keys repository should be available in the new validator_keys directory. Download the deposit data file Deposit-data- [timestamp].json, which is located in /eth2.0-deposit-cli/validator_keys, in the proposed window.
3. Convert ETH to ETH 2.0. At this step it is necessary to transfer your ETH according to the instructions to the specified smart contract address.
In addition to starting the node by yourself, you can use the pre-configured Validator Nodes equipment. This will save you time and effort during the initial setup to run the validator. It is also the responsibility of the user to keep the node running and 32 ETH must be locked for stacking. Examples of solutions: Avado, Launchnodes.
Another option is to use services based on the Validador-as-a-service concept and pay the service for node management. Suitable for large ETH owners and institutional investors. Examples of services: Stakewise Solo, Stakefish, Staked, Attestant, Blox Staking.
Joint Stacking
At the rate as of the end of November, 32 ETH is almost $18,000, so not everyone can launch their own validator node. To start a stacking with a small amount of ETH you can use services that offer joint stacking in Etherium 2.0.
The developers of Air 2.0 have published a list of such services, but emphasize that none of them have not passed a special check by the developers. Users should evaluate the risks and opportunities of each proposal by themselves. There are three options for joint stacking:
Stacking pools. You can block any amount in ETH for stacking. A pool is an intermediate link for people with less than 32 ETH, combining crypto assets for stacking. Stacking rewards are distributed among the participants of the pool in proportion to their shares. Storage is decentralized, transparent and checked in any block browser. Suitable for retail investors and DeFi industry participants.
Lending platforms. Balanced variant between stacking and the ability to borrow tokens under locked in the ETH stacking. Suitable for traders and investors who aim to maximize profits.
Exchanges and custodians. The easiest option is to transfer ETH to a wallet of an exchange or other custodial service that offers a split reward for stacking. In this case the user does not control the private keys.
Let's consider each of the options in more detail.
Stacking pools
With the help of pools, you can combine existing crypto assets with other participants who do not have 32 ETH to run their own validator. Since most of the coordination will take place through smart contracts, you need to make sure that the service has passed a security audit before sending ETH to the pool contract.
Most stacking pools produce tokenized versions of ETH locked out for stacking, such as rETH. These ERC-20 tokens represent not only the airwaves but also the income from the stacking. Tokens may have the same symbol or name, but if they are not issued by the same pool, they are different assets with different liquidity.
Pool validators are either managed by well-known staking service providers or by a dynamic composition of contract users. The Stacking Pool receives commissions from users and partly pays the operators of the Validators.
Pools charge stacking fees, some services have a limit on the minimum amount of ETH entered.
Advantages: liquidity on ETHs blocked for stacking due to secondary token issuance; additional incentives for validator operators in the network.
Drawbacks: risk of vulnerability of the smart contract; in some cases - custodial storage of ETH by the pool operator; risk of unfair behavior of the pool, threatening to lose the blocked ETHs.
Examples of services: Rocket Pool, Stkr, Stafi Protocol, Stakewise Pool, Lido Finance, Etherchest, Stakehound, StakeDAO, CanEth Pool.
Loan Platforms
So far, there is only one credit platform that allows you to use blocked for stacking ETH as collateral for obtaining a loan. LiquidStake from DHARMA Capital allows ETH owners to obtain a loan from USDC using blocked ETH as collateral.
Users can benefit from the ability to generate revenue by stacking and retaining the ability to trade, invest or hold liquid crypto assets. LiquidStake integrates clients' crypto assets and passes them on to large providers of stacking services. Credits can be received from the very beginning of ETH stacking or later.
Advantages: limited liquidity of capital.
Disadvantages: broker risk; risk of validator liquidation and liquidation penalty.
Exchanges and custodians
Most exchanges have not yet launched products for co-stacking, but some have already announced plans to deploy such solutions in the future. This is likely to change after the launch and testing of Beacon Chain.
It is not yet clear how the exchanges will solve the problem with an indefinite lockout period. Exchanges can offer fixed income products in which coins are blocked for a predetermined period of time without the possibility of withdrawal. Custodial wallets will probably offer solutions with a longer asset freeze period. Exchange commission structures are often opaque, so it is not clear at what intervals exchanges accumulate remuneration.
To participate in stacking through the exchange or the custodian it is necessary to register on the service and transfer ETH to his wallet. In this case the user loses control over private keys.
Advantages: ease of use of the service; any sum, including less than 32 ETH, can be blocked for stacking.
Drawbacks: opaque reward structure; intermediary risk; loss of control over private keys and crypto assets.
Examples of services: Bitcoin Suisse, Coinbase, Binance, Kraken, CoinDCX, TokenPocket.
Conclusion .
Any user with any size of deposit can participate in ETH Stacking. But only with 32 ETH or more you can run your own validator without transferring assets to intermediaries. With the current value of ETH over $500, running your own validator is not available for most users.
Remember: the validator fee decreases as more ETH for stacking is blocked. The earlier a validator node is deployed, the higher the reward for its owner in the first stages. But after a full launch of Ethereum 2.0, you should focus on an annual return of about 2% or even less.
The profitability of a stacker may be low, with the stackers bearing financial risks. ETH blocked for self-stacking cannot be withdrawn until Phase 1.5 is deployed, i.e. 1-2 years, possibly more. In joint stacking it depends on contract or service rules. Validators may be penalized for poor quality work or violation of protocol rules.
Users without technical knowledge who want to block for stacking from 32 ETH can use pre-configured validator nodes or services based on "validator as a service" concept.
For retail investors who want to participate in stacking, but do not have enough capital to launch their own validator, joint stacking solutions have been developed that eliminate some of the risks and problems associated with a long period of lockout.
Despite the small number of services for collaborative stacking, there are already products that meet the needs of different user groups. You can take advantage of offers from pools, credit platforms, cryptovalue and custodian exchanges.
When choosing a stacking service provider, it is necessary to carefully study the offered product, the amount of commission for services, liquidity, reliability of smart contracts and take into account the risks of complete or partial loss of control over the keys.