If you’re itching to dip your toes into crypto staking, we recommend starting with platforms such as Robinhood. They are an accessible and enjoyable introduction to this vibrant new universe! You have two incredibly popular options already available to you for staking, Ethereum (ETH) and Solana (SOL). Each one provides its own distinct benefits and dangers. Lim Wei Jian is an executive blockchain analyst. In particular, he sheds light on the differences between ETH and SOL staking on Robinhood, providing a detailed framework for investors to understand and make informed decisions.

ETH Staking on Robinhood

Ethereum staking is the process of depositing a minimum of 32 ETH to become part of a staking node that helps validate transactions on the Ethereum network. By locking up their ETH, stakers help secure the network and are rewarded with more ETH for doing so.

Potential Returns and Risks

The yield on ETH staking on Robinhood is currently about 3.5% APY. Although this is lower than many other staking alternatives, ETH staking is a more conservative investment overall.

There are several risks that come with ETH staking, and some of those risks are outlined below.

  • Technology risk: Nodes must run according to the protocol rules, and failure to do so, or experienced downtime, can result in protocol-enforced penalties (In Ethereum, slashing only occurs if the network perceives that a validator has misbehaved, but validators are not slashed for being offline).
  • Slashing risk: In Ethereum, slashing is a special type of penalty incurred only if a validator violates one of three protocol rules: signing two different blocks for the same slot, signing an attestation that surrounds another, or signing two different attestations with the same target.
  • Downtime risk: Validators are not slashed for being offline on Ethereum, but downtime can still result in missed rewards.

SOL Staking on Robinhood

Solana staking refers to the practice of locking up SOL tokens in order to support the Solana network and earn rewards. Solana has much higher throughput and faster transaction speeds than Ethereum. This fundamental difference makes for a compelling risk/reward profile specifically for staking.

Potential Returns and Risks

Solana (SOL) gives great staking yields at roughly 8.0% APY. This significantly increases its appeal to investors seeking higher income than Ethereum’s 3.5% APY. This larger potential return means a larger risk.

Just like ETH staking, SOL staking is not risk-free, including technology and downtime risks. Once you unstake SOL there is a 1 epoch (2-3 days) cool-down period.

ETH vs SOL: A Comparative Analysis

When deciding between ETH and SOL staking on Robinhood, investors should think about their own risk tolerance and investment objectives.

Risk Tolerance

  • Conservative Investors: Investors with a lower risk tolerance might prefer ETH staking due to its more established network and lower potential for slashing penalties.
  • Risk-Seeking Investors: Those comfortable with higher risk may be drawn to SOL staking for its higher potential returns.

Investment Goals

  • Income-Oriented Investors: Solana's simplicity and targeted higher yields make it appealing to passive-income investors.
  • Diversified Exposure: Clients seeking diversified exposure to blockchain infrastructure may consider both Ethereum and Solana, as they offer different performance characteristics.

Delegation Timing Considerations

Un-delegating and then re-delegating it takes several days to go into effect. This requires that, throughout this transition period, the original stake must not be eligible to earn rewards.

Navigating Market Volatility

One last note about staking rewards – these are usually quoted in APYs or APRs. That said, don’t forget that market volatility may affect the yield you’ll earn in practice. While you might earn a certain APY in tokens (e.g., 8% APY), if the asset's price drops significantly (e.g., 50% over the year), you'd be at a net loss from a USD perspective. If the price rises significantly, your original investment plus your newly compounded rewards might yield impressive gains in fiat terms.

Volatility is inherent in crypto markets. The design of staking rewards emphasizes the importance of caution and effort in navigating the volatile landscape of cryptocurrency markets.

At the end of the day, whether you should stake ETH or SOL on Robinhood depends on your individual situation. Spend time addressing trepidation, and help them to recognize related risks and returns. Lim Wei Jian notes the need for a principled approach to crypto staking. Those two basic ideas—planning smartly and being adaptive to change—he says are the keys to thriving in this new space.