- Despite the current liquidity chaos staking services like Lido are offering a 10.7 percent yield on staked Ether (stETH).
- But Index Coop has come up with a new option of Interest Compounding ether product (icETH) that offers up to 25 percent yield.
Although the cryptocurrency market is currently under a bear onslaught and massive volatility, long-term holders of Ethereum can still make gains from the current crisis. Despite every other crypto firm facing a liquidity crisis currently, there are few payers still offering handsome yields on staking Ether (ETH).
But what is Ethereum Staking? As we know, earlier this year, Ethereum transitioned itself to the Proof-of-Stake (PoS) network with a successful Merge event in September 2022. However, Ethereum already introduced the staking facility for ETH investors with the launch of the Beacon chain last year.
In general, crypto staking is the process of locking up your crypto holdings in return for rewards or earning interest. With Ethereum, staking involves an act of depositing 32 ETH and activating the validator software. As the Ethereum Foundation explains:
As a validator you’ll be responsible for storing data, processing transactions, and adding new blocks to the blockchain. This will keep Ethereum secure for everyone and earn you new ETH in the process.
Currently, staking services such as Lido are offering as much as 10.7 percent yield for staking the staked ETH (stETH). This is an all-time high yield offered to investors since the Merge event. Staked Ethereum (stETH) basically represents a token with an equivalent amount of Ether staked. To provide liquidity for staked Ether, the staked tokens are locked up for an extended period.
Staked Ether (stETH) offering higher yield earning
In a note last Friday, analysts at Delphi Digital said
Recently, the liquid staking protocol also had to increase rebasing oracle limits from 10% to 17.5% to let the increased rewards flow to stETH token holders.
These increased rewards have led to borrowing strategies that offer a yield of as much as 25.5 percent on the Interest Compounding ether product (icETH) offered by Index Coop. The yield earned by recursive borrowing strategies like the icETH has shot up to 25.5 percent since the Merge event.
Well, what is Interest Compounding ETH Index (icETH)? This is a kind of leveraged staking strategy that further helps to enhance users’ staking returns. This strategy uses user’s staked Ether (stETH) tokens as collateral on DeFi lending services like Aave and will borrow wrapped Ether (wETH), a token trading Ether price. Later, icETH will use these wrapped Ether to purchase additional stETH tokens.
Basically, the icETH staking strategy leverages the amount of collateral supplied to Aave and in return uses that to increase the yield for users. As per data from Dune Analytics, there are currently $21 million worth of icETH tokens in the market and $12 million have been put on Aave to generate additional yields for its holders.
However, investors need to a few risks that come with the icETH staking strategy. “Apart from smart contract risk, investors in icETH need to consider the liquidation risk from borrowing ETH from Aave,” Delphi analysts said. “And interest rate risk from the spread between borrowing cost and staking return.