Staking and Yield: Where Returns Come From and Their Risks
Trace every crypto yield back to its source, calculate net and real staking returns, and compare staking, liquid staking and reward-token farming.
What you will learn
- The five main sources of crypto yield and how to identify them.
- How to calculate net staking return and "real" return after new supply.
- The risks of solo staking, exchange staking, liquid staking and restaking.
- Why APR and APY differ and why token rewards can shrink in value.
Explanation
A yield is a return paid for providing something: capital, security or liquidity. In crypto, high numbers are easy to display. The key question is always: who pays this, and why? If you cannot answer, the yield may come from new depositors or from token printing.
Five sources of yield
- Protocol issuance: new tokens paid to validators for securing the network (Lesson 1). This dilutes non-stakers.
- Transaction fees and MEV: priority fees and block-building profits paid by users.
- Borrower interest: lending protocols (Lesson 6).
- Trading fees: liquidity pools (Lesson 5), minus impermanent loss.
- Incentive emissions: a project pays its own new tokens to attract deposits. This is a marketing cost, often temporary, and the token price can fall as rewards are sold.
Leverage ("looping") can multiply any of these, together with liquidation risk.
Ways to stake ETH
- Solo staking: you run a validator with at least 32 ETH. You keep the full reward but carry the technical risk of downtime penalties and slashing.
- Exchange (custodial) staking: a platform stakes for you and keeps a fee. You face platform risk; your coins are not in your own wallet.
- Liquid staking: you deposit ETH into a protocol and receive a liquid staking token (LST) that represents staked ETH plus rewards. The LST can be traded or used in DeFi. Risks: smart-contract bugs, operator failures, and the LST trading at a discount to ETH when many holders want to exit, because leaving the validator set takes time (an exit queue).
- Restaking: staked ETH is used again to secure other services for extra rewards. Each layer adds new slashing and contract risks.
Nominal, net and real return
Net yield = gross yield × (1 − operator fee). Because issuance creates new tokens, compare your growth with total supply growth: real yield ≈ (1 + net yield) ÷ (1 + supply growth) − 1. This measures your share of the network, not your euro result. In euros, the token's price change usually dominates.
APR versus APY
APR (annual percentage rate) ignores compounding; APY (annual percentage yield) includes it: APY = (1 + APR ÷ n)^n − 1, that is (1 + APR ÷ n) to the power n, minus 1, where n = compounding periods per year. A displayed APY may assume you reinvest daily at constant rates, which rarely happens.
Tax note: in Germany, staking rewards may be taxable as income when received, and later sales follow the rules covered in the Bitcoin course. This is general orientation only; check current guidance with a Steuerberater.
Worked example
Hypothetical example: you stake 10 ETH through a liquid staking protocol. Assumptions: gross staking yield 3.0% per year, operator fee 10%, total ETH supply growth 0.5% per year. These are not forecasts. Gas and taxes are excluded.
- Net yield: 3.0% × (1 − 0.10) = 2.7%. Reward: 10 × 0.027 = 0.27 ETH. Holding: 10.27 ETH.
- Real yield: 1.027 ÷ 1.005 − 1 = 2.19% growth in your share of the supply.
- Euro view: ETH starts at €2,000 (€20,000). If ETH falls 30% to €1,400, your value is 10.27 × €1,400 = €14,378, a loss of 28.1%. The yield covered less than 2 percentage points of a 30-point fall.
Hypothetical farm: €10,000 in stablecoins earns a 40% APR paid in the farm's own token. After one year you received tokens worth €4,000 at the prices on the days they were paid. If the token falls 60% by year-end, they are worth €1,600, a 16% return, before contract risk. With daily compounding, 40% APR would show as an APY of 49.1%, a bigger number from the same source.
Common mistake
Practice activity
On paper, compare three hypothetical one-year options and name the yield source of each: (A) 2 ETH on an exchange at 2.5% net; (B) 2 ETH in liquid staking at 3.0% gross with a 10% fee, sold at a 2% discount to ETH at the end; (C) €5,000 in stablecoins in a farm paying 60% APR in its own token, which falls 70% (value rewards at year-end price).
Show solution
(A) 2 × 2.5% = 0.05 ETH. Source: issuance and fees, minus the platform's cut; risk: platform custody.
(B) Net 2.7%: 2 × 1.027 = 2.054 ETH. Sold at a 2% discount: 2.054 × 0.98 = 2.01292 ETH, a gain of only 0.0129 ETH. Source: issuance and fees; risks: contract, operator, discount.
(C) 60% × €5,000 = €3,000 in tokens; after a 70% fall: €900 (18%). Source: incentive emissions; risks: token price, contract, stablecoin.
Limitations: real yields vary daily and option C's rewards are usually sold or valued at different times during the year.
Key takeaways
- Every yield has a source: issuance, fees, interest, trading fees or emissions.
- Net yield subtracts operator fees; real yield compares your growth with supply growth.
- In euros, the token's price change usually outweighs the staking yield.
- Liquid staking and restaking add contract, discount and slashing risks.
Next step
The next lesson looks at tokenomics: supply schedules, unlocks and why emissions-funded yields can weigh on token prices.
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