Digital asset exchange Kraken has issued an update on cryptocurrency staking options for Ethereum 2.0, a major (and very gradual) system-wide update of the Ethereum blockchain from its current proof-of-work (PoW) based consensus algorithm to a proof-of-stake (PoS) consensus mechanism.
In December 2020, Kraken introduced its Ethereum 2.0 staking service, which aims to make it simpler for ETH investors or traders to earn rewards of around 5% or more while helping to support the eventual transition to Ethereum 2.0.
As explained by Kraken, staking is an opportunity that’s “only appropriate for clients who want to hold their ETH long-term, because staked ETH cannot be unstaked and, along with staking rewards, cannot be transferred for an unknown period of time (because it is uncertain when exactly transfers will be enabled on the Ethereum 2.0 network).”
According to Kraken’s observations, the launch has been a great success, with clients currently staking over 350,000 in ETH (appr. $401.6 million at time of writing) via Kraken.
Because of the rising popularity of Ethereum 2.0 staking services, not just on Kraken but across the entire crypto and blockchain sector, it takes around 3 weeks for a new Ethereum node validator to go live on the distributed ledger technology (DLT) network. After setting up their validator node, users can begin earning rewards (the Ethereum 2.0 protocol currently limits the number of new validators to 900 every 24 hours). As noted by Kraken, this means that “newly staked ETH currently does not start earning rewards for approximately 3 weeks.”
When Kraken had initially offered its Ethereum staking service, they had allowed newly staked ETH tokens to share the rewards, even if the transaction validators behind that new ETH hadn’t brought their computing nodes online at that time. Although this meant that these new cryptocurrency stakers would begin earning returns a lot faster, it also meant that the older stakers would be receiving a significantly lower reward, Kraken explained.
In order to make the ETH staking rewards on Kraken “better aligned with the network rate,” the crypto trading platform is providing a “bonding period for newly staked ETH.” As mentioned in an update from the US-based exchange, this means that “when you stake new ETH with Kraken, there will be a waiting period before you start earning rewards.” And “after the waiting period, however, you will get a higher reward because you won’t be sharing the reward with new stakers,” Kraken confirmed.
The digital asset exchange pointed out that this waiting period isn’t actually unique to Kraken. The company explained that “the long delay in adding validators is an issue across the entire network.” Kraken further noted that “even if you stake ETH yourself directly on the network, you will still have to wait before earning rewards.”
While sharing details about the length of the bonding period, Kraken confirmed:
“To start, the bonding period will be set at 20 days. This means that new ETH stakers can expect their rewards to begin accruing 20 days after staking on Kraken. Going forward, the length of this bonding period is expected to vary depending on network conditions. The bonding period goes into effect immediately, so any newly staked ETH will be subject to the bonding period before earning rewards.”
The Kraken team added:
“Since the bonding period is 20 days, it will take this many days for bonding to become fully effective at normalizing the reward rate. This means that the reward payouts will gradually normalize over the next few weeks.”
(Note: for additional information on this update from Kraken, check here.)