When Ethereum completed its transition to Proof of Stake in September 2022 — an event called The Merge — it replaced energy-intensive mining with a system where validators lock up ETH as collateral to propose and attest to blocks.
How Proof of Stake works
In Proof of Work (Bitcoin), miners compete to solve a cryptographic puzzle. The winner adds the next block and earns a reward. In Proof of Stake, validators are selected probabilistically based on how much ETH they have staked. The more ETH locked, the higher the chance of being selected — but there is no puzzle to solve, so energy consumption drops dramatically.
Each validator must stake exactly 32 ETH to participate independently. If you have less, you can join a staking pool and share rewards proportionally.
What validators actually do
A validator runs software that attests to blocks proposed by other validators, occasionally proposes a new block itself, and participates in committees that finalise blocks.
Validators earn rewards for doing this correctly and on time. They lose ETH — a process called slashing — for malicious behaviour (like signing two conflicting blocks) or for prolonged downtime.
Realistic yield figures
As of mid-2026, the annualised staking yield for solo validators sits roughly between 3–5% APY. The exact figure depends on total ETH staked (more validators means lower rewards per validator), network activity (higher transaction fees boost rewards), and MEV (Maximal Extractable Value), where validators earn additional ETH from reordering transactions within blocks.
Liquid staking protocols typically show 3–4% APY after fees. Some protocols offer higher rates by using the staked ETH in DeFi protocols, but that introduces additional smart contract risk.
Risks to understand
Slashing risk means running misconfigured validator software can result in loss of staked ETH. Liquidity risk means staked ETH is locked for a withdrawal queue period (days to weeks depending on queue length). Smart contract risk affects liquid staking tokens. Regulatory risk applies because staking yields may be treated as income in your jurisdiction.
Tax treatment
In most European jurisdictions, staking rewards are taxed as income at the time of receipt, based on the ETH price at that moment. When you later sell the ETH received as rewards, any gain from that point is a capital gain. Always verify with a local tax advisor — treatment varies significantly by country.