Comparison of Ethereum and Polkadot Staking Mechanisms: From Mechanisms to Current Status

As the Ethereum Shanghai upgrade approaches, the staking withdrawal function is about to be opened, attracting widespread attention in the field of Ethereum staking and related derivatives. Since its launch in 2019, Polkadot has been using a proof-of-stake mechanism and has recently introduced several staking-related tools. This article will compare the staking mechanisms and current situations of these two networks from multiple perspectives and briefly analyze their development in the derivatives sector.

Stake Mechanism Overview

Ethereum adopts a Proof of Stake (PoS) mechanism, requiring each validator to hold 32 ETH for staking. Validators need to run a main beacon chain node and multiple validator clients, with each client corresponding to 32 ETH. These validators are randomly assigned to a “committee” responsible for validating shards in the network. Ethereum 2.0 relies on a large-scale set of validators to ensure the availability and efficiency of the network.

Polkadot adopts a Nominated Proof-of-Stake (NPoS) mechanism, which includes two roles: “validators” who run nodes and “nominators” who nominate validators. Nominators do not need to operate equipment themselves, but can still receive system rewards. They can also join a nominator pool, further lowering the participation threshold and simplifying the operational process. The NPoS mechanism reduces the number of validators required for Polkadot, with approximately 10 validators needed for each parachain.

Current Staking Data

As of the publication of this article:

• Ethereum: 16.44 million ETH is in a staked status, with a staking rate of 14.3%. There are a total of 513,000 validators, and the staking yield is 4.32%, with an inflation-adjusted yield of 4.55%.
• Polkadot: 592 million DOT are in a stake state, with a staking rate of 46.4%. The number of nominators has reached 455,000, and the historical staking yield is 15.39%, with an inflation-adjusted yield of 8.26%.

For proof-of-stake chains, the higher the staking participation, the stronger the network security. Currently, Ethereum’s staking rate is relatively low, which may be due to the fact that staked ETH cannot be withdrawn in the current version. The “Shanghai” upgrade expected to be completed in March will support the withdrawal of staked ETH, at which point the staking rate may significantly increase. Polkadot’s ideal staking rate is 50%, while the actual staking rate mostly remains between 40% and 60%.

Comparison of Lock-up Periods

Currently, the staked ETH in Ethereum cannot be withdrawn. After the “Shanghai” upgrade is completed, users will be able to withdraw their staked ETH, with an unbonding period of 27 hours.

The staking lock-up period for Polkadot is 28 days. A longer lock-up period helps to enhance the security of the protocol, but it may also reduce its attractiveness to stakers due to lower flexibility and higher opportunity costs.

Stake Threshold Comparison

Ethereum natively supports only the self-operated validator staking method, requiring 32 ETH to be deposited into the ETH2 deposit contract and to run a dedicated computer that is online 24/7, along with a certain level of technical operational knowledge.

Although the Ethereum protocol itself does not support staking delegation, there are some third-party node hosting services in the market, which still require a deposit of 32 ETH, suitable for users with funds but lacking technical knowledge.

The Polkadot protocol natively supports four staking methods, ranked from high to low based on capital thresholds: running a validator, direct nomination, operating a nomination pool, and joining a nomination pool, with a minimum of only 1 DOT required to participate in staking. Polkadot also offers a “staking dashboard” website, making it convenient for users to perform staking operations.

From the perspective of staking thresholds, Polkadot offers more native staking options, with a minimum threshold of only 1 DOT, and some staking methods do not require technical knowledge. In terms of both financial and technical requirements, the staking participation threshold of Polkadot is lower, which is conducive to attracting more people to participate in staking, thereby enhancing the decentralization and security of the network.

Development of Liquid Staking

Liquid Staking Derivatives (LSD) allow users to earn staking rewards while maintaining capital liquidity, enhancing capital utilization. After staking tokens into a liquid staking protocol, users can receive corresponding liquid derivative tokens, which can be used to participate in activities such as DeFi.

Ethereum liquid staking has a high proportion, with approximately 44% of staked ETH being done through liquid staking in the first quarter of 2023. The TVL of Ethereum liquid staking has reached 10 billion USD, with a certain liquid staking platform holding an absolute dominant position, capturing a market share of 73.42%.

The TVL distribution of liquid staking products in the Polkadot ecosystem is relatively uniform, with the total TVL of major projects amounting to approximately $50.44 million. Compared to the staking scale of 592 million DOT, the adoption rate is still low, indicating significant growth potential in the future. Liquid staking products developed based on Polkadot parachains have unique advantages, such as ease of cross-chain integration.

Summary

Ethereum and Polkadot have their own characteristics in terms of staking mechanism, staking rate, yield rate, lock-up period, participation threshold, and the development of liquid staking. Polkadot has a higher staking rate, offers various native staking options, and has a lower participation threshold. The liquid staking market for Ethereum is developing rapidly. With the upcoming Ethereum Shanghai upgrade and the further popularization of liquid staking in the Polkadot ecosystem, the landscape for both may undergo significant changes.