Ethereum Staking Explained: Risks, Rewards, And How It Works

Summary Cryptocurrency staking is the process of participating in a blockchain’s decentralized record-keeping and presents an opportunity to earn rewards. Ethereum staking offers the potential to earn modest rewards on the network’s native token, ether, but should only be considered after deciding to add exposure to ETH. Exchange-traded products such as the iShares Staked Ethereum Trust ETF are designed to provide exposure to the price return of ETH plus potential staking rewards, while reducing the operational, tax, and custody complexities associated with holding and staking ETH directly. By Jay Jacobs & Robbie Mitchnick What is cryptocurrency staking? Cryptocurrency staking is a way for people to help maintain a blockchain network and potentially earn rewards for doing so. Staking plays a crucial role in how transactions are recorded and how the blockchain is designed to operate securely without a central authority overseeing it. Participants who stake may receive rewards paid in the network’s native token for taking part in this process and are commonly referred to as stakers or validators. (See below for a refresher on blockchains and consensus mechanisms.) What is Ethereum staking? Chart description: Infographic explaining Ethereum staking rewards. (Source: BlackRock. For illustrative purposes only.) Ethereum staking is a prominent example of proof-of-stake consensus. Think of Ethereum as an open-source app store that generates revenue as more users interact with applications on Ethereum, including tokenized assets, like stablecoins, or decentralized financial services. Ethereum’s native token, ether ((ETH)), is used to pay transaction fees for activity on the platform. Ether is the world’s second-largest cryptocurrency by market capitalization after bitcoin. 1 Unlike bitcoin — a “proof-of-work” network where miners compete using computational power to propose the next block of transactions — Ethereum’s proof-of-stake network assigns these same block proposal duties to stakers in proportion to their staked collateral; i.e., if a validator has 1% of all staked ETH, they’d have a 1% chance of being selected to propose any given block. In other words, bitcoin’s security is dependent on the direct and ongoing cost of energy expenditure by miners, while Ethereum’s security is dependent on financial value in the form of ETH that’s locked in the protocol and can become a potential cost if seized. Staking seeks to financially incentivize participants to follow the protocol rules and discourage malicious behavior, as validators risk losing staked assets if they violate the rules. Staking currently offers validators the potential to earn rewards of 2.5% to 3% 2 annually on ETH but introduces incremental risks, most notably liquidity constraints and the potential for financial penalties if rules are violated. This article examines the mechanics of Ethereum staking and the potential advantages of exposure to staking via an exchange-traded product such as the iShares Staked Ethereum Trust ( ETHB ). Ethereum staking explained Chart description: Infographic further explaining the steps involved in staking. (Source: BlackRock. For illustrative purposes only.) How does Ethereum staking work? Ethereum is secured by a proof-of-stake consensus mechanism that determines who is eligible to propose the next block of transactions to the blockchain. Validators are individuals or entities that pledge (stake) ETH as collateral to directly participate in Ethereum’s consensus process. Validators are required to run Ethereum client software to connect with other network participants and vote (attest) on their view of the blockchain. The core responsibilities of a validator are to validate transactions, attest to the state of the blockchain, and directly propose new blocks when selected to do so. Validators are compensated for timely performance of these responsibilities through a mix of new ETH issuance and transaction fees. Each validator’s influence in the voting process is proportional to its share of staked ETH. As a result, the integrity of Ethereum’s transaction history depends on a broadly distributed validator set where no malicious group has the majority of the network’s stake. Ethereum’s security can strengthen as its validator set grows and stake becomes more decentralized. The mechanics of Ethereum staking Chart description: Illustration of how validators validate transactions on the Ethereum Blockchain. (Source: BlackRock. For illustrative purposes only.) Potential benefits of Ethereum staking Validators are incentivized with staking rewards for contributing to Ethereum’s security. Staking allows validators to earn additional return through rewards, which can vary over time. Staking rewards are paid in ETH and come from two primary sources: (1) new ETH issuance and (2) transaction fees. 3 Issuance Rewards: New ETH is issued programmatically by the network and paid to validators as compensation for securing the network. The amount of new ETH issuance is designed to grow as more ETH is staked, but it does so at a diminishing marginal rate, meaning that the staking rewards earned per validator falls as more ETH is staked. With ~30% of all ETH currently staked 4 , a well-functioning validator is currently earning about 2.75% 5 per year from issuance rewards today. Importantly, issuance rewards should not be confused with Ethereum’s overall issuance rate, which is currently around 0.8% 6 per year. This dislocation is because all new ETH issuance is paid to stakers, but only a portion of the total ETH supply is staked. As a result, issuance rewards are much higher than Ethereum’s overall issuance rate, as unstaked ETH holders experience modest dilution over time to compensate stakers for helping secure the network. Staking issuance and rewards Chart description: Line chart showing the issuance rates of ETH and staking rewards against the % of ETH staked today. (Source: Ethereum Consensus Specification; calculations conducted by BlackRock based on Ethereum protocol-defined issuance formulas. Note that ETH’s issuance rate equals staking issuance rewards if all ETH is staked. As of March 2026) Transaction Fees: Validators also receive additional rewards in the form of transaction fees when they are selected to propose a block. Transaction fees have historically comprised a meaningful percentage of staking rewards, particularly in more volatile environments, but they’ve been declining and are less proportionally relevant today. Transaction fees have added about 0.1% 7 to staking rewards over the past month, on average. The majority of rewards are driven by new ETH issuance and a smaller, more variable contribution from transaction fees. What are the risks of Ethereum staking? Before considering the risks specific to staking, investors should first evaluate and underwrite the value proposition of Ethereum . For many investors, Ethereum is a desirable network because of its flexibility and ability to support more sophisticated applications beyond simple value transfers. These applications include supporting decentralized financial services (DeFi), stablecoins (tokenized fiat currencies), and tokenized securities. Ethereum is the world’s leading smart contract blockchain and settlement layer in the crypto ecosystem 8 , and its annual settlement volume is now on par with traditional networks. Ethereum is growing fast as an alternative to traditional payment & settlement networks Transaction volume on Ethereum vs. other major networks Chart description: Line chart showing transaction volume of Ethereum vs other major networks. (Source: The Ethereum ecosystem includes Layer 2 blockchains whose systems derive security from and reach finality on Ethereum. Transaction volumes are shown annually from 2016 to 2024. Ethereum and Bitcoin volumes are measured by daily transfer value, including the native network asset and select widely used tokens deployed on each network (e.g., stablecoins). Volumes for Visa, Mastercard, and American Express (Amex) represent the combined total of payment and cash transaction volumes. Source: Coin Metrics and Nilson reports (via Visa annual filings). Any companies mentioned do not necessarily represent current or future holdings of any BlackRock products. For actual Fund holdings, please visit www.ishares.com.) The decision to stake, or not, does not materially change an investor’s exposure to the price movements of ETH, which remain the primary driver of returns. Investing in ETH is expressing a view that more applications will be built on Ethereum’s open platform, with the idea of attracting more users, more revenue, and expanding the ecosystem in which ETH is utilized as money. Staking introduces the potential to generate ETH-denominated rewards on top of existing ETH exposure, but this comes with additional risks, primarily: 1) liquidity risk; and 2) potential loss of capital through penalties or slashing. Staked ETH is less liquid: Ethereum staking requires locking ETH in the Ethereum protocol, which means withdrawals can take a variable amount of time depending on network conditions, particularly the number of other validators attempting to exit at the same time. The Ethereum protocol limits the rate at which new ETH can enter or exit the validator set for security purposes. As a result, beginning to stake or withdrawing existing stake may take significantly longer during periods of elevated activity. While withdrawing staked ETH often takes several days under normal conditions, delays can extend to weeks or even months in more extreme environments. Loss of Capital: Staking ETH exposes validators to the risk that a portion of their staked ETH may be reduced if they fail to complete their responsibilities assigned by the protocol. These reductions can range from “penalties”, which are relatively small losses due to operational issues, such as prolonged downtime, to potentially more severe losses in the case of a “slashing” event, which are specific protocol violations that pose greater systemic risk to the network. In practice, historical data indicates that realized losses from staking have been limited. Validators have a 99.7% 9 uptime rate — meaning the percentage of time validators are active and participating in network consensus — since Ethereum implemented staking in December 2020, and only 0.03% of all validators have ever been slashed. Of those 0.03% 10 of validators that have been slashed, the largest realized loss was about 3% 11 of their stake. All of that’s to say, staking rewards have far exceeded losses, generating ~$10 billion 12 in net rewards to stakers since 2020. While this historical experience is informative, it may not be indicative of future results. Why an ETP? Why ETHB? By accessing exposure to Ethereum through an ETP, investors can get exposure via a traditional brokerage account and potentially benefit from Ethereum staking without running validator infrastructure or interacting directly with the protocol. ETHB provides investors with exposure to staked ETH through the convenience of an exchange-traded product, reducing the operational, tax, and custody complexities associated with holding and staking ETH directly. For example, investors staking ETH directly must create their own custody setup or evaluate crypto exchange offerings. Holding the asset directly in a crypto wallet requires users to maintain passwords and/or private keys to prevent loss. Like all financial investments, ETPs involve an element of risk. Including capital risks, tax risks, and liquidity risks. ETHB is structured similarly to the iShares Ethereum Trust ETF ( ETHA ), the world’s largest Ethereum ETP 13 , but differs in that ETHA does not participate in staking, while ETHB intends to stake the majority of its ETH and will distribute rewards less fees to shareholders. As a result, ETHB is designed to provide exposure to the price return of ETH plus potential staking rewards. ETHB works with multiple professional validators to leverage their staking infrastructure, while the underlying ETH is still secured by Coinbase’s institutional cold storage vaults. This approach is intended to combine the potential benefits of Ethereum staking with the operational standards expected of an exchange-traded product. What are blockchains & consensus mechanisms? A blockchain is a digital transaction ledger that exists without reliance on a single central authority and is instead maintained by a distributed network of independent participants running open-source software. In the absence of a central authority controlling the ledger, blockchains need a consensus mechanism to coordinate among the participants and agree on the next valid block of transactions, ensuring the whole network maintains a consistent view of the ledger’s state. While consensus mechanism designs vary, they generally require participants to put something of economic value at risk for a chance to post the next block of transactions to the chain and receive the associated protocol rewards for doing so. Imposing a financial cost to participate in a blockchain’s consensus helps align incentives with the protocol rules and seeks to make attacks on the network economically prohibitive, forming a core foundation of blockchain security. © 2026 BlackRock, Inc. All rights reserved. 1 Source: CoinGecko, as of January 29, 2026. 2 Staking rewards vary based on the amount of ETH staked and transaction fees. The 2.5% - 3% staking rewards implies a staking participation rate of 25% and 36%, respectively. With 30% of all ETH staked, as of January 29 according to Ultrasound.money, staking rewards sit near the middle of this range today. 3 Only a certain subset of transaction fees are paid directly to the block proposer. Most transaction fees are burned and reduce the circulating supply of ETH once spent. ETH that is burned from transaction fees is economically analogous to an automated share buyback where ETH spent on fees is used to purchase & retire ETH, removing it from the outstanding supply. 4 Ultrasound.money, as of January 29, 2026. 5 Ethereum Consensus Specification; calculations conducted by BlackRock based on protocol-defined issuance formulas. 6 Ethereum Consensus Specification; calculations conducted by BlackRock based on protocol-defined issuance formulas. Note that ETH’s issuance rate equals its staking issuance rewards when all ETH is staked. While ETH’s supply is not fixed, like bitcoin’s, ETH’s annual issuance cannot exceed ~1.5% per year. 7 Source: Explorer.rated.network, as of January 29, 2026. 8 Source: DefiLlama, as of December 31, 2025. Ethereum accounts for $67B (or 58%) of total assets held in smart contracts across all blockchains. 9 Proxied based on Rated.Network’s participation rate. Validators are required to vote on their view of the chain every few minutes, the participation rate measures the number of votes received onchain out of the maximum possible votes. 10 Beaconcha.in, as of January 29, 2026. ~2.2 million validators initialized and 558 validators slashed since proof-of-stake was implemented in December 2020. 11 Beaconcha.in, the validators had a balance of ~32 ETH and lost ~1 ETH from the slashing, which corresponds to a ~3% loss of capital. 12 Ultrasound.money, CoinGecko, 3.7 million net ETH issued to stakers since December 2020. Net ETH issued reflects the rewards from staking after subtracting losses from penalties and slashings. Dollar value calculated using ETH price of $2,821, as of January 29, 2026. 13 Bloomberg, as of January 29, 2026. Investing involves risk, including possible loss of principal. This information must be preceded or accompanied by a current iShares Staked Ethereum Trust ETF prospectus, which may be obtained by clicking here . Please read the prospectus carefully before investing. This information must be accompanied or preceded by a current iShares Ethereum Trust ETF prospectus, which may be obtained by clicking here . Please read the prospectus carefully before investing. The iShares Trusts are not investment companies registered under the Investment Company Act of 1940, and therefore are not subject to the same regulatory requirements as mutual funds or ETFs registered under the Investment Company Act of 1940. Investments in these products are speculative and involve a high degree of risk. Investing involves a high degree of risk, including possible loss of principal. An investment in the Trust is not suitable for all investors, may be deemed speculative and is not intended as a complete investment program. An investment in Shares should be considered only by persons who can bear the risk of total loss associated with an investment in the Trust. Investing in digital assets involves significant risks due to their extreme price volatility and the potential for loss, theft, or compromise of private keys. The value of the shares is closely tied to acceptance, industry developments, and governance changes, making them susceptible to market sentiment. Digital assets represent a new and rapidly evolving industry, and the value of the Shares depends on their acceptance. Changes in the governance of a digital asset network may not receive sufficient support from users and miners, which may negatively affect that digital asset network’s ability to grow and respond to challenges Investing in the Trust comes with risks that could impact the Trust's share value, including large-scale sales by major investors, security threats like breaches and hacking, negative sentiment among speculators, and competition from central bank digital currencies and financial initiatives using blockchain technology. A disruption of the internet or a digital asset network would affect the ability to transfer digital assets and, consequently, would impact their value. There can be no assurance that security procedures designed to protect the Trust’s assets will actually work as designed or prove to be successful in safeguarding the Trust’s assets against all possible sources of theft, loss or damage. Smart contracts, including those relating to decentralized finance applications, are a new technology and their ongoing development and operation may result in problems, which could reduce the demand for ether or cause a wider loss of confidence in the Ethereum network, either of which could have an adverse impact on the value of ether. Staking introduces a risk of loss of ether, which could adversely affect the value of the Shares. Staking includes an activation, exit, and withdrawal process. During each stage of the process, the Trust’s staked ether cannot be sold or transferred, thereby making it illiquid for the period it is being staked. The Ethereum protocol limits validator activations and exits per epoch, so only a controlled amount of staked ether can turnover during each period. During periods of elevated validator demand, the activation queue may extend for days, weeks, or months. While queued for activation, the Trust’s ether will not accrue rewards. The staked ether will also not accrue rewards during the withdrawal period. At each step in the staking process, staked ether may also be exposed to risks such as security breaches, smart contract vulnerabilities, and validator or custodian failure or compromise, any of which could result in a complete loss of the staked ether or associated rewards. There is no guarantee that the Trust will receive any rewards with respect to staked ether. The ether Custodian is Coinbase Custody Trust Company, LLC, which is not affiliated with BlackRock, Inc. Shares of the iShares Trusts are not deposits or other obligations of or guaranteed by BlackRock, Inc., and its affiliates, and are not insured by the Federal Deposit Insurance Corporation or any other governmental agency. The sponsor of the Trust is iShares Delaware Trust Sponsor LLC (the “Sponsor”). BlackRock Investments, LLC ("BRIL"), assists in the promotion of the Trust. The Sponsor and BRIL are affiliates of BlackRock, Inc. 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