Staking: yield, risk and tax

Staking means this: you lock up crypto-assets so that a network running proof of stake can produce and secure blocks, and you receive extra units for it. On Ethereum, time has run in slots of 12 seconds since 15 September 2022, 32 slots make an epoch, and in each slot a randomly chosen validator proposes a block. Anyone who wants to validate themselves puts up 32 ETH. Everything below that runs through third parties, and that is where the part begins that advertising rarely explains.

What actually happens in staking

A validator is not a savings account, it is a duty. It has to be online, propose blocks and attest to the proposals of others. If it does that, it receives a share of newly issued units and of fees. If it drops out, small inactivity penalties apply, scaled by how many validators are missing at the same time. If it behaves inconsistently, slashing applies.

As a rule of thumb, the project page on solo staking names an NVMe SSD with 4 TB, 64 GB of memory and a connection of about 50 Mbit/s downstream and 25 Mbit/s upstream for running your own node. The network recognises a deposit in roughly 13 minutes, after which the new validator sits in a queue before it may attest at all. A validator carries at least 32 ETH and, with the right withdrawal credentials, up to 2,048 ETH. How consensus mechanisms fit together is set out in the piece on how a blockchain works.

Four forms, four risk profiles

The minimum stake decides which route you take. With your own validator you keep control and carry the technology. In a pool you contribute small amounts and receive a proportionate share of the rewards. In liquid staking you also receive a tradable token that stands for the amount staked. With a custodian, a provider takes over everything, keys included.

What staking pays, as far as it is documented

There is exactly one handful of verifiable figures, and they sit in the joint report by EBA and ESMA of 16 January 2025. For the position in October 2024 it gives an average annual return at protocol level of around 3.46 per cent on Ethereum and 6.73 per cent on Solana. For the retail offers of various service providers the report gives 2.29 to 5.09 per cent for Ethereum and 5.94 to 7.74 per cent for Solana. Two caveats belong with them: the supervisors did not collect these values themselves but took them from a commercial data provider, and an annex to the same report shows an upper bound of 10.25 per cent for Ethereum instead of 5.09 per cent.

These figures are a snapshot, not a promise. The level depends on how much is staked in the network, how many fees arise and what share a service provider keeps. The report notes that some providers pass on only the rewards from the consensus layer and keep those from the execution layer. A return in ether also stays a return in ether: if the price falls further than the reward grows, what remains is a loss in euro.

On the size of the market: the value held in liquid staking protocols stood at 44 billion US dollars in October 2024, just under 80 per cent of it on Ethereum. For the EU, EBA and ESMA estimate decentralised staking at about 3.6 billion euro, extrapolated from the EU share of users worldwide. What a given percentage adds up to over years is something you can enter yourself in the staking compound calculator.

Slashing, lock-ups and queues

Slashing hits validators that propose two blocks in the same slot or give contradictory attestations. For a validator with 32 ETH, 0.0078125 ETH is burned immediately; the amount grows linearly with the stake, so at 2,048 ETH it is 0.5 ETH. A removal period of 36 days then begins, during which the stake keeps shrinking. On day 18 an additional penalty follows, its size depending on how much ether from other penalised validators was affected in the same 36 days. In the worst case the entire stake is gone.

Getting out takes time, and it happens in two steps. Withdrawals have only been possible at all since the Shapella upgrade on 12 April 2023 at block 17,034,870. Anyone leaving entirely first registers a voluntary exit; how long that takes depends, per the project site, on how many are leaving at the same time. Only then does the network pay out, through a sweep that block proposers run in turn through all validators. At most 16 withdrawals fit into a block, which is up to 115,200 a day; a sweep over 400,000 withdrawals takes about 3.5 days, one over 800,000 about 7 days. EBA and ESMA describe lock-up and unbonding periods of several to several tens of days, in some cases with caps per customer and with fees whose size is hard to judge in advance.

Liquid staking adds a risk of its own: the extra token can trade below the value of the ether staked. As risks of decentralised protocols, EBA and ESMA name exploited faults in the program code and attacks through the protocol's governance vote; for staking itself they name the concentration of large holdings among few operators and the open question of whether and how far penalties and slashing are passed on to customers. With opaque products, counterparty risk comes on top: if the provider becomes unable to pay or halts withdrawals, there is nothing on the chain for you to redeem.

Tax in Germany under section 22 number 3 of the Income Tax Act

This section describes the rules in Germany. Readers in other countries are taxed under their own national rules; nothing here carries over. Income from passive staking, meaning taking part in a pool or in a platform's offer, generally falls under section 22 number 3 of the German Income Tax Act (Einkommensteuergesetz) per the Federal Ministry of Finance circular of 6 March 2025. It counts as other income from services. The units received are valued at the market price at the time of acquisition; for simplification, the time of posting into the wallet may be used during the year. Anyone creating blocks themselves falls under the same provision or into commercial activity, depending on the circumstances of the case.

The exemption limit sits in section 22 number 3 sentence 2 of the Income Tax Act: such income is not subject to income tax if, together with other income from services, it comes to less than 256 euro in a calendar year. Exemption limit means exactly this: at 255 euro you pay nothing, at 256 euro the full amount is taxable, at your personal tax rate. It is not an allowance that stays free. An excess of expenses over receipts may not be offset against other types of income.

One point matters for the holding period: the circular makes clear in margin number 63 that the extension of the disposal period to ten years under section 23(1) sentence 1 number 2 sentence 4 of the Income Tax Act is not applied to currency and payment tokens. It stays at one year. The units received count as acquired and start their own one-year period from that moment. For the order of disposal, a wallet-by-wallet view applies; if individual identification is not possible, the units acquired first count as sold first. The chosen method must be kept within a wallet until the holding of that trading name has been sold in full. The circular replaces the version of 10 May 2022 and applies from its publication in the Federal Tax Gazette to all open cases.

Record-keeping duties come on top: the time and quantity of every acquisition, the price applied, the chosen order of consumption per wallet and separate documentation of income from mining, forging, staking and lending. The deadlines for each tranche are worked out by the holding period calculator, and the groundwork is in the piece on crypto tax and the holding period in Germany.

How to check a staking offer

Check an offer like a loan you are making, not like an account. The decisive question is not how high the percentage is, but who is liable in an emergency and how fast you can get out again.

• Work out what an authorisation actually covers in the case at hand. Staking itself is not among the services that Regulation (EU) 2023/1114 has made subject to authorisation across the EU since 30 December 2024: EBA and ESMA record that lending, borrowing and staking are not expressly regulated there. An offer becomes subject to authorisation through what happens alongside it, for example the custody of your keys.
• Ask for the lock-up and unbonding periods in writing, with caps per withdrawal and with the fees charged on exit.
• Ask expressly whether penalties and slashing are passed on to you and whether the provider is liable for them. EBA and ESMA consider exactly this disclosure to be patchy.
• Check whether your holdings are kept separate from the provider's own assets. Where they are mixed, a price risk turns into a default risk in insolvency.
• Count the return in euro, not in units. The piece on Ethereum and Bitcoin shows how strongly the issuance of new units depends on the amount staked alone.
• Keep a record from the first inflow: date, quantity, price, wallet. Without it, the 256 euro exemption limit cannot be evidenced later.

Frequently asked questions

Sources