ETH Solo Staking vs LSDs

Are you considering staking ETH and unsure whether to run your own validator or stake through Liquid Staking Derivatives (LSDs)? For staking durations under six years, you may be better off with LSDs unless you’re running at least four validators. Here are some key points from the thread:

  1. LSDs’ yields auto-compound daily, generating higher long-term compounded returns for stakers. Solo stakers need to accumulate an additional 32 ETH from yields to start compounding by setting up another validator. However, with at least four validators, solo staking can outperform LSDs after accounting for fees.
  2. With a small number of validators, your chances of producing a high MEV-boost block decrease, impacting the execution layer yields and creating fluctuating returns. If LSDs produce slightly higher yields (e.g., solo staking at 4% vs. LSD at 4.4%), LSDs will outperform solo staking when compared to a single validator.

Additionally, while a single validator’s staked ETH remains “locked up,” an LSD can be used as collateral or for yield farming in multiple DeFi protocols, further enhancing yields and outperforming solo staking. As a result, users may prefer LSDs over solo staking due to increased flexibility. Moreover, managing a validator also involves technical requirements and time commitment.

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