Ethereum: A Deep Dive Into New ETH Rewards Dynamics

April 6, 2023

On September 15th 2022, the long awaited Merge of Ethereum from Proof-of-Work to Proof-of-Stake was completed. The merge unified the Ethereum Mainnet, which now functions as the Execution layer, and the Beacon Chain now operating as the consensus layer for Ethereum.

Previously, these two chains ran in parallel. Validators received rewards from the Beacon chain (Consensus Layer), and miners received rewards from the Ethereum mainnet (Execution Layer). In the wake of the Merge, validators now receive both the CL and EL rewards.

32 ETH are required to activate a validator on Ethereum. As a point of reference, staking participants are often referred to as validators on the Ethereum blockchain, as each individual instance of 32 ETH staked is a validator.

The Merge shifted the responsibility of proposing blocks and reaching a consensus on the state of Ethereum from miners to validators, who now receive rewards for those activities. Specifically, validators receive EL rewards in the form of priority fees, and Maximal Extractable Value (MEV).

Receiving the new EL rewards has had a significant impact on validator rewards, both in terms of their magnitude, as well as their volatility. As the chart below shows, after The Merge mid-September, there is a clear increase in EL rewards.

Between January 1st and September 15th 2022 (pre Merge), validators collected on average 1,497 ETH a day of rewards. Between September 15th 2022 and March 1st 2023 (post Merge), they collected on average 2,457 ETH a day of rewards. The volatility of rewards post-merge is also notable. While these figures are subject to change, validators receive rewards ranging approximately anywhere between 1500 and 6000 ETH per day.

EL Rewards and MEV-Boost

The addition of Execution layer rewards means that there is a greater emphasis on luck for validators participating in the network. The increase in luck comes from a couple of different places. Validators only receive EL rewards when they are proposing blocks, which is an infrequent event that is random. Also, the size of EL rewards are unrelated to any specific validator being chosen. In other words, both factors are out of the control of validators.

EL rewards represent payments, such as tips, from users to validators that ensure their transactions are included in a block. Validators can choose to build the block “locally” (aka themselves) or to run an optional software called MEV-Boost to sell block-space to block builders. Those block builders will optimize rewards by including, excluding, and changing the order of transactions in a block.

As the chart below displays, the adoption of MEV-Boost was swift.

MEV-Boost’s Impact on Network Rewards

Almost 90% of the proposed blocks on the network are attributed to MEV-Boost. Moreover, MEV-Boost accounts for over 90% of network EL rewards.

On a per block basis, blocks coming from MEV-Boost have increased the rewards potential for validators following the Merge. Since the Merge, blocks from MEV-Boost have received 0.1222 ETH per block, on average, for execution rewards compared to 0.0384 ETH per block for non-MEV-Boost blocks. With an average of 7,150 blocks per day, that amounts to about 874 ETH/day vs 275 ETH/day.

The next major event for Ethereum are the coming Shanghai and Capella upgrades that will make token withdrawals possible. The Shanghai and Capella upgrades are almost certainly beneficial for the network – the inability to withdraw stake and accrued rewards have kept many would-be stakers on the sidelines.

Like other notable proof of stake networks, it is expected that Ethereum’s proportion of staked tokens will rise gradually from about 14% currently to 50% or more. The ability to withdraw is not only advantageous for stakers seeking liquidity, but also beneficial for the entire ecosystem since it has the potential to triple Ethereum’s security. When you increase the percentage staked, the difficulty to attack the network proportionally increases.

Staking Ethereum with Figment

If you are interested in staking Ethereum, Figment offers a host of services aimed at delivering safe and reliable staking rewards for your assets. Figment is the world’s leading provider of blockchain infrastructure. Our 200+ institutional clients rely on Figment to provide best in class staking services including seamless and easy integrations, complete staking coverage, detailed rewards reporting, insights, and MEV-Boost activation on ETH.

When it comes to Staking Ethereum, Figment offers:

  • Point-and-click staking: Experience the best point-and-click staking interface for ETH. Stake, unstake and claim rewards on Figment Prime.
  • The ability to collect more rewards: Figment clients benefit from our engineering and protocol expertise to maximize the chances of earning more rewards with MEV-Boost.
  • Comprehensive rewards reporting: Access detailed and comprehensive rewards statements in various formats.

Figment’s Protocol team has extensive Ethereum knowledge intended to help dive into the specifics such as governance and staking information. Contact us to learn more about Ethereum staking.


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