Ethereum staking profitability plummets
Ethereum staking profitability faces a significant drop in 2024. According to on-chain data, since June, validators have been recording much smaller gains compared to recent years.
In October, for example, validator rewards reached $108 million, representing one of the worst performances since February 2023. This sharp drop contrasts with the growth that had been recorded since October 2022.
Ethereum validators, responsible for processing transactions and generating new blocks on the network, receive their rewards in Ether (ETH), the network's native cryptocurrency.
However, current profitability does not reflect what the market has seen in the past. At peak times, monthly earnings reached US$2.49 billion, around 23 times more than earnings achieved in 2024.
Ethereum staking profitability drop
The drop in Ethereum staking profitability results from a combination of factors. The first factor is the devaluation of Ether. The cryptocurrency suffered a considerable drop, going from almost US$4,000 in May 2024 to a consolidation level of around US$2,500.
This direct devaluation affects the rewards received by validators, as they are compensated in ETH. Even with successful operations, the value of Ethers received is lower, directly impacting validators' income.
In addition to the drop in price, Ether inflation also contributes to reduced profitability. This means more ETH comes into circulation, which reduces the value of rewards in the long term. The growing supply of ETH, along with stable or falling demand, puts downward pressure on prices and, consequently, the rewards received by those who stake.
Another important factor is the increase in the number of validators on the Ethereum network. With more people participating in staking, the amount of ETH distributed among validators increases, but the share allocated to each one individually decreases. In 2024, this number has grown significantly, creating greater competition between validators and therefore a reduction in individual rewards.
The adoption of second-layer rollups, solutions that help scale the Ethereum network and reduce transaction fees, also directly impacts validators' profitability.
With the decrease in traffic on the Ethereum main network, caused by the use of rollups such as Arbitrum and Optimism, the number of transactions that generate fees (or “gas fees”) has reduced. Since validators rely on these fees for a significant portion of their rewards, decreased traffic directly impacts their earnings.