How to compound your ETH2 rewards with StakeWise
We are excited to announce that starting today, StakeWise users will be able to reinvest their ETH2 rewards back into staking directly from our dashboard and achieve a boost to their APY through monthly compounding. Simply head to the StakeWise dashboard and enter the amount of rewards you would like to reinvest in the Compound section — our interface will handle the rest.
Below we explore how the unique token model of StakeWise enables the reinvestment of ETH2 rewards and show how compounding them via the StakeWise dashboard can help stakers boost their APY.
Compounding — an impossible feat for everyone but StakeWise
Contrary to the popular belief, the staking rewards in ETH2 do not compound for most ETH2 stakers. Instead, the rewards earned by stakers sit on the validators’ balances without any productive use, available for withdrawal only in Phase 2 of the Ethereum 2.0 roadmap. Today, this already amounts to 207k ETH, or nearly $500m, of idle capital in the Beacon Chain. Wouldn’t it be better if we could reinvest it?
The ConsenSys ETH2 survey seems to suggest so — its respondents have circled out the compounding of staking rewards as the most desirable feature they expect from a third-party staking provider. To date, no staking pool or service has been able to offer the ability to reinvest the rewards from ETH2 staking, but StakeWise aims to change that.
How StakeWise enables compounding
StakeWise has created a stable liquidity pool between its deposit ETH (sETH2) and reward ETH (rETH2) tokens to allow users to reinvest their staking rewards. Therefore, all that is required to compound your rewards is to regularly swap rETH2 into sETH2 via Uniswap V3 pool. The pool has ample liquidity and can handle a swap of all the outstanding rETH2 supply into principal without any slippage. StakeWise LPs in this pool are earning a double-digit APY without impermanent loss, benefiting from one of the highest-yielding opportunities to deploy ETH capital in the whole of DeFi. We like to keep everyone happy.
Compounding is not the only unique feature of the protocol — the dual token system, which separates ETH2 rewards and ETH2 deposits into two different tokens, has many advantages. With StakeWise, users preserve access to staking rewards when applying staked ETH across DeFi and earn a higher APY by simply avoiding the single token systems of Lido, Binance, and others. Put simply, staking with our protocol is always more profitable.
The benefits of compounding your rewards
Compound interest is the 8th wonder of the world. With staking being a long-term endeavour akin to investments into stocks and bonds, frequent reinvestment of ETH2 rewards adds up to a significant boost to the APY over time. Here is what compounding your staking rewards at an (estimated) post-merge APY of 10% would lead to:
The extra income from the reinvestment of your ETH2 rewards is equal to a ±30% boost versus the baseline over a 5-year period, a 70% boost over a 10-year period, and a ±315% boost over a 20-year period.
For the stakers with a long-term orientation, the choice of whether to reinvest should be an obvious one. Those starting on this journey today have a massive advantage, and we cannot wait to welcome them to StakeWise.