Latest / The Cryptocurrency Economy with Fexingo: Bitcoin, Ethereum, and Digital Money Markets / Ethereum Staking Yield Versus the Fed Funds Rate
Transcript
- Lucas: So Ethereum is currently yielding about 3.1 percent if you stake it. The effective Fed funds rate is sitting at 3.64 percent. That gap — roughly half a percentage point — is the narrowest it has been since the merge. Luna: That's interesting because for a long time the narrative was 'crypto yields are way higher than anything in TradFi.' That gap closing changes the calculation for a lot of people. Lucas: Exactly. And the question we're asking today is: at these levels, does staking make sense as a yield play? Or are you better off just buying a three-month T-bill and not worrying about slashing, lock-up periods, or smart contract risk? Luna: Well, let's start with the actual staking number. Where does that 3.1 percent come from? Is that what an individual gets if they run their own validator? Lucas: No, that's a blended rate. If you run your own validator with 32 ETH, your net yield after hardware and electricity is closer to 2.8 percent right now. The 3.1 percent is what you'd get through a liquid staking protocol like Lido — where you get stETH in return — or through an exchange like Coinbase, which takes a cut. Luna: Right, and Coinbase takes a 25 percent commission on staking rewards. So the gross yield before their cut is higher, but the net to the user ends up around that 3.1. Lucas: Correct. Meanwhile, a three-month Treasury bill is yielding about 3.6 percent. No fees, no slashing risk, no 27-hour unbonding period if you want to exit. The only trade-off is that T-bill yield is taxable at ordinary income rates, and staking rewards are also taxed as income in the US — so that's a wash. Luna: But there's another layer here, which is that staking yield isn't fixed. It fluctuates based on how much ETH is staked. More stakers means lower rewards per validator. Right now about 27 percent of all ETH is staked, which is why the yield has compressed. Lucas: That's the key point. In early 2024, when staking was less crowded, yields were closer to 4.5 percent. Now they've drifted down as more ETH got locked up. And with the Fed holding rates in the 3.6 range, the risk premium for staking has basically evaporated. Luna: Unless you think ETH price appreciation will make up for it. But that's a different bet — that's speculation, not yield. Lucas: Right, and we're specifically comparing the yield component. If you're an institution looking at a risk-free return of 3.6 percent, why would you accept 3.1 percent with counterparty risk, slashing risk, and lock-up? The answer is you probably don't — unless you're bullish on ETH itself. Luna: And that's actually what we're seeing in the data. ETH staking inflows have slowed in the last two months. The weekly net staking is down about 40 percent from its peak in Q1. Lucas: Yeah, the marginal staker has pulled back. And it's not just Ethereum. Solana's staking yield is around 6 percent right now — which looks attractive on paper — but that's before you account for SOL's higher volatility and the fact that the inflation rate on Solana is baked into that number. A portion of that yield is just new tokens being created. Luna: So the real staking yield net of inflation on Solana might be more like 3.5 to 4 percent. Which is back in the same ballpark. Lucas: Exactly. So the question becomes: is the convenience of earning yield in crypto — with all the friction of managing wallets, taxes, and security — worth it for an extra 50 or 100 basis points? For most retail investors, probably not. For institutions, definitely not. Luna: But there's a counterargument, which is that staking isn't just about yield. It's about network participation. Some people stake because they believe in Ethereum and want to help secure the network. Lucas: That's fair. And for those people, the yield is a bonus, not the primary motivation. But the show is called The Cryptocurrency Economy — we're looking at this through an economic lens. And from a pure risk-adjusted return standpoint, the math is hard to justify right now. Luna: What about liquid staking derivatives? Like stETH on Lido? Those trade at a slight discount to ETH sometimes, so you could theoretically buy stETH at a discount and get a higher effective yield. Lucas: That's a valid arbitrage. stETH has traded at a discount of 0.5 to 1 percent at various points in the last year. If you buy stETH at 99 cents on the dollar and then stake it, your effective yield could be closer to 4 percent. But that's a tactical trade, not a passive yield strategy. Luna: And it introduces additional risk — the steth eth peg could break further, like it did during the Celsius crash in 2022. Lucas: Right. So to bring it all together: as of May 21, 2026, the risk-free rate in traditional finance is offering a better nominal yield than Ethereum staking, with dramatically less complexity and risk. The only way staking wins is if you believe ETH's price will appreciate significantly, or if you value network participation independently. Luna: And that's a perfectly valid thesis. But it's important to separate the yield story from the price story. The yield alone doesn't make a compelling case right now. Lucas: If today's episode was useful to you and you want to keep it ad-free, buy me a coffee dot com slash fexingo helps. That's literally what funds these conversations. Luna: Yeah, it's a small thing that makes a big difference. Keeps the lights on and the episodes rolling. Lucas: So where does that leave us? For the listener who has some ETH sitting in a wallet — should they stake it? Luna: I think the honest answer is: if you're already in the ecosystem and you're comfortable with the mechanics, staking gives you a modest return. But if you're coming from traditional markets and you're comparing yields, the Treasury is the better bet today. Lucas: And that's a different conclusion than we would have drawn a year ago. The macro environment has shifted, and crypto yields have to compete. For now, they're losing on pure numbers. But that could change — either because ETH staking participation drops and yields rise, or because the Fed cuts rates. Luna: Or because new use cases emerge that increase demand for ETH without increasing the staking ratio. That would drive price gains independent of yield. Lucas: Exactly. So the yield story is just one part of the picture. But it's an important one, and right now it's telling us that the easy money in staking is gone. Thanks for listening.