Proof of Stake networks experience historic low in staking yields

The average staking yield of the top 35 stakable cryptocurrencies has reached a historic low due to the rising average stake rate among investors during the third quarter, according to a report from Staked, a non-custodial staking platform subsidiary of Kraken.

The average staking rate increase to a substantial 52.4% across proof-of-stake (PoS) networks led to a decline in the yield on these chains to 10.2%, the lowest ever rate.

For context, Ethereum (ETH), the largest PoS network, saw its Consensus layer yield drop to a low of 3.2% while the percentage of total supply staked assets increased to a record high of 22% during the third quarter. The decline was more pronounced in ETH’s Execution layer, dropping to 1.3%, according to Staked.

“The combination of a high stake rate, and transaction activity shifting from Mainnet (L1) to the various Ethereum Layer 2 networks (Ls), resulted in a Q3 staking yield of 4.5%, ETH’s lowest on record.”

While Ethereum staking saw a notable surge, overall deposit activity significantly slowed during the three months. Staking deposits hit a low of 1,300 in September.

Staking is vital in PoS networks as it helps improve their overall security. The process entails holding and locking a specific amount of cryptocurrency for a period to help facilitate the operations of a blockchain network, resulting in the receipt of rewards.

Potential rewards have made this venture attractive to crypto investors, including institutional players seeking passive income from their digital asset holdings. Notably, FTX, despite its bankruptcy, staked $150 million in ETH and Solana tokens to generate additional revenue, a move aligned with its commitment to compensating its clients.

However, it’s important to know that staking activities have come under intensified regulatory scrutiny in the U.S. The Securities and Exchange Commission (SEC) categorized the activity as securities in its legal action against the crypto exchange Coinbase and also imposed a $30 million fine on Kraken because it failed to register its staking product as a securities offering.

Meanwhile, the staking yield has been on a downturn since it peaked at 15.4% in March last year. The decline in staking rewards has been steady across chains, except for two proof-of-stake networks, Polkadot (15.1%) and Cosmos (18.9%), which currently offer yields higher than 7.5%. This trend could have significant implications for both individual investors and the broader cryptocurrency market.