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This guide breaks down the Ethereum staking process and how investors can earn yield on their ETH holdings with Coinbase Prime.
October 31, 2025
Education
6 min read
Written by
Ethereum is an open-source decentralized proof of stake (PoS) blockchain. Launched in 2015, it was the first chain to support fully programmable smart contracts, enabling decentralized applications (dapps) beyond simple token transfers. In 2022, the network converted from its original energy-intensive proof of work (PoW) model to PoS. Ethereum has the largest validator set among smart contract platforms and is the largest PoS network by total value staked.
Ethereum’s PoS consensus mechanism relies on validators to secure the network by proposing blocks, performing attestations, and voting on block validity. In exchange, validators earn staking rewards in the form of Ethereum’s native token, ETH. To participate, validators stake ETH as collateral. This aligns economic incentives with the network’s best interests. At the time of writing, a minimum of 32 ETH is required for a validator to enter the active validator set (i.e., become an active participant).
Native ETH stakers can choose to run their own validator nodes or stake via a staking provider. The latter method is far more common, as self-staking (running one’s own nodes) requires a high degree of technical expertise and operational oversight (in addition to infrastructure). Maximizing rewards and mitigating risk requires high performance levels, which can be difficult for self-stakers to maintain without significant experience and resources. Staking through a provider is a better option for most, as it lets stakers earn rewards without needing to obtain and operate their own infrastructure. Below is the staking lifecycle of a validator, which applies both in self-staking and staking via a provider.
Deposited: A validator deposit of at least 32 ETH (up to a maximum of 2,048 ETH for validators using 0x02 withdrawal credentials) is made to Ethereum's official deposit contract, along with the required validator credentials and signature. Once the deposit is processed by Ethereum’s execution layer and recognized by its consensus layer (Beacon Chain), the validator enters the deposited state. In this state, the validator is registered but not yet actively participating in consensus or earning rewards. The validator remains in the deposited state until its deposit is included in the Beacon Chain’s state. This typically takes several minutes, but can take longer depending on network conditions.
Pending: Once the deposit has been included, the validator enters the activation queue, where it waits to join the active validator set. Entry into this set is governed by the churn limit, which caps the amount of ETH that can be activated per epoch in order to maintain stability (an epoch is a fixed period of 32 slots or ~6.4 minutes). Currently, the churn limit is 256 ETH per epoch/57,600 ETH per day. How long the validator remains in this pending state depends on the length of the activation queue. While pending, the validator remains inactive and does not earn rewards.
Active: After clearing the activation queue, a validator that is being newly activated (not topping-up) undergoes another 4 epoch (~25.6 min) delay before it becomes active. Once in the active state, it is eligible to be selected for block proposals, required to perform attestations during each epoch, and may be periodically assigned to a sync committee. Proper performance of these duties earns rewards, while missed duties or incorrect behavior can lead to penalties. The validator remains active until it either voluntarily exits or is forcibly exited (e.g., due to slashing or extended inactivity).
Exiting: Once an exit is initiated, the validator joins the exit queue and is scheduled to leave the active set. Just like in the activation queue, there’s a protocol-enforced churn limit for the exit queue. This limit is based on total ETH leaving the network per epoch. Exit churn is currently hard capped at 256 ETH per epoch (~57,600 ETH per day). While in this queue, the validator remains part of the active set and continues earning rewards until its exit epoch is reached. Time spent in the exiting state depends on how congested the exit queue is.
Exited: After passing through the exit queue, the validator enters the exited state. In this state, it is no longer earning rewards. However, the validator’s stake remains on the Beacon Chain and is not yet withdrawable. The validator must remain in this state for a fixed delay period (currently 256 epochs/~27.3 hours) before it becomes eligible for a full withdrawal. This delay period provides a buffer for finality and slashing resolution.
Withdrawable: After the fixed delay period, the validator’s stake becomes withdrawable. If the exit was triggered from the consensus layer, the validator must then wait for the sweep to process the final payout. At the time of writing, the sweep can take up to 9 days and is based on how many validators are currently in the network. If the exit was triggered from the execution layer (in the form of a manual partial withdrawal), it bypasses the sweep. However, this type of exit has a request queue, before hitting the exit queue, which is governed by an EIP-1559-like fee mechanism.
There are two types of Ethereum staking rewards: consensus layer rewards and execution layer rewards.
Consensus layer (CL) rewards are what validators earn for participating in consensus, as described above. CL rewards automatically accrue to a validator’s effective balance (stake) on the Beacon Chain (CL). For validators with 0x01 credentials, any balance above 32 ETH is periodically auto-swept to their withdrawal address on the execution layer as a partial withdrawal (the 32 ETH principal remains active). Partial withdrawals allow validators to continue staking while regularly receiving their rewards. Validators using 0x02 credentials can opt to let their rewards accrue to their effective balance on the Beacon Chain (rather than being auto-swept), enabling onchain rewards compounding. At the time of writing, the maximum effective balance that a validator can have is 2,048 ETH.
Execution layer (EL) rewards come from priority fees/tips and maximal extractable value (MEV) rewards. EL rewards are paid by network users and collected by a validator when it proposes a block.
- Priority fees/tips: When submitting a transaction, network users (e.g., DEX traders, dapp users, etc.) can include tips to incentivize faster inclusion of their transactions.
- MEV rewards: Validators can capture additional rewards by strategically ordering transactions using tools like MEV-Boost.
EL rewards do not accrue to a validator’s staking balance like CL rewards. Instead, they are instantly paid out to the validator’s fee recipient address when the block is proposed (i.e., when the rewards are earned). This means there’s no need for a withdrawal process–EL rewards are already in the validator’s wallet on the execution layer and can be used, moved, or sold immediately.
Although it’s rare, ETH staking carries risk of slashing. Just as validators are rewarded for participation, they can also be penalized for misbehavior or actions that compromise network security or performance. If a validator triggers a slashing condition (such as double signing or surround voting), it can lose a portion of its stake and possibly be forcibly ejected from the active set. Slashing penalties exist to protect the network and upstanding validators from bad actors and behavior that could compromise the network’s security and integrity.
Validators can also be penalized for extended periods of inactivity. This is because inactive validators block the network from reaching finality, making the chain vulnerable to reorgs, uncertainty, and instability. An inactivity leak is a penalty mechanism that activates when the Ethereum network fails to finalize for more than four epochs, usually due to many validators being offline. Inactivity leaks penalize offline validators by gradually reducing their balances over time, to help restore finality. The penalty compounds until validators come back online or are forcibly exited (because their balance has dropped below 16 ETH). Inactivity leaks are rare under normal network conditions and the penalty is not as severe as slashing.
When staking ETH through a provider, selecting one with robust slashing protections and a track record of 99%+ uptime is key to mitigating these risks.
Coinbase Prime is our full-service prime brokerage platform. Prime integrates staking with secure custody, trading, financing, and other prime services to provide a turnkey solution for institutions. Prime staking also provides detailed rewards reporting, giving institutions a clear picture of how their staked assets are performing.
Our Ethereum staking infrastructure is high-performance, secure, and backed by the most trusted name in crypto. Coinbase validators have never been slashed on any of the networks we support.
Disclaimer
This document is intended only for sophisticated investors; it is for informational purposes only and does not constitute the provision of investment advice. Client assumes full responsibility for its trading activity and should consult its advisors for its specific situation. Coinbase is not registered as an investment advisor and Coinbase assumes no liability, obligation, or responsibility for client decisions regarding its Coinbase Prime Broker Account. Please consult your Coinbase Prime Broker Agreement and www.coinbase.com/Prime for additional details.
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