Every Basis Point Matters: How We Calculate Ethereum Staking APY

Understanding earnings performance is crucial for crypto stakers. Annual percentage yield (APY), and how it’s calculated, can differ from one staking provider to the next. This article explains how we measure our Ethereum APY, ensuring that our staking services remain among the most competitive on the market.

APR vs. APY

When it comes to staking yield, a common point of confusion is the difference between APR (annual percentage rate) and APY. 

APR is the base annual return stakers can expect to earn, not including rewards compounding. APY, on the other hand, provides the annual rate of return if staking rewards are consistently reinvested. Both are estimates (not guarantees) based on network conditions and validator performance at the time of calculation. On networks where rewards are auto-compounded, APY provides an extrapolation of APR that assumes consistent compounding and stable conditions over a full year. 

APR = (total rewards / initial staking amount) * 100

APY = (1 + r/n)ⁿ - 1, where r is the annual interest rate and n is the number of compounding periods

With the Pectra upgrade, Ethereum now enables auto-compounding for validators with 0x02 withdrawal credentials. Because APY provides a closer estimate of what stakers can expect to earn with rewards reinvestment, this article focuses on APY. 

Rewards sources on Ethereum

To understand how we calculate APY for our Ethereum validators, it’s necessary to first understand the different sources of Ethereum staking rewards: 

Consensus layer (CL) rewards: Newly minted ETH that Ethereum pays validators for maintaining network consensus and security. CL rewards are based on validator performance and accrue directly to the validator’s balance on the consensus layer. They include:

- Attestation rewards: The most frequent, largest, and most consistent source of staking rewards. Each epoch (~6.4 minutes), validators attest to their view of the blockchain's state and earn rewards for correct and timely votes.

- Block proposal rewards: Every slot (~12 seconds), one validator is randomly selected to propose the next block. Successfully proposing a valid block earns a reward. The chance remains infrequent for any single validator instance, but the reward can be significant. The validator that proposes the block also collects the execution layer rewards associated with that block (explained below).

- Sync committee rewards: Approximately every 27 hours, a group of 512 validators is randomly selected for special duties. These validators earn higher rewards during their service. The chance of selection is low.

Execution layer (EL) rewards: Come from ETH paid by network users (e.g., DEX traders, dapp users, etc.). EL rewards are collected by the validator that proposes the given block and are typically sent directly to a designated 'fee recipient' address. EL rewards include: 

- Priority fees/tips: When submitting a transaction, network users can include tips to incentivize faster inclusion of their transactions. 

- Maximal extractable value (MEV) rewards: Validators can capture additional profit by strategically ordering transactions using tools like MEV-Boost. MEV is a significant and high variability source of rewards. 

How we calculate APY

We track two types of APY for our Ethereum validators: core APY and total APY. Each is differentiated based on the types of rewards included in its calculation: 

Core APY: Includes only the consensus layer rewards, also known as issuance rewards. Isolating CL rewards lets us benchmark how our validator infrastructure and core operations are performing compared to others in the network. This enables us to make strategic decisions, such as geographic placement and hardware selection.

Total APY: Includes both consensus layer and execution layer rewards. This APY reflects rewards that are based not only on validator performance, but also on network selection. 

Our APY calculations account for auto-compounding, as we use each validator’s effective balance (rather than total staked balance) in our calculations. 

We annualize our APYs based on a specified number of trailing days. We perform this calculation across different ranges of trailing days: 7 days, 30 days, 90 days, 180 days, and 365 days. This method provides ongoing insight into how the APYs change, both for specific validators and the network, over different periods of time. 

Our APY performance

Below is our Ethereum APY performance for the first three quarters of 2025. These charts show how Coinbase validators performed versus the CF ETH Staking Reward Rate (ESRR). 

ESRR is a benchmark index designed to reflect the annualized staking reward rate for ETH across selected institutional-grade staking providers. The ESRR data shown here was provided by CF Benchmarks. To ensure an apples-to-apples comparison with validator gross APY performance, the data reflects the CF ETH Staking Reward Rate before applying the standard quoted commission fee that is normally included in the index.

On average, Coinbase validators have outperformed ESRR by 2 bps year to date.

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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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