Staking rewards aren't interest
In traditional finance, a savings account pays a fixed interest rate. Staking rewards work differently — they're protocol-level emissions distributed to participants based on multiple dynamic factors.
What determines the reward rate
1. Total ETH staked
This is the biggest factor. Ethereum has a fixed reward curve: the total rewards per year are roughly proportional to the square root of the total ETH staked. As more people stake, each individual's share of rewards decreases.
When 10 million ETH was staked, APY was around 5-6%. With 30+ million staked, it's dropped to 3-4%. If staking continues to grow, APY will compress further.
2. Network activity (MEV and tips)
Validators earn additional income from transaction priority fees and MEV (Maximum Extractable Value). During high-activity periods (market volatility, popular token launches, NFT mints), these tips spike significantly — sometimes doubling effective APY for brief periods.
During quiet periods, MEV income drops to near zero, and stakers rely primarily on base protocol rewards.
3. Fee burning (EIP-1559)
While not a direct staking reward factor, fee burning affects the net economics for ETH holders. When lots of gas is burned (high activity), ETH supply decreases, which can increase the value of staking rewards in dollar terms even if the ETH-denominated APY stays the same.
4. Protocol-specific factors
On other chains, staking rewards vary for different reasons:
- Solana: APY depends on the inflation schedule (currently decreasing 15% per year) and the total SOL staked.
- Cosmos (ATOM): Rewards come from inflation + transaction fees. Higher inflation = higher APY but also more supply dilution.
- Polkadot (DOT): Targets an ideal staking ratio (50% of total supply). APY adjusts to incentivize or discourage staking toward that target.
What this means for you
- Don't stake expecting a guaranteed fixed return. APY will fluctuate.
- High APYs on new protocols often come from token incentives that dilute over time.
- Factor in the price volatility of the underlying asset — a 4% yield means little if the asset drops 30%.
- Compare APY against inflation and opportunity cost, not just in isolation.
Building the right foundation
Understanding staking economics requires understanding how crypto assets move in price and how yields relate to risk. Korvex helps you develop that intuition — practice trading, watch how prices respond to events, and learn to evaluate risk-reward before committing capital to staking.