Source: Grayscale; Compilation: Tao Zhu, Golden Finance
Staking rewards can become a source of unassociated income, thereby enhancing the overall return on investment in Proof of Stake (PoS) blockchain tokens.
Traditional sources of investment income, such as bond coupon payments, are closely related to central bank policies and economic conditions. Although there are some methods to diversify through alternative revenue strategies in traditional markets, most options have a similar correlation with the economic cycle. Staking rewards—income earned by helping to validate blockchain transactions—represent a unique potential source of income that is not tied to Federal Reserve actions or overall economic performance.
Staking allows token holders to participate in network consensus and security and earn native protocol rewards (i.e., income measured in ETH or SOL rather than fiat currency). The incentive mechanisms driving staking behavior are structurally different from traditional income-generating tools, providing a blockchain-native income mechanism within a digital asset portfolio (for more background information on staking, see "From Miners to Stakers: How Staking Secures the Ethereum Blockchain").
Irrelevant Income
The staking yield is controlled by specific parameters of the protocol and the participation rate at the network layer, rather than by the conditions of the US dollar money market. Therefore, the yield differs from traditional fixed income yields in both levels and changes over time.
For example, among the top 20 proof-of-stake ( PoS ) digital assets, the median staking yield has consistently been higher than traditional fixed income benchmarks, such as the federal funds rate or the yield on benchmark investment-grade corporate bonds. Since 2019, the median annualized staking yield has fluctuated between 5% and 10% (Chart 1).
Figure 1: The staking return rate is independent of fixed income yield.
The staking rewards show low correlation or even negative correlation with traditional interest rate instruments. In terms of monthly changes since 2019, the median staking rewards in our sample have the following correlation with traditional benchmark interest rates:
Relative to the federal funds rate of -0.67
Relative to the 10-year U.S. Treasury yield of -0.71
Relative to the yield of U.S. corporate bonds, it is -0.76
This interest rate independence enhances the potential value of staking in multi-asset portfolios, providing both the potential for income diversification and reducing associated risks compared to traditional fixed-income instruments.
Higher total returns with the same level of risk
Staking is a mechanism that can potentially enhance total returns while only slightly increasing portfolio risk (through various operational risks as described below). Staking rewards are paid in native blockchain tokens rather than fiat currency. These rewards can be reinvested, achieving compound growth over time, potentially creating a dual return stream—capital appreciation and staking income—without altering the investor's underlying exposure. In PoS networks, such returns typically range from 5% to 10% per year, helping to offset volatility during market downturns.
To quantify this effect, we created two hypothetical PoS token return indices: (1) an index that contains only price returns; (2) An index that contains both price returns and staking rewards. The two indices are equally weighted and contain the top 10 PoS tokens by market capitalization. Indices are unmanaged, and you can't invest directly in them. These results are purely hypothetical and do not reflect actual returns for investors. The underlying index is also hypothetical and does not represent any actual index used to evaluate a broader investment. These indices were created by the authors and constructed from the perspective of hindsight. Staking rewards are not security deposits, may not be paid, and are not an obligation of any corporation or government entity.
Chart 2 shows the return statistics of these two indices. After including staking rewards, the total return rate increases from 60% to 72%, which means the actual annual return rate is 12%. Staking rewards do not lead to price fluctuations (although staking may bring other risks; see the next paragraph), thus higher returns also result in a higher Sharpe ratio.
Figure 2: Staking rewards may increase total returns
Staking rewards are generally mild relative to token price fluctuations, and price fluctuations should be considered as the main source of risk and potential rewards for most cryptoasset investments. That being said, staking activity can also introduce new risks, including potential slashing (loss of staked assets due to transaction validation failures), lock-up periods (limited liquidity during staking periods, which can impact portfolio rebalancing and ability to respond to market changes), and smart contract risk (where the underlying staking protocol or smart contract may be vulnerable or exploited, especially on networks that are less secure or experimental). In addition, transaction costs and staking commissions are not factored into the analysis, but these fees accumulate over time.
Conclusion
This analysis indicates that staking rewards represent a unique and potentially profitable source of digital asset portfolio structure. Integrating it into the portfolio construction framework can enhance overall return potential and provide income diversification that is independent of traditional interest rate dynamics.
The content is for reference only, not a solicitation or offer. No investment, tax, or legal advice provided. See Disclaimer for more risks disclosure.
Grayscale: Understanding Stake Rewards and How to Earn Income from Encryption Assets
Source: Grayscale; Compilation: Tao Zhu, Golden Finance
Staking rewards can become a source of unassociated income, thereby enhancing the overall return on investment in Proof of Stake (PoS) blockchain tokens.
Traditional sources of investment income, such as bond coupon payments, are closely related to central bank policies and economic conditions. Although there are some methods to diversify through alternative revenue strategies in traditional markets, most options have a similar correlation with the economic cycle. Staking rewards—income earned by helping to validate blockchain transactions—represent a unique potential source of income that is not tied to Federal Reserve actions or overall economic performance.
Staking allows token holders to participate in network consensus and security and earn native protocol rewards (i.e., income measured in ETH or SOL rather than fiat currency). The incentive mechanisms driving staking behavior are structurally different from traditional income-generating tools, providing a blockchain-native income mechanism within a digital asset portfolio (for more background information on staking, see "From Miners to Stakers: How Staking Secures the Ethereum Blockchain").
Irrelevant Income
The staking yield is controlled by specific parameters of the protocol and the participation rate at the network layer, rather than by the conditions of the US dollar money market. Therefore, the yield differs from traditional fixed income yields in both levels and changes over time.
For example, among the top 20 proof-of-stake ( PoS ) digital assets, the median staking yield has consistently been higher than traditional fixed income benchmarks, such as the federal funds rate or the yield on benchmark investment-grade corporate bonds. Since 2019, the median annualized staking yield has fluctuated between 5% and 10% (Chart 1).
Figure 1: The staking return rate is independent of fixed income yield.
! RWXJs3rvRyQP8wXD632rmfDmWMPkAqUJM1EraCMv.jpeg
The staking rewards show low correlation or even negative correlation with traditional interest rate instruments. In terms of monthly changes since 2019, the median staking rewards in our sample have the following correlation with traditional benchmark interest rates:
This interest rate independence enhances the potential value of staking in multi-asset portfolios, providing both the potential for income diversification and reducing associated risks compared to traditional fixed-income instruments.
Higher total returns with the same level of risk
Staking is a mechanism that can potentially enhance total returns while only slightly increasing portfolio risk (through various operational risks as described below). Staking rewards are paid in native blockchain tokens rather than fiat currency. These rewards can be reinvested, achieving compound growth over time, potentially creating a dual return stream—capital appreciation and staking income—without altering the investor's underlying exposure. In PoS networks, such returns typically range from 5% to 10% per year, helping to offset volatility during market downturns.
To quantify this effect, we created two hypothetical PoS token return indices: (1) an index that contains only price returns; (2) An index that contains both price returns and staking rewards. The two indices are equally weighted and contain the top 10 PoS tokens by market capitalization. Indices are unmanaged, and you can't invest directly in them. These results are purely hypothetical and do not reflect actual returns for investors. The underlying index is also hypothetical and does not represent any actual index used to evaluate a broader investment. These indices were created by the authors and constructed from the perspective of hindsight. Staking rewards are not security deposits, may not be paid, and are not an obligation of any corporation or government entity.
Chart 2 shows the return statistics of these two indices. After including staking rewards, the total return rate increases from 60% to 72%, which means the actual annual return rate is 12%. Staking rewards do not lead to price fluctuations (although staking may bring other risks; see the next paragraph), thus higher returns also result in a higher Sharpe ratio.
Figure 2: Staking rewards may increase total returns
Staking rewards are generally mild relative to token price fluctuations, and price fluctuations should be considered as the main source of risk and potential rewards for most cryptoasset investments. That being said, staking activity can also introduce new risks, including potential slashing (loss of staked assets due to transaction validation failures), lock-up periods (limited liquidity during staking periods, which can impact portfolio rebalancing and ability to respond to market changes), and smart contract risk (where the underlying staking protocol or smart contract may be vulnerable or exploited, especially on networks that are less secure or experimental). In addition, transaction costs and staking commissions are not factored into the analysis, but these fees accumulate over time.
Conclusion
This analysis indicates that staking rewards represent a unique and potentially profitable source of digital asset portfolio structure. Integrating it into the portfolio construction framework can enhance overall return potential and provide income diversification that is independent of traditional interest rate dynamics.