Arbitrage Opportunity? Staking ETH 2.0 vs Buying BETH on Binance

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πŸ‘‰ Disclaimer: NOT investing advice!

What is Staking with ETH 2.0?

Ethereum moves from a proof-of-work to a proof-of-stake Blockchain technology with its upcoming launch of ETH 2.0. This means that the network is secured by ETH “stakers” rather than ETH miners or validators.

Staking will be the ETH 2.0 equivalent of mining. As a reward for securing the network, the ETH 2.0 protocol will reward people who stake their ETH coins. Staking is like lending your coins to the network—and earning interest in the process. Many people find it very secure because it seems to be guaranteed by the whole decentralized rules of the Ethereum network.

What Are Staking Pools?

However, the minimal number of coins that can be staked is 32 ETH. For a price of $2,000 this would be a minimum investment of $64,000. If you want to participate in staking but you’ve less than 32 ETH, you may have found the offering of Binance (link to sign up):

Binance Staking allows you to participate in the Beacon ETH staking pool. As the largest cryptocurrency exchange in the world, Binance combines the economic interest of their users interested in staking and performs the staking for them. Here’s their definition (highlights by me):

“A staking pool is a group of coin holders merging their resources to increase their chances of validating blocks and receiving rewards. They combine their staking power and share the rewards proportionally to their contributions to the pool. […] Setting up and maintaining a staking pool often requires a lot of time and expertise. Staking pools tend to be the most effective on networks where the barrier of entry (technical or financial) is relatively high. As such, many pool providers charge a fee from the staking rewards that are distributed to participants.”

The staking reward is called APY (for Annual Percentage Yield) will gradually reduce over time as more and more people decide to stake. It is calculated by the ETH 2.0 network:

BETH – Tokenized Staked ETH

Binance has created a tokenized staked ETH token, called BETH (for Beacon ETH) that represents one staked ETH token (1:1). This is what Binance promises on their website:

πŸ‘‰Β “BETH staking interest is calculated based on users’ BETH positions in Binance Spot wallet”

So, if you hold 1 BETH token in your spot account, Binance will transfer a daily staking reward in the form of new BETH, as given by the daily APY that depends on many factors such as how many coins are staked in total, the inflation rate, and the committed length of the staking.

Here’s how the daily BETH reward distributions look like in my small sample account:

Two Strategies to Participate in BETH Staking

Using BETH on Binance, you can participate in staking via two ways—one is apparently smarter than the other:

  1. Regular: Buy ETH and exchange them on a 1:1 basis to BETH via the official “Binance Staking” feature.
  2. Smarter: Create a trading account and buy BETH yourself.

The second way is usually smarter because BETH coins tend to be cheaper than ETH and you’ll get a better than 1:1 exchange rate. At the time of writing, you’ll get 1.07 BETH for each ETH. This means that you’ll get 7% more BETH this way at today’s rate. This, of course, will fluctuate. You can check out the daily exchange rate here:

You may ask: what’s the purpose of the staking portal (Method 1 “Regular”) after all?

The reason is simple: the staking portal existed earlier than the availability of the BETH coin in the trading area. It reportedly launched in December 2020 while trading began in January 2021 as can be seen in the following chart:

Arbitraging BETH and ETH on Binance

The free market determines the exchange rate between ETH and BETH whereas the official Binance portal sets the rate to 1:1. So, there’s an arbitrage opportunity to buy BETH on Binance spot trading and waiting for the official launch of ETH 2.0 when Binance promised to allow you to “unstake” your BETH at a ratio of 1 ETH for each staked 1 BETH.

Here’s the play, summarized:

  • Buy BETH on Binance spot trading for a 7% discount compared to ETH.
  • Then earn staking rewards (e.g., 5% per year) as you wait for ETH 2.0 to launch.
  • As soon as it launches, trade back BETH into ETH.
  • In the meantime, get exposure to the ETH price.

Of course, this assumes that Binance is a trustworthy exchange and it delivers on its promises, and it assumes that ETH 2.0 will actually launch. Any negative news regarding the ETH 2.0 launch may push the discount even higher whereas positive news may reduce the discount until the rates converge again to a 1:1 ratio.

Where to Go From Here

There are many ways to buy crypto-assets such as Ethereum. As a German-based business owner, I wanted to find the exchange that offers maximum protection with minimal fees. After extensive research, I found the cheapest and most secure way to buy ETH and other crypto-assets: Binance.

Binance is the largest cryptocurrency exchange in the world. As the largest exchange, it can spread the fixed costs over a large number of usersβ€”and offer their service cheaper than any other cryptocurrency exchange. For example, Coinbase is much more expensive than Binance. And on Binance, nobody has ever lost any of their assetsβ€”in many years of operation. It is probably the most secure exchange to buy and hold crypto assets in the world. 100 million people are now crypto users!

This article is not investment advice but the personal opinion of the author. The capital value of any discussed investment can fluctuate, and the price can go down as well as up and is not guaranteed.