Crypto Staking vs. Yield Farming: Which Offers Better APY?

Neither staking nor yield farming has a better APY in general, because the two numbers measure different things. A staking rate is mostly a protocol-set payment for validating a network. A farming rate bundles trading fees, borrower interest and often newly issued reward tokens, with price exposure the headline never shows. A fair comparison adjusts for compounding, token issuance, price moves and costs first.

Key takeaways

Compounding matters little at low rates: 4% APR compounded daily is about 4.08% APY, while 20% APR becomes about 22.13%.
Ethereum staking yield comes from newly issued ETH plus fees and MEV for block proposers; Lido's API showed a 7-day stETH APR of 2.221% on October 20, 2026.
Farming yield comes from trading fees, borrower interest and token incentives; only the first two are paid by users rather than by new token supply.
In a 50/50 liquidity pool, a 50% rise in one asset costs $252.55 per $10,000 versus holding, and a tripling costs $2,679.49, so fees must exceed about 2.5% or 26.8% of the starting value to break even.
A 4% staking reward is small next to a 30% price move: $10,000 staked in a token that falls 30% ends at $7,280, still $2,720 below the start.

Why headline APY is not comparable

A quoted yield is a rate on a token amount, not a return in dollars. Three adjustments sit between the number on a screen and what a holder ends up with: how often rewards compound, how much of the reward is newly minted supply that dilutes everyone, and how the token price moves while the position is open. Gas, protocol fees and taxes come on top.

Both rates are also variable: staking rewards shift with the total amount staked, farming rewards with trading volume, borrowing demand and emissions. A figure quoted today is a snapshot, not a promise.

Where staking yield comes from

Ethereum validators earn rewards for attesting to the chain and proposing blocks. According to ethereum.org's staking overview, proposers also receive unburnt transaction fees and MEV (extra value from ordering transactions). The base reward is paid in newly issued ETH, and the rewards and penalties documentation shows it scaling with a validator's balance and inversely with the square root of the total active stake. When more ETH is staked, each validator's base reward falls.

Part of a staking reward is therefore new supply that dilutes non-stakers. Ethereum's issuance page notes that base-fee burning, live since the London upgrade in August 2021, removes ETH from circulation and can offset issuance on high-fee days.

A dated rate check

Lido publishes the stETH rate through its public API. Queried on October 20, 2026, the endpoint returned a 7-day moving average of 2.221%, with daily readings between 2.204% and 2.255%. Lido's API documentation calculates its APR from the change in stETH's share rate, counting the shares minted as protocol fees, so the figure reflects rewards after Lido's fee. ethereum.org's staking page shows a "current APR" of 2.5% but does not date that figure. A farming rate well above these levels needs an explanation: fees, interest, new tokens or price risk.

Four common ways to stake

Solo (home) staking: the holder runs a validator and holds the keys. ethereum.org says a validator needs at least 32 ETH. Rewards and penalties go directly to the holder.
Pooled staking: pools accept small amounts, some from 0.01 ETH, and the holder earns through the pool, after its fees, rather than from the protocol directly.
Liquid staking: many pools issue a token that represents the stake. Lido's documentation says it takes 10% of staking rewards, split between node operators and its treasury, a fee the DAO can change by vote.
Exchange staking: ethereum.org states that the exchange has custody of the ETH, so the holder depends on the exchange's solvency and terms.

In the United States, SEC staff addressed these arrangements in two non-binding statements. The May 29, 2025 statement on protocol staking covers self-staking, self-custodial staking with a third party and certain custodial arrangements. The August 5, 2025 statement on liquid staking extends the analysis to staking receipt tokens; restaking and arrangements where the provider guarantees or sets reward amounts fall outside it. Neither addresses lending or liquidity-pool deposits.

Where farming yield comes from

Yield farming means supplying tokens to a DeFi protocol in return for payments from three distinct sources. Separating them is the key to reading a quoted farming APY.

Trading fees on automated market makers

In an automated market maker such as Uniswap, swap fees accrue to liquidity providers, according to Uniswap's developer documentation, with protocol fees possible if governance enables them. Fee income rises and falls with trading volume. A liquidity provider also holds a changing mix of the two tokens, which is where impermanent loss arises.

Lending interest

On a lending market such as Aave, suppliers receive a token whose balance grows from borrowing activity. Per Aave's v3 overview, supplier yield is funded by borrower interest after a reserve factor is deducted, and borrow rates rise with utilization, faster above an optimal point. Supply yield therefore tracks borrowing demand.

Token incentives

Many protocols add reward tokens on top. Curve's gauges are contracts that pay rewards to liquidity providers, with CRV emissions allocated each week by veCRV holders' votes among DAO-approved gauges. Curve's CRV token page says issuance falls 16% each August and, when read on October 20, 2026, stated a current inflation rate of 4.96% without dating it. Incentive tokens are newly minted, and their dollar value depends on a market price the farmer does not control.

"Real yield" usually means income funded by fees or interest that users pay, as opposed to emissions of new tokens. A farm showing 30% APY with most of it in a reward token is quoting a different thing than a pool showing 3% fully from fees, even though the screen displays one number.

APR, APY and compounding

APR is a simple annual rate; APY adds compounding, where reinvested rewards earn rewards. The conversion is:

APY = (1 + APR / n)^n - 1

APR = nominal annual rate (0.20 for 20%)
n   = compounding periods per year (365 daily, 52 weekly)

The table assumes rewards are reinvested every period and ignores gas, which can erase the benefit of frequent compounding on small balances.

APR	Weekly compounding (APY)	Daily compounding (APY)
4%	4.079%	4.081%
20%	22.093%	22.134%

At 4% the gap between APR and APY is under a tenth of a percentage point; at 20% it is more than two points. High advertised APYs lean on compounding more than low ones, and an APY figure says nothing about the reward token's price. The staking vs mining yield calculator converts an advertised staking APR into APY after a provider's commission and a chosen compounding frequency; it leaves out price moves.

Price moves outweigh the rate

Impermanent loss in a liquidity pool

Impermanent loss is the shortfall of a liquidity position versus holding the same two tokens. Uniswap's v2 documentation on understanding returns gives the formula for a 50/50 constant-product pool, where the price ratio is the asset's new price divided by its price when liquidity was added:

impermanent loss = 2 * sqrt(r) / (1 + r) - 1

r = price ratio of one token against the other (2 = price doubled)

The page notes that a doubling and a halving cost the same, and that its figures leave out trading fees; the formula covers this pool design only. The table uses a $10,000 position split evenly at the start, with dollar columns showing final values.

Price ratio	Hold value	Pool value	Impermanent loss	Shortfall, % of start
1.25	$11,250.00	$11,180.34	-0.62% ($69.66)	0.70%
1.5	$12,500.00	$12,247.45	-2.02% ($252.55)	2.53%
2	$15,000.00	$14,142.14	-5.72% ($857.86)	8.58%
3	$20,000.00	$17,320.51	-13.40% ($2,679.49)	26.79%
5	$30,000.00	$22,360.68	-25.46% ($7,639.32)	76.39%

The loss is a percentage of the held value; the last column compares the dollar shortfall with the original $10,000, closer to how a yearly fee rate is quoted. The percentages match Uniswap's figures.

Illustrative example: a farmer puts $10,000 into a 50/50 pool, $5,000 of a stable asset and $5,000 of a volatile one. Fees are treated, as a simplification, as a fixed share of the starting value paid out in dollars.

If the volatile asset rises 50%, holding is worth $12,500 and the pool $12,247.45. Fees of 5% ($500) bring the total to $12,747.45, which is $247.45 ahead of holding.
If it triples, holding is worth $20,000 and the pool $17,320.51. Even fees of 20% ($2,000) leave the total at $19,320.51, which is $679.49 behind.

The break-even fee rate climbs from 2.53% to 26.79% of the starting value as the ratio goes from 1.5 to 3, a bet the farmer carries while the position is open.

A reward token that falls or rises

Illustrative example: $10,000 buys 10,000 tokens at $1, staked at a 4% APR paid in the same token, without compounding. After a year the holder has 10,400 tokens. If the price falls 30% to $0.70, the stake is worth $7,280, which is $2,720 below the start. If it rises 30% to $1.30, the stake is worth $13,520, a $3,520 gain. Unstaked, the same tokens would be worth $7,000 or $13,000, so the reward added $280 or $520. The rate shaped the result by hundreds of dollars; the price shaped it by thousands.

Other risks and tax treatment

Ethereum penalizes validators that go offline, slashes those that sign conflicting messages, and does not process exits instantly. Liquid-staking tokens add a market risk: Lido's documentation warns that holders can face an exchange price below the token's underlying value, because withdrawal limits can block arbitrage. Farming adds smart-contract risk, since a bug or exploit can drain deposited funds. Chainalysis reported over $3.4 billion stolen from January through early December 2025 in a December 18, 2025 post, $1.5 billion of it in the February Bybit exchange compromise; it said DeFi hack losses stayed low even as total value locked recovered.

On taxes, Revenue Ruling 2023-14 holds that a cash-method taxpayer who stakes a proof-of-stake blockchain's native cryptocurrency includes the fair market value of the rewards in gross income in the year the taxpayer gains dominion and control over them, valued at that date and time. The same applies when staking through an exchange. The ruling says its facts do not address gas or other transaction fees, and it does not decide how slashing losses, liquidity provider tokens or farming rewards are treated, so those questions are best put to a tax professional.

Frequently asked questions

Can staked ETH be withdrawn whenever the holder wants?

Not instantly. Per ethereum.org's withdrawals page, exiting takes a variable time, and payouts run in a sweep of up to 16 withdrawals per block, about 115,200 a day if no slots are missed, or about 3.5 days for 400,000 withdrawals. A withdrawal address must be set first, and pool or liquid-staking users follow their provider's process.

Does a liquid staking token earn rewards automatically?

For stETH, yes: Lido's documentation says balances normally update daily when its oracle reports the consensus-layer balance. The update can be negative if validators are penalized or slashed, and it is calculated after Lido's fee.

Why does the staking rate change over time?

Two forces move it. As more ETH is staked, total issuance grows but each validator's share shrinks, per ethereum.org's rewards documentation. Fee and MEV income varies with network activity and reaches a validator only when it proposes a block.

Does the SEC treat staking as a securities offering?

The two 2025 staff statements say that, on the facts described, covered staking and liquid staking activities do not involve a securities offering. Conditions include that providers act in an administrative or ministerial capacity, do not decide whether, when or how much to stake, and do not guarantee or set reward amounts. Staff views have no legal force, so the answer depends on the specific arrangement.

How much of a stake can a validator lose to slashing?

The initial penalty is small: ethereum.org's documentation gives 0.0078125 ETH for a 32 ETH validator, scaled linearly with balance. The validator is then removed over 36 days, and at day 18 a correlation penalty applies that grows with the total stake slashed in the 36 days before the event. In the worst case the loss reaches the validator's full effective balance.

A checklist for comparing yields

Write down the source of each yield: protocol issuance, trading fees, borrower interest or an incentive token.
Convert every figure to the same basis (APR or APY at a stated compounding frequency) and note the date it was quoted.
Price the reward token's downside: the dollar loss if it falls 30%, and how long the reward would take to make that back.
For a liquidity pool, compute impermanent loss for several price ratios and compare it with realistic fee income.
List lockups, exit queues, protocol fees, gas costs, who holds custody, and any price oracle or stablecoin peg the position depends on.
Record when each reward is received and its dollar value at that moment, since Revenue Ruling 2023-14 counts staking rewards as income at that value.