Staking has become the backbone of modern proof-of-stake blockchains like Ethereum. Validators secure the network, process transactions, and in return, earn staking rewards. But a simple question often gets overlooked:
Where do those staking rewards come from—and who’s paying for them?
In this post, we break down Ethereum’s staking reward system, explain how inflation and transaction fees work, and use Solana as a contrasting example to show how different blockchains handle these economic mechanics.
Ethereum: A Closer Look at Staking Economics
Since its transition to proof-of-stake in The Merge (September 2022), Ethereum rewards validators in three primary ways:
1. New ETH Issuance (Inflation)
- The Ethereum protocol mints new ETH to reward validators for proposing and attesting to blocks.
- The issuance rate depends on how much ETH is staked. More staking leads to lower yields per validator.
- As of 2025, annual issuance is about 0.3–0.5% of the total ETH supply.
2. Transaction Tips and MEV
- Validators earn tips from users who want their transactions prioritized.
- They can also earn from MEV (Maximal Extractable Value) by ordering transactions profitably.
- This contributes roughly 20–30% of total validator rewards.
3. Base Fee Burn (EIP-1559)
- Since 2021, Ethereum’s EIP-1559 burns the base fee from every transaction.
- This permanently removes ETH from circulation and helps counter inflation.
So, Who Pays for Ethereum Staking Rewards?
The answer is nuanced:
- Staking rewards are funded primarily by inflation — newly issued ETH.
- But ETH is also being burned, sometimes at a faster rate than it’s created.
- This means Ethereum can be net deflationary, even while paying out staking rewards.
Validators get paid with new ETH, but that cost is often offset by the burn. Non-staking holders aren’t necessarily diluted—sometimes they even benefit.
This makes Ethereum’s economic model relatively unique: it allows staking rewards to be paid without significantly debasing long-term holders, depending on usage.
Solana: A Simpler, More Inflationary Model
To understand Ethereum better, it helps to compare it with another leading proof-of-stake chain: Solana.
Key Differences:
- Solana has a fixed inflation schedule (~5–6% per year, gradually decreasing).
- 80% of new SOL goes to stakers; 20% funds the Solana Foundation.
- 50% of transaction fees are burned; the rest go to validators.
- MEV and tipping are minimal on Solana (for now).
So, Who Pays in Solana?
- Staking rewards come almost entirely from inflation.
- Non-stakers are consistently diluted unless they actively stake their SOL.
Ethereum vs. Solana: Who Pays for Rewards?
| Aspect | Ethereum | Solana |
|---|---|---|
| Main source of rewards | New ETH + tips + MEV | New SOL (inflation) |
| Fee burn | 100% of base fee | 50% of all fees |
| MEV / tip income | Significant | Minimal |
| Inflation rate | ~0.3–0.5%, dynamic | ~5–6%, declining |
| Net effect on holders | Often neutral or deflationary | Regular dilution (if not staking) |
The Takeaway: Stakers Earn, Holders Pay—Usually
In proof-of-stake blockchains, staking rewards must come from somewhere. And unless fees or burns make up the difference, the cost falls on non-staking holders via inflation.
- Ethereum tries to offset this with a burn mechanism—reducing or even eliminating dilution.
- Solana rewards stakers via inflation and currently accepts that non-stakers are diluted over time.
But Staking Isn’t Free Money: Know the Risks
While staking can seem like a no-brainer, it comes with trade-offs:
1. Slashing Risks
- On Ethereum, validators can be slashed (lose part of their stake) for misbehavior or downtime.
- Solana slashing is rare but possible if protocol rules change or are enforced differently.
2. Illiquidity
- Directly staked ETH is locked and requires unstaking or using liquid staking protocols (e.g., Lido).
- Solana staking requires to unstake depending on settings.
3. Centralization Risks
- Large staking services and exchanges control significant validator power.
- This can lead to centralization, censorship risk, or validator collusion.
4. Changing Protocol Dynamics
- Ethereum rewards depend on network activity and could fluctuate.
- Solana’s fixed inflation will decline over time, reducing future yields.
The Role of New Buyers and Holders
Another way to think about staking rewards is to follow the flow of value across time. For both Ethereum and Solana, staking rewards are only sustainable as long as there is demand for the tokens themselves.
- When rewards are paid through inflation, it’s the non-staking holders who lose out: their share of the network is diluted. In effect, staking transfers value from passive holders to active validators and delegators.
- When rewards are paid through fees or MEV, it’s the users of the network who pay, since they are spending ETH or SOL for blockspace.
- But over the long run, new buyers are the ones who ultimately absorb the cost. Without a steady inflow of fresh demand, inflationary rewards erode value for everyone. In that sense, staking resembles a transfer mechanism: earlier stakers realize yield that is funded by the dilution borne by later entrants.
This perspective highlights an important distinction: staking rewards are not “income” in the traditional sense, but rather a redistribution of value between different groups of tokenholders and users.
Conclusion
Staking is often framed as free yield, but in reality it’s a balancing act between inflation, fees, and demand. Ethereum spreads the cost across both holders and users, with the burn mechanism sometimes even reversing it. Solana, by contrast, leans almost entirely on inflation, meaning holders pay through dilution. And underlying it all, the sustainability of these rewards depends on new buyers continuing to enter the market.
Staking, then, is less about generating new wealth and more about deciding who bears the cost — users, holders, or future entrants.
Conclusion
Staking rewards aren’t free—they’re paid by someone. In Ethereum, a clever balance of inflation and burn makes staking sustainable and often neutral for holders. In Solana, a more inflationary design prioritizes growth and simplicity.
Understanding who’s paying—and what risks you’re accepting—is essential for any long-term participant in proof-of-stake ecosystems. Whether you stake or hold, know how the economics shape the future of the chain you believe in.
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