One is to let the long-idle coins eat the dividends of the underlying protocol, and the other is to give assets that are hard to sell liquidity again.

Written by: imToken

What can be done after holding ETH?

Years ago, the answer to this question was simple to the point of being monotonous: transfer to a cold wallet, leave it there, and wait for the bull market.

But now, with Ethereum completing its PoS transformation and the on-chain lending market running smoothly, the ETH in hand is clearly unwilling to just sit idle. The most common actions are either to do Native Staking for protocol staking rewards or to put ETH into the lending market to borrow stablecoins, extracting liquidity without giving up the chips.

On the surface, both methods are about making "ETH lying in the wallet move," but if we only compare whose APR is higher, it’s easy to overlook their most essential differences:

Native Staking addresses the issue of how to generate income from long-term held assets, while lending addresses the issue of how to release liquidity and capital efficiency when unwilling to sell assets.

What they correspond to are actually two completely different asset demands.

1. Native Staking: Turning Long Holding Time into Productive Resources

First, let’s look at the purest scenario.

Suppose you have 32 (or more) ETH, and you are almost certain that you won’t use them in the next two to three years. At this point, you can accept the short-term price fluctuations on the spot market, and the only variable you can continue to work with is this fixed holding time.

Native Staking does exactly this, capitalizing on this holding period.

As we all know, after Ethereum entered the PoS era, validators participate in network consensus by staking ETH, responsible for proving, proposing blocks, etc., and receive corresponding rewards based on the protocol rules.

In other words, this part of the income does not come from the interest of another borrower, nor is it some additional Token issued by a DeFi protocol; it directly comes from the protocol rewards given to the underlying security maintainers by the Ethereum network.

Therefore, for long-term holders, the logic of Native Staking is actually very straightforward—since this part of ETH is not meant to be moved, it can participate in network operations during the holding period and continuously accumulate more ETH.

Moreover, after the Pectra upgrade, this path has further changed (see also “When 8 million ETH Start 'Moving': After the Pectra Era, Does Staking Welcome Structural Change?”).

The new 0x02 Compounding Validator has increased the maximum effective balance of a single validator from the previous 32 ETH to 2048 ETH, allowing rewards exceeding 32 ETH to continue to be counted toward the effective balance and participate in subsequent income calculations, thus giving native staking a more complete compounding capability.

However, Native Staking also has a very obvious characteristic, which is that it solves the yield problem but does not directly solve the liquidity problem.

Once ETH enters the validator system, it first takes on the role of security capital for the network. New validators need to go through an activation queue and also need to wait for the exit process based on the network situation when fully exiting. Therefore, it cannot be readily taken out for consumption, trading, or other investments like wallet balances can (see also “Why Do You Have to Wait a Month to Participate in Ethereum Native Staking?”).

Of course, the emergence of Liquid Staking partially solves this problem. For example, by staking ETH through Lido, users can obtain stETH, and they can still transfer, lend, or participate in other DeFi activities; but in terms of asset structure, it adds a layer of LST protocol and Token on top of the simplest Native Staking.

So if we abstract the issue further, what Native Staking is best suited to solve is actually how to create value from this definite long-term held ETH.

2. Lending: Preserving Chips While Preemptively Overdrafting Purchasing Power

Lending solves a completely different practical problem.

You are equally bullish on ETH and absolutely do not want to sell it, but suddenly need a sum of cash for a turnover or an exceptionally tempting new opportunity arises on-chain.

Directly dumping the spot is, of course, the easiest way, but the cost is that you have completely given up your chips. If ETH subsequently enters a major price surge, it will be difficult to get back the sold spot positions at a low cost.

DeFi lending provides another line of thought, without selling ETH, using ETH as collateral, over-collateralizing, and borrowing the stablecoins needed.

Taking Aave and similar over-collateralized lending protocols as an example, users can deposit eligible assets as collateral and borrow other assets within a certain LTV range, and the borrowed funds can be used for payments, investments, or other financial needs, while the original ETH still exists as collateral.

At this point, the role of ETH changes completely.

In Native Staking, ETH is "productive resources," generating protocol income through participation in network consensus; while in lending, ETH is more like "collateral on the balance sheet," with its greatest value being to help holders obtain new liquidity.

So strictly speaking, lending is not a free "additional yield."

After borrowing assets, users will accumulate a debt and need to bear the continuously changing borrowing rates; at the same time, if ETH's price drops significantly, the Health Factor of the collateral position will also decline, and once it reaches the liquidation conditions, part of the collateral assets may be sold by the protocol.

Aave therefore requires borrowers to continuously pay attention to LTV, Liquidation Threshold, and Health Factor. Even if the borrowed stablecoins are used to purchase more ETH, the situation will further evolve, making what was initially straightforward liquidity management shift into leverage—when ETH rises, it amplifies yields; when ETH falls, it also accelerates the deterioration of the collateral rate.

This is also an essential risk dividing line between lending and Native Staking. The core risks of Staking come from validator operation, penalties, and exit liquidity; collateralized lending additionally introduces risks from debt, interest rates, and market price-driven liquidation.

Therefore, for long-term holders, what lending truly resolves is how to release liquidity from the asset when you do not want to sell ETH but need to use funds?

The answer is yes.

However, this liquidity is not free.

3. One Earns "Time Money," the Other Exchanges for "Liquidity Money"

From this perspective, Native Staking and lending do not have an absolute substitutive relationship; in actual position management, they are more like complementary tools addressing different stage pain points:

• Core Fixed Positions: For large spot holdings that are not intended to be realized for years, going for Native Staking is the most natural destination, avoiding external debt, not bearing market liquidation, and honestly enjoying Ethereum's network dividends;
• Tactical Liquid Funds: For portions with clear cash flow demands in the short term and willing to bear monitoring costs, lending provides a buffer zone without having to sell the spot;

In simple terms, when liquidity is not needed, let ETH work in the factory; when liquidity is needed, pull ETH out as collateral, the former improves the yield efficiency during the long-term holding phase, while the latter enhances the capital efficiency on the balance sheet.

Of course, there are also various ingenious operations in DeFi that twist the two together, such as exchanging ETH for stETH and then taking it to cycle through staking and lending, attempting to reap the benefits of both ends, but the tighter the capital efficiency, the longer the chain of risk exposure and transmission becomes.

However, to be honest, for those who plan to hold coins long-term, "having one less layer of smart contract risk" is often worth more than "two more percentage points of yield on paper."

In reality, many people choose not to opt for Native Staking because they find it troublesome; after all, the threshold for building your own validating node is too high for the vast majority of people—setting up machines, installing clients, preventing offline penalties, even in the Pectra era, operational costs still exist. If one simply throws coins to centralized exchanges for convenience, it goes against the fundamental original intention of non-custodial.

This precisely fills the gap that mature wallet tools are addressing, as they can productize the previously complicated validator operations further.

For example, with imToken's non-custodial Native Staking, starting with 32 ETH allows one to directly launch independent validators, while adapting to both compounding (0x02) and automatic withdrawal modes. The underlying hardware deployment, node operation, and around-the-clock monitoring are handled by professional infrastructure, but the most core private key ownership and withdrawal credentials are always controlled by the user themselves.

In other words, it compresses a whole set of originally geeky, complicated node management processes into an intuitive, controllable native product experience.

Final Thoughts

This might also be an increasingly worth rethinking question when holding ETH long-term today. In the past, our main concern was "whether to continue holding ETH."

However, as Staking, lending, and various on-chain financial tools gradually mature, the question has turned to since we are preparing to hold it long-term, what role should this portion of ETH play?

Should it become a long-term asset that continuously generates protocol income, or should it become a collateral asset that can be called upon at any time?

Clarifying this point may be more important than simply comparing a few percentage points of APR.