Becoming an Ethereum validator requires locking up a minimum of 32 ETH and running validator software that proposes blocks and attests to others' proposals once selected. The reward a validator earns is governed by a rule published in Ethereum's own consensus specifications (ethereum/consensus-specs): the base reward is proportional to a validator's effective balance and inversely proportional to the square root of the total ETH actively staked network-wide. That inverse-square-root relationship is not a rough qualitative story, it is exact, and worth computing once so you internalize its shape rather than accept an "APY" figure on faith:
reward multiple = sqrt(stake₁) / sqrt(stake₂)
What happens to the yield as more ETH is staked?
Doubling the total ETH staked (say, 10 million → 20 million) multiplies the per-validator reward by 0.7071, a 29.29% lower yield for every validator already staking, purely because more competition is splitting the same issuance pool. Quadrupling total stake (10 million → 40 million) halves the yield exactly (a 50.00% reduction). This is why a staking "APY" you read on a dashboard today is a snapshot of a moving target, not a fixed coupon: as more ETH gets staked (which liquid-staking products and exchange-hosted staking actively encourage, because they profit from assets under management), the yield mechanically falls for everyone, with no vote, announcement, or central decision required, the formula does it by construction. Treat any specific current APY figure as perishable, read it off the Ethereum Foundation's own staking resources or a reputable validator-analytics dashboard at the time you need it, never from memory or from an old screenshot.
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What risks do stakers face?
Validators face a real downside too: slashing. A validator that double-signs conflicting blocks or attestations, or otherwise violates the protocol's safety rules, has a portion of its staked ETH burned and is forcibly exited, a real, protocol-enforced penalty, not a marketing abstraction, and the base reason serious staking operations invest heavily in redundant, carefully monitored infrastructure. And a structural risk worth naming plainly because it is a real, ongoing concern raised by Ethereum's own researcher community: liquid-staking concentration. Products that let you stake without running your own validator (receiving a tradeable receipt token in return) have, at various points, represented a large enough share of all staked ETH that a single protocol's governance or a single failure mode could plausibly affect network-level decentralization, a specific percentage is not quoted here because it moves and must be read off a current validator-diversity dashboard, but the category of risk is real, sourced to the Ethereum research community's own commentary, and worth asking about before treating any staking product as "just a yield."