Hamburg, 28 November 2023 - Numerous avenues exist for participating in staking activities. Your optimal choice depends on factors such as the capital at your disposal, your level of blockchain expertise, and the time and energy you’re willing to invest in staking. In this article, we will explore various types of staking.
STaaS, short for “Staking as a Service” refers to specialised platforms designed to streamline the intricacies of staking for their clients, enabling individuals to easily stake their tokens. These services cater to those lacking technical expertise, resources, or time. Opting for StaaS offers distinct advantages, eliminating the need for technical know-how with an intuitive user interface. Within the platform, users can effortlessly stake, withdraw, and monitor their earnings. StaaS providers take care of the nitty-gritty details by establishing blockchain nodes, conducting maintenance, managing infrastructure, and ensuring network security. This comprehensive approach allows users to engage in staking without the hassle of handling the technical complexities, making the process seamless and accessible to a broader audience. Examples of STaaS providers would be Everstake, Bison Trails, Blockdaemon and MyCointainer.
In a Staking Pool, participants pool their stakes, and rewards are distributed proportionally based on their contributions. This collaborative approach allows individuals with limited resources to partake in staking activities that might otherwise be challenging to pursue independently. The management of staking pools falls under the responsibility of an operator, ensuring accurate and fair distribution of rewards. Joining a staking pool offers several advantages, including heightened chances of block validation and more consistent, predictable returns. However, one key condition for participation is that the staking pool should be open or have available slots, as there’s typically a limit to the number of participants it can accommodate. This condition ensures a balanced and manageable pool size for effective staking operations. Examples of Staking Pool providers would be ROCKET POOL, Lido Finance, Figment and Allnodes Team.
Custodial Staking Services
Centralized exchanges, decentralized exchanges, and cryptocurrency wallet providers offer custodial staking, simplifying the process for users. Initially, users deposit their coins and transfer ownership of their tokens to the provider for the staking or ‘bonding’ period. The service provider then handles the staking on their behalf and, upon completion, shares the rewards with users after deducting a service fee. The key advantage lies in its accessibility; no technical knowledge is required. However, as custodial staking involves a transfer of ownership, it carries a higher risk compared to staking pools. To mitigate this, many services offer insurance or guaranteed returns. Examples of Custodial Staking service providers would be Binance, Kraken Exchange, Coinbase and Anchorage.
Non-Custodial Staking Services
Conversely, non-custodial services prioritize security and user control. Here, the service provider lacks access to the user’s assets, ensuring a safer environment. Without a transfer of ownership, the security is heightened. Non-custodial staking services provide the necessary infrastructure and software application logic, allowing users to directly participate in staking activities from their own wallets. This approach empowers users with greater control and security in their staking endeavors. Examples of Non-Custodial Staking service providers would be Figment Capital, Chorus One, Trezor and Ledger.
Technical or Native Staking
The hands-on participation of users in upholding network security on Proof of Stake blockchain networks is referred to as Technical or Native staking. This intricate process involves Validators (stakers) being selected to generate new blocks and validate transactions. The users will run the nodes on their own. The mechanics of technical staking are executed through the utilization of smart contracts, showcasing the sophisticated and automated nature of this approach to maintaining the blockchain’s security. The advantage of Technical staking is no counterpart risk, since you are not using any services from third parties and the disadvantage would, be high entry costs. For example if you want to run your own Ethereum nodes, you need 32 ETH.
Liquid staking is a software solution allowing users to directly participate in Proof of Stake networks while still maintaining liquidity and the ability to rehypothecate their staked assets. Liquid staking protocols operate in a decentralized manner and are governed by smart contracts. Liquid staking Relies on validators to bond a specific amount of a cryptoassets as collateral and it aims to secure the blockchain by contributing to the ecosystem. One of the risks in liquid staking would be misbehaving validators. If they misbehave, they will get slashed which means Economic penalty leading to collateral loss. When it comes to regulations, Liquid staking protocols are subject to blockchain network governance. They may be indirectly influenced by financial regulations depending on their interaction with the traditional financial system.
Liquid Staking Receipt Token
This type of token is a programmatically minted cryptoasset that represents a user’s direct ownership or stake in a given blockchain protocol employing PoS consensus mechanism. Liquid Staking receipt tokens are not as structured as traditional Securities. They are representation of underlying staked assets. These tokens can be transferred, stored and traded in other DeFi protocols or supported dApps. Liquid Stakig Receipt tokens are associated with financial variables such as staking rewards and token value. They are synthetic crypto assets which have a representational nature. They are created and managed through smart contracts and staking pools. stETH or Staked ETH is an example of a liquid staking receipt token. Liquid Staking Receipt tokens enhance liquidity through secondary market trading. For example, Users rehypothecate their stETH on various DEXes such as Uniswap or PancakeSwap. These tokens can be used as collateral in DeFi borrowing and lending protocols as well. For example, users can collateralize stETH on Aave Companies via smart contract interactions.
SINO, short for Staking in Name Only, represents a recently coined term encompassing processes that technically qualify as lending but are labeled as staking. This classification often applies to various yield-generating activities and earn programs within the cryptocurrency realm. Notably, crypto service providers, ranging from centralized and decentralized exchanges to custodial wallets, may introduce earn or staking programs. In these programs, users commit specific cryptocurrencies, locking them up to accrue interest over time. Service providers then utilize these locked-up deposits for lending to margin traders or staking in Proof of Stake networks, subsequently sharing the generated profits with depositors in the form of interest. Yield farming, a common practice in these scenarios, typically takes place on decentralized finance (DeFi) platforms.
PoSI is the abbreviation of “Providers of Staking Infrastructure”. They are basically Blockchain nodes which validate new blocks on the Blockchain’s ledger. PoSIs compete with each other to add the next block. Validating transactions and safeguarding the integrity of transactions is their responsibility. PoSIs verify that there are no irregularities in the upcoming block of transactions and they propose a block of transactions which only contains valid transactions. Moreover, they set up and maintain the security of hardware and IT for token holders. PoSIs will be incenvitized by getting a portion of the staking rewards paid to the token holders. They will ensue the blockchain security by establishing validity, guaranteeing availability and monitoring the accuracy of transactions.
Transaction Validation Metrics of PoSIs
There are 2 metrics which can determine which one of the PoSIs will validate the next batch of transactions in a PoS network: Random lottery and Stake weight. based on the second metric, the Validator which has the most tokens for assigning block validation slots will be chosen. Considering “stake Weight” as the only metric in validating transaction will be problematic becasue selection by account balance causes undesirable centralization. the single richest member will have a permanent advantage and the ones with lower stake weight will have no chance to validate transactions. The best method would be Stake-weighted Random selection which is a combination of the former two metrics. It is a fair lottery in which PoSIs can increase their odds by increasing the tokens that they have at stake.
coinIX & Staking
As a consequence of the latest Ethereum network upgrade, the staking lifecycle for validators has been formally closed. An attractive reward structure incentivises stakers to secure the network; coinIX now owns a seat at the table. Not only does Ethereum Proof-of-Stake serve for ESG conformity since ‘The Merge’, it is now technically possible to make the asset productive while remaining in full control over the staked funds. coinIX has opted for the most optimal cost-risk-adjusted return rate by self-staking. This means coinIX eliminates crucial counterparty risks. Moreover, platform, governance & smart contract risks associated with centralised institutional node operators or staking pools are mitigated as well. Chosing the ‘gold standard’ of staking also empowers coinIX to evade correlation risks — the most underrated tail risks of ETH staking. We believe: if you’re not staking the right way, you’re losing out.
coinIX GmbH & Co KGaA, based in Hamburg, is a listed In company and has been investing in the broad spectrum of blockchain innovation since 2017. This includes the next level of digitalization in traditional industries, as well as new fields such as Decentralized Finance (DeFi). For this purpose, coinIX invests in equity of startups, early token projects and liquid cryptocurrencies. It offers a listed share that is traded on the open market of the Düsseldorf Stock Exchange.
(WKN: A2LQ1G | ISIN: DE000A2LQ1G5 | Ticker: XCX)