STaaS: The Crypto way of Portfolio Diversification
An opportunity to tap into the appreciation potential of the assets is hard to pass. While cryptocurrency has become an essential “other investment” for the financially elite to diversify their portfolios, it is disturbing for them to have their assets lying idle. Staking provides an opportunity for currency holders to add value to their holdings by leveraging them to procure more of them while ensuring the security and sanctity of the network.
With the industry trends showing an inclination towards an environment-conscious digital economy and Ethereum the second-largest crypto network laying the path to migrate to PoS, leaving the PoW mechanism behind, re-assures that PoS is the future of blockchains. Proof of Stake is the mechanism in which the currency holders lock a portion or whole of their currency to become eligible for the validation (currency mining through a consensus-based mechanism) process. Once elected, the validators verify transactions to form a complete block which when linked to the blockchain earns them rewards generally in terms of the currency itself. To enforce network security, the validators are penalized too for any kind of malicious behavior through what is known as slashing in PoS space. Thus for those with “skin in the game” there is an opportunity to take part in block production either themselves or by delegating it to a validator. Read in detail about Proof of Stake here.
The hard part is gaining the technical expertise to effectively participate in the validation process and make decisions (the hard ones), keeping the benefit of the network at the forefront. This is where Staking Service Providers step in to monetize the opportunity. Staking via staking service providers is a model for asset holders with high-risk capacity, i.e. the holders of a huge amount of assets sitting idle, but they are unwilling to take the risk. As STaaS provides them with an opportunity to stake their assets with a certain extent of performance guarantee, their risk aversion feeds the stake requirements of the STaaS provider. This turns out to be a win-win for both the asset holder and the STaaS provider. The stakers offer their assets to the service provider, which enables the service provider to participate in the validation process thus earning rewards in return from the network. Their sole aim is to maximize the returns for the stakes for the benefit of stakers and themselves alike. This paradigm enables anyone to participate in blockchain consensus in a more egalitarian and fair manner.
The established exchanges that provide a platform for crypto owners to trade their digital assets are working to accommodate “staking as a service”. They are leveraging the demand and supply gap in the PoS systems to have qualified validators who own enough stakes with them to participate in transaction verification and block validation.
These are the holders that own the stakes but do not have any knowledge of how to use them or multiply their holdings. Their holdings may range from a little to huge. Though, without the technical expertise, they cannot avail the benefits of the PoS mechanism.
These are the ones with technical expertise and skill to participate effectively in the consensus mechanism but without enough stake to be eligible or elected as the validators for providing consensus to verify transactions.
STaaS is essentially an extension of the Delegated Proof of Stake protocol. In DPoS, delegators hand-pick the validators they want to stake for them and earn rewards based on a percentage with the validator. They need to understand that validators differ in their capabilities, hence the fee they charge and choose the ones with interests aligned with their own. Additionally, they need to navigate through the wallet interface for the stake delegation process. They also need to monitor the performance of the validator to be assured against crypto fraud or losing their stakes to slashing.
STaaS providers eliminate the need for the stakeholders to search for trusted validators and the need for validators to look for stakers who can lend their holdings enabling them to participate in the validation process. The STaaS providers earn by keeping a portion of rewards from the generated earnings for themselves as a fee and distributing the rest of the reward amount among the participating stakers and validators.
What’s in it for the Retail Investor?
STaaS entities possess enough skill and capacity to assure the stakers of a certain amount or percentage of returns. They can ensure performance and consistency to extract enough returns from the blockchain maintenance process. They may utilize one or more staking opportunities through one or more nodes working as validators to maximize the returns. As returns are shared in terms of percentage of stakes, benefits of earning higher returns are also distributed among stakers and the service provider proportionately.
As stakes are not dependent on lone validators, there is assurance for continuity of reward inflow. The staker is not restricted by the earning capabilities or judgments of a lone validator. There is no fear of poor validator performance. This kind of investment has higher security from slashing events as well. Some service providers offer insurance against slashing as well as any unforeseen circumstances.
Staying up with Network Inflation:
Staking propels the growth of users’ holdings in line with the inflation within the network. Minting results in increasing the circulating supply, which is certain to cause inflation. However, staking enforces locking off the assets with the smart contract for the staking epoch to mint more tokens. This circumvents them from circulation while enhancing individual holdings through rewards for minting. This works in favor of incentivizing participation in staking to keep the blockchain network secure and negates the pressure of inflation on an individual’s holdings.
Multi-Currency/ Multi-Chain staking:
Staking through service providers allows the stakers to indulge in cross-blockchain and cross-currency staking processes based on the STaaS provider infrastructure. This eliminates the urge to continuously track the blockchain space and keep up with the rapidly growing number of chains to optimize asset use.
An important aspect to consider for retail investors is the custodial or non-custodial mode of investment. While the latter requires only the transfer of staking rights to the service provider, the former demands surrendering the assets as well to the service provider for the staking process and locking the same for a predecided period.
What’s On the Plate, Apart From Bare Staking
Investors who lock their assets to earn rewards are trying to put their idle assets at work. Basic staker-validator benefits are in place even though the participation at both ends is quite limited to only a smalls section of crypto investors. As the number of PoS blockchains is on the rise and STaaS is expected to take over among exchanges as a major service, a simple give and take are not enough to keep the stakers loyal to the institution. The increasing competition among STaaS service providers and the stronger grasp of investors on the whole crypto thing is paving way for better staking opportunities. The crypto industry is ready to incorporate the investor’s demands to sustain itself. Blockchain protocols that encourage holding among stakers and putting the holdings back into the system to keep it growing are being developed at a never-before pace. The technology and experts are all geared up to develop staking platforms that harbor both staker and validator interests with ease while generating profits for the staking service provider.
The STaaS providers need to expand their offerings beyond the obvious and incorporate fringe benefits for stakers as well as validators. There is also a need to circumvent the limitations imposed on the staked assets to allow stakers to participate in decentralized finance applications seamlessly. A few of the highly demanded features that providers may incorporate are discussed below.
The investor is no more looking only for rewards that are dependent on the institution’s capacity to replicate its profits but what the institution has to offer as a bounty to lock their assets with them. Increasing competition among institutions has also opened tracks to offer pooling bonuses and other perks to attract investors.
Investors lending out their assets to enable validators to participate in the network maintenance process are seeking out analysis of the performance of the institution as well as their assets as all they need is better rewards and an inflation averse growth. STaaS service providers must provide easy accessibility to their performance analytics and transparently disburse the earnings among participating stakers.
Flexible Stake Locking Duration:
An easier to accommodate requirements for the STaaS providers is to allow flexible stake locking duration to the investors. At present, short and long-term locking is available but it impacts the incentives earned not just the amount of rewards but the percentage earned is smaller for the short-term stakers as well, which might be off-putting once the competition intensifies among STaaS providers.
Ease of Restaking:
Stakers in near future may look for ways to control where their stakes are being utilized. With increasing education in the blockchain space, grows the desire to be able to reassess one’s investment and re-align the portfolio with one’s earning goals.
An important feature under consideration, with increasing acceptance of cryptocurrency within traditional markets as a tradeable entity against fiat, is the ease of unstaking. Cross-trading between fiat and crypto for the stakers to conveniently migrate their locked assets to freehold assets and the ability to exit the staking process as and when required is a great selling point for the service providers to attract investors.
One of the most sought-after processes, which is bound to revolutionize the whole staking environment is liquid staking. An ability, to stake your assets without having to lock them. This is in fact under a lot of brainstorming. There is a buzz in the market to make available a representative token that can be traded to earn incentives on the blockchain rather than the currency itself. Although, the logistics still need a lot of r&d to have it implemented at the ground level.
Staking is a means to earn rewards, and providing a service for the same is instrumental for exchanges to transform into the analogies of traditional investment platforms. There is a lot of scope to improve decentralization and capital efficiency without compromising network resilience which is set to revolutionize innovation in the blockchain space. At present very little analysis has been done around the most suitable economical design to encourage staking and staking services. STaaS facilitates engagement with the upcoming blockchains, that employ Proof of Stake and are sure to change the face of the industry in the coming years. There also needs to be some research around the impact of staking at a large scale on the blockchain network.
The STaaS providers that offer higher peripheral support and bid on projects with additional security, usability, and reliability as side effects of staking and node building, are the ones that will emerge as winners.
As non-technical people are also getting interested in the upcoming breed of blockchains and the economics behind them, there is sure a growing need of harvesting the willingness to participate which requires platforms that may be inclusive of most if not all expectations. PrimaFelicitas is a premier blockchain-intensive company offering secure and robust staking platform development services over multiple blockchains. We also help businesses better appreciate the DeFi staking logistics and incorporate the same seamlessly into their existing business models.
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