Staking As A Service: What Is It All About?

Earlier this year, Coinbase received a lot of media attention regarding the introduction of Staking as a Service (StaaS), offered through its custodian services

This comes as part of an industry wide diaspora from the energy intensive PoW (Proof of Work) block validation protocol, to PoS (Proof of Stake) protocol.

Though this is still in its early stages, the new PoS protocol promises a lighter load on the environment, there has been much criticism arising from its “make the rich even richer” business model.

To elaborate on this, let’s take a look at what it is.

What Is Staking As A Service?

As mentioned before, StaaS platforms are built around PoS protocol. Here, crypto assets are locked up as part of the block validation and verification process. The return for staking your tokens in a network is a percentage of the block reward. One could think of it in the same way as gaining interest on your savings account.

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These services are generally offered in two forms, segregated and non-segregated. The former, which is offered by Coinbase, separates client accounts from each other in much the same way as the traditional banking system does. This is clearly designed to make Institutional investors more comfortable, as the system resembles one they are accustomed to.

The latter is a less ridged form of StaaS, which is hyped as the more profitable of the two. As per Jason Stone, founder of staking service firm Battlestar Capital.

“If you deposit your Tezos with a group running a self-bonding strategy, you earn the amalgamated yield of bonding plus delegating, as opposed to allowing the service provider you chose to receive the greater yield from posting bond themselves, leaving you with only the rewards (less a fee) from traditional baking, i.e., choosing a provider to delegate to.”

Possible Benefits

For the market at large, StaaS services offer another way for the much anticipated entry of international Investors. This is widely viewed as the next big step towards mass adoption.

For individual Investors, this creates an interesting and somewhat more involving interaction than simply hodling your cryptocurrency. The environmentally friendly nature of PoS protocol in an added bonus.

Governance Concerns Surrounding StaaS.

This is one of the biggest concerns surrounding the transition. Because voting rights on a PoS network are directly related to how much digital assets a particular party stakes.

Institutions getting their hands in the cryptocurrency and Blockchain sector may have the greatest influence on the direction of a related network’s growth. This, for some, is a direct contradiction of the cryptocurrency revolution’s founding values.

However, one could argue that the situation is exactly the same with most PoW networks. The more money you have, the better the mining equipment you can acquire. Ideally, this would mean better return on investment.

Future Outlook for StaaS

As the migrations to PoS continue in their steady stride, one can assume that Staking as a Service may become a major trend in the cryptocurrency space. For institutional investors and custodian services alike, this could be a very lucrative business model in time to come.

Being that this is a relatively new market, and the much anticipated migration of market leader Ethereum is still in the works. There isn’t much more than possibility to work with. However, there might be on certainty here.

The margin compression phenomenon.

As time goes on and more “stakers” get involved, the related margins should theoretically decrease. This is quite the same, as In PoW. The more individuals there are in a mining pool, the more people there are to split the bounty with.

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Joel Bonga

A part time cryptocurrency trader, mostly a hodler, and Blockchain/crypto freelance writer. Plus an occasional contributor at BIZZNERD.
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