The premise is simple -- blockchains are increasingly adopting the Proof of Stake model as it offers faster block validation and greater decentralization, all while being less resource-intensive. That being said, Proof of Stake can only work if there are users prepared to lock up their currencies to validate transactions and increase network security. Crypto holders are thus incentivized and rewarded for staking their coins by gaining passive income at rates better than traditional financial services can offer.

With the popularity of staking increasing, we are seeing major exchanges expanding their list of staking options, and also custom Staking-as-a-Service platforms, which are dedicated to providing a secure environment to stake across a range of different protocols in just a few clicks. Gone are the days of having to set up node infrastructure to receive returns.

In this blog, we will take a look at the rise of crypto staking services, the benefits they provide but also the risks of staking crypto that you should be aware of. Finally, we will examine some of the best staking services currently on the market, and look at our very own case, as we have just recently launched a validator on NEAR protocol.

What is Staking-as-a-Service

Staking-as-a-Service is a platform that acts as an intermediary, uniting a blockchain's consensus mechanism and cryptocurrency holders who wish to participate in the network. Users get to easily stake their crypto and earn rewards from network fees, minus a small amount apportioned to the staking service. The staking services sector is set to grow into a multibillion-dollar industry that will eclipse the $31 billion valuation of the cryptocurrency mining industry, which is based on the Proof of Work consensus model. JP Morgan estimates show that staking is currently valued at $9 billion, and is projected to balloon to $40 billion by 2025.

Types of Staking-as-a-Service

Custodial Staking-as-a-Service

Custodial Staking-as-a-Service is most commonly practiced by big exchanges and involves managing the entire staking process. Crucially, rewards are passed on to the staking provider before they are distributed to the person who staked a share of their crypto holdings.

Non-custodial Staking-as-a-Service

Non-custodial Staking-as-a-Service takes advantage of the delegation process which is built into many protocols. Here, a validator charges a commission to people who wish to add staked cryptocurrencies to their operations. With a PoS network that supports native delegation, your share of rewards will go directly to you, without needing to go through the validator.

Liquid Staking

Liquid staking can be offered as part of both custodial and non-custodial staking solutions. One of the biggest considerations around staking is the fact that once you lock up your cryptocurrencies, you are not able to explore any further earning opportunities. Liquid staking options aim to change this, by providing you with derivative tokens that represent your staked holdings. These can be traded, or even used for collateral on Dapps such as DeFi lending protocols. Liquid staking encourages further investment by promising staked rewards without the restrictions on the use of assets; however, it should also be mentioned that with this option there are risks of losing on two fronts should the market experience a downturn.

Benefits of Staking-as-a-Service

Reduced barrier to entry

To run a validator yourself either requires a minimum stake beyond what many crypto enthusiasts can afford, or technical knowledge and equipment. What's more, failure to live up to the requirements for PoS staking can result in penalties. Staking with a reliable service that has garnered good reviews is a way to get returns without the cost or tech barrier.

Contributing to decentralization

Proof of Stake runs on the principle of more nodes = greater decentralization. Removing entry barriers and allowing more access to staking allows for the creation of more nodes, meaning greater network security.

More flexibility with funds

As we have explored with liquid staking, services are finding ways to allow people to use their funds, whether that be as collateral for loans, or through the retention of governance decision making through cold staking.

Issues to consider

Decentralization and governance

As pointed out in a recent article by Blockdaemon, Proof of Work was seen as a revolution for decentralization as theoretically anyone could become a miner; however, the appearance of huge mining farms resulted in fewer mining pools, leading to centralization.

With staked coins often tied to governance, centralized staking services could take a large number of tokens from many different users and combine them to give themselves a large voting bloc, muscling out other network participants and changing the direction of a protocol for good.

The most famous example of this in recent memory is the attempted takeover of the Steem blockchain by the CEO of Tron, Justin Sun, aided by Binance, Huobi, and Poloniex, which controlled large amounts of tokens staked by users through their Staking-as-a-Service options.

Market fluctuation

This risk is not unique to Staking-as-a-Service, but comes under general risk in staking crypto. Having your funds locked in a staking service during a market downturn can result in losses that outstrip the percentage earned by staking the coins in the first place.

What to look for in a Staking-as-a-Service platform

When looking for a staking platform, there are a few things to consider, including:

  • The coins offered -- does your platform have the ones you want to stake?
  • Rates of return -- even a 1% difference over a year can add up
  • Custodial or non-custodial -- are your rewards paid out directly, or via the staking service?
  • Reward payout frequency
  • Minimum staking amount
  • Unstaking period -- withdrawing can take from a few hours to a few days
  • Fees
  • Security credentials
  • Slashing -- does the provider have insurance against validator penalties?

INC4 develops its own validator as part of NEAR staking!

We are excited to share that we have recently set up our own validator on the NEAR blockchain! INC4 has been playing a huge role in the NEAR ecosystem as one of its prominent guilds. Along with other teams of developers, we have been helping expand the range of innovative applications that are offered on NEAR's low-cost and scalable blockchain.

By staking with INC4's validator, you get a rate of return of ~11%, payouts every epoch ~12 hours, and a flat 7% commission. By staking with us you get to reap the benefits from our trusted development team's work, and are ensured of security as everything is stored directly on the NEAR blockchain.

Prominent staking platforms

P2P Validator -- Founded in 2018, one of the most well-known staking services. Currently operates as a staking provider for 23 networks, including Ethereum, Polkadot, Cosmos, and Solana. More coins are constantly being added to satisfy a user base of just over 25,000. P2P Validator offers secure, non-custodial staking. Just under $3.5 billion staked with its service at the time of writing.

Stakefish -- Founded in 2018 in Seoul, South Korea. One of the most trusted staking providers, with support for over 24 projects. Recently launched an ETH2 staking service with a flat fee of 0.1 ETH. Currently 440,000 ETH staked with the network at the time of writing.

MyContainer -- Launched in 2018, with support for over 100 coins. Offers an application, integration with 10 of the most popular exchanges, and cold staking (stake without relinquishing asset control), negating centralization/governance concerns.