Staking-as-a-Service

Introduction

Staking is a process where a holder of a Proof-of-Stake (PoS) cryptoasset locks their funds in order to validate transactions. They are then compensated via protocol level inflation proportional to the amount staked as a percentage of the overall amount being staked. Staking is designed as an alternative to Proof-of-Work that maintains the long-term security and reliability of a protocol.

Staking-as-a-service exists because staking can be a complex process that the everyday token holder might not want to perform. To participate in the inflation rewards, users can delegate their funds to corporations that run validating nodes who then stake user funds. Inflationary rewards are returned to the holders with a fee taken by the service provider. Staking-as-a-service can be thought of as a subset of generalized mining where token holders delegate tokens for purposes other than validating transactions such as providing file storage or video transcoding.

Concerns have been raised about Staking-as-a-Service in that it could become reminiscent of our existing legacy system where providers could issue notes that represent staked funds. Since the likelihood of everyone redeeming them at once is slim, they could issue notes backed by only 90% reserves. This would be the same as fractional reserve banking and could slowly increase the inherent risk in the system.

Recommended Reading

Crypto borrowing and staking networks by Jake Brukhman

Staking as a Service by Arianna Simpson

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If there is anything you'd like to add or change, you can tweet your feedback at @messari_crypto or email jack@messari.io