Despite being a relatively nascent aspect of the digital asset space, staking has rapidly become the leading attraction for institutional investors looking to earn stable, reliable returns on their cryptoassets.
Staking is a more active form of ‘HODLing’, which in addition to offering higher yield than traditional banks and many fixed income markets, is vital for supporting the security and decentralisation of Proof-of-Stake (PoS) blockchains.
Staking is only possible on blockchains with a PoS consensus mechanism. For a PoS blockchain to remain robust and secure, each transaction must be verified, and new blocks need to be created.
The act of staking involves putting digital assets to work by verifying transactions and earning a reward in the process. In other words, it aligns network security with financial incentives.
Network participants – known as validators or stakers – are required to stake or ‘lock in’ a certain number of cryptoassets native to the network of their choice. You can think of validators as the backbone of the staking ecosystem as they play a crucial role of authoring new blocks on the blockchain. While a validator’s vote is chosen at random, users who pledge more tokens to the network are more likely to be selected as validators by the protocol.
Once assets are staked, they are locked up and essentially inaccessible for a period of time. The time required to unlock staked tokens depends on the network they are locked in.
Importantly, validators are required to run robust hardware that is online 24/7, and are kept in check and honest by the ever-present possibility that they will be fined ( ‘slashed’) if they fail to uphold their responsibilities or engage in malicious behavior.Going offline for extended periods of time, for example, is considered a breach and would result in financial consequences, or in other words, the validator being ‘slashed’.
Running a validator node to stake crypto involves technical know-how to prevent any disruption in the staking process. This is why the simplest and easiest way for investors to earn high returns on their assets is to delegate their stake to a trusted staking pool operator.
With staking delegation, investors can stake their crypto through staking pools, created and managed by third-party organisations or individuals who take responsibility for validating transactions and maintaining the blockchain.
When rewards are earned, they’re shared between the pool operator and pool delegators. Since crypto holders don’t need to worry about the staking process and ensuring that their node is connected around the clock, delegating to a reliable staking pool is perceived as the most convenient path to enjoy the benefits of staking.
Staking offers attractive yields but also has complexities and risks. Investors ought to consider that:
Digital assets are volatile, meaning that user assets could decline in value quite suddenly. Staking is optimal for investors who plan to hold their asset for the long-term and are able to withstand short-term fluctuations in price.
Some risks are higher or lower depending on the staking approach investors take. For instance, there are greater security risks if crypto holders entrust their digital assets to an exchange so it can be staked. Meanwhile, there is slashing risk when using inexperienced staking pool operators, as funds can be lost if the validator doesn’t do its job properly and gets penalised.
Staking pools can be hacked, resulting in a permanent loss of assets for stakers. Always ensure to select a staking pool that offers insurance protection.
To ensure you earn reliable yield, it’s critical you choose the most secure validator to stake your cryptoassets.
In March 2022, we proudly launched our fully-vetted, compliant and insured staking pools which offer institutional investors the opportunity to earn yield on selected PoS assets in a highly protected environment.
Our specialised validator node infrastructure allows Copper clients to earn the maximum-level of staking rewards from the safety of their MPC-secured wallets – without having to run their own infrastructure 24/7.
Our hassle-free solution also offers protection against slashing, simple and loss-free migration and onboarding process, along with Copper’s signature white-glove service.
To ensure institutional grade quality, we remain highly selective about the assets that we support. Yet, we lead the market amongst custodians in terms of the number of protocols we support. Currently, there are eight popular cryptoassets available for staking on Copper validators. These include SOL, DOT, BNB and NEAR. With time, we aim on expanding asset support of more leading PoS cryptoassets to remain the preeminent custodial staking provider for institutional investors.
To find out more, contact your Copper account manager today.
THE INFORMATION CONTAINED WITHIN THIS PRESENTATION IS FOR PROFESSIONAL INVESTORS, REGULATED FINANCIAL ADVISERS AND THEIR INVESTORS ONLY. ALL INVESTMENT IS SUBJECT TO RISK. THE VALUE OF DIGITAL ASSETS MAY GO DOWN.
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