At a high level, staking as a service is basically when a firm (i.e., a cryptocurrency asset custodian) posts the ‘stake’ or ‘bond’ required to validate transactions and receives the requisite return via a PoS-based protocol network. Staking Pools require that network tokens are locked in a ‘hot’ wallet which functions as the collateral for validating transactions, and also allows staking participants to participate in the governance of a network. For example, Coinbase’s announcement of staking services will initially cover only Tezos. Coinbase will post the bond required for ‘baking’ on Tezos, the colloquial term for staking in their community, on behalf of their institutional clients.
Solo vs Pooling: Cryptocurrency Staking Pool
Typically, a staking pool is managed by a pool operator and the stakeholders that decide to join the pool have to lock their coins in a specific blockchain address (or wallet). While some pools require users to stake their coins with a third party, there are many other alternatives that allow stakeholders to contribute with their staking power while still holding their coins in a personal wallet. For instance, the so-called cold staking pools enable a more secure model, as users can participate in the staking process while keeping their funds on a hardware wallet. Compared to solo staking, a staking pool will give smaller rewards because each successful block forging (validation) will split the rewards among the many participants of the pool. In addition, most pools will charge fees, which will reduce even more the final payout. On the other hand, staking pools provide more predictable and frequent staking rewards. Other than that, they allow stakeholders to make a passive income without having to worry about the technical implementation and maintenance of setting up and running a validating node.
There are two types of staking pools, in-house, and multi-blockchain. As the name suggests, in-house is for a specific to a single blockchain or crypto (usually it’s part of the environment, embedded in the currency which are decentralized and support only the native token of the project) and multi-blockchain pools deal with staking in more than one cryptocurrency. Let’s look at some in-house staking pools.
Decred is an autonomous, open and progressive cryptocurrency with a system of community-based governance integrated into its blockchain. New blocks are discovered by the proof-of-work miners roughly every 5 minutes, and each time this occurs, new Decred are created. This block reward is split three ways: 60% goes to the PoW miner who found the block, 30% goes to the PoS voters on that block (6% to each of the 5 voters) and 10% goes towards the development subsidy. The block reward started at 31.19582664 and it adjusts every 6,144 blocks (approximately 21.33 days) by reducing by a factor of 100/101. Five Stakers are basically double-checking each PoW-mined block if it is written correctly. Therefore, they get rewarded with 6% of the Block Reward each. PoS Voting Rights are assigned through tickets. They can be purchased inside the wallet and the price is determined by an algorithm to keep the difficulty of getting a reward at the same rate. So the more people participate in the PoS Voting, the higher the Ticket Price will be.
In the Waves platform, you can receive rewards in two ways.
- Be a Supernode: To become a supernode in the Waves, you must have a certain number of conditions, one of which is having at least 10,000 units of Waves. Supernodes will enjoy special conditions on the network.
- Be a Node: In this way, you send your assets to the supernode addresses approved by Waves website and each year, about 5% is added to the Waves units you have assigned. You can stop this process and get your assets off at any time.
Unlike in-house staking, these platforms allow people to stake in small market cap PoS blockchain plans. As a result, people can either stake to a master node or a Proof of Stake pool. Let’s look at a few multi-chain staking platforms.
Simple POS Pool
Simple POS Pool (SPP) is a service that hosts Coin Pools and Masternodes. It allows users to place specific coins into pool wallets and receive portions of Staking rewards, as well as allowing users to purchase portions of a Masternode (slots) to receive portions of the Masternode reward. In exchange for hosting and managing the Coin Pools and Masternodes, SPP collects a small fee from your rewards. The number one con about using SPP is the fact that you do not control your coins. From the moment you send coins to the pool address, you no longer have access to your coins. This requires a tremendous amount of trust in people you do not know, as with most centralized cryptocurrency exchanges.
This platform offers a wide range of services Staking Pool, Shared Masternodes, Shared InstantNodes and HostingNodes. Another feature is that they allow staking in more than one master node which is a rare feature in the industry. Dash coin, Dogecash, Energi coin, ESBC coin, Jackpot coin, Safe insure and Spider VPS, are some of the crypto where Staking labs offer staking. The company was established back in 2017 in Germany and seems to have a good track record. According to their website, they have around 10,000 active investors out of 20,000 community members. 3% fee for any profit you receive from staking and a 0.1% fee on all of the withdrawals. Insta-node is where you can deposit your coins and leave the node like a normal POS pool and you will start earning rewards immediately. There is an option to re-invest to this node without having any wait or setup time. The beauty of this feature is that even after having such a unique offering, you can withdraw your coins at any time. But all of these features are not without a cost. There’s a deposit fee of 3%, a 0.2% withdrawal fee, and a fee of 7.5% on each reward.
Staking as a service seems poised to become a dominant trend in the cryptocurrency space as institutions look for revenue-generating returns on their idle assets and PoS networks continue their growth. Staking represents an intriguing concept in both investment and governance, and it will likely have significant consequences on the looming entrance of institutions into the broader sphere of digital assets.
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