Beyond Financial Gains – How Staking Drives Mainstream Adoption Of Digital Assets And Blockchain Development

Blockchain, News, Opinion | November 1, 2019 By:

As the cryptocurrency market continues to fluctuate, digital asset investors are finding that simply HODLing and hoping for the best is inefficient. Instead, long-term investors are looking for better ways to make the most of their passive holdings, with staking emerging as a viable alternative. 

Staking is a process specific to Proof-of-Stake (PoS) blockchains that allows users who deposit tokens into wallets to passively earn financial rewards, while supporting the operations of the network. Rather than the energy-intensive mining process associated with Proof-of-Work (PoW) blockchains, nodes in a PoS network validate blocks through a staking algorithm that rewards nodes based on amounts of tokens staked. Benefits abound, it is no wonder staking and PoS blockchains are quickly gaining traction. A recent report from Binance estimated that the ten largest crypto assets currently supporting (or planning to support) staking represent a cumulative market capitalization of $25.8 billion as of October 24th. It is expected that the popularity of staking will continue to grow as Ethereum’s impending switch to PoS drives other projects to follow suit, which might in turn drive demand for staking services in the industry.

However, barriers to entry remain high as platforms vary in their staking approach and often require technical know-how to run a validator and stake coins. Staking-as-a-Service platforms, therefore make sense, as these are built to be customer-focused and to handle the technical complexities of staking in exchange for a fraction of the resultant yield. The whole process of staking can then be as simple as investors depositing tokens and passively earning steady rewards. Effectively, this will help attract more mainstream investors to engage with digital assets despite ongoing market volatility.

Staking-as-a-Service platforms also serve an important group of customers — institutional investors. Admittedly, it is more secure for these types of investors to manage their own wallets, nodes, and private keys; however, it makes more sense operationally and financially for institutional investors to adopt turnkey solutions that have been built to comply with security and regulatory standards rather than navigating the different staking approaches inherent to individual platforms. Staking projects, on the other hand, will benefit from the usability, reliability, and security of the staking infrastructure being built by Staking-as-a-Service providers and will gain credibility from their partnerships with formal institutions. This creates a healthy, robust ecosystem that attracts more partners and nodes to develop solutions and services. 

Beyond financial gains, Staking-as-a-Service platforms are in the best place to cultivate good governance within the industry. It is part of their function to verify legitimate transactions and prevent fraudulent activity, which helps to safeguard PoS blockchains from contentious hard forks and attacks commonly found in PoW blockchains. Also, as validators, these platforms have aligned incentives and should work to ensure the continued development of the ecosystem when voting for new proposals of protocol upgrades and improvements. 

As such, Staking-as-a-Service platforms are well-positioned to act as PoS ecosystem builders and guardians, given that sufficient decentralization is achieved in the network. Staking-as-a-Service platforms that work towards creating a long-term stable environment can point to two key positive outcomes:

  • Increased confidence amongst developers, leading to the creation and development of higher quality products and services for mainstream use.
  • More trusted and regulated solutions targeted at retail and institutional investors, bringing digital assets into mainstream acceptance and adoption.

As the blockchain sector continues to mature and inches towards mainstream adoption, we are moving away from traditional systems such as PoW consensus mechanisms to validate transactions. PoS blockchains continue to rise, and Staking-as-a-Service platforms offer both individual and institutional users significant incentives as well as a simpler way to participate in the staking economy. While we cannot simply isolate the prospect of financial rewards in the blockchain adoption equation, it is clear that staking creates a better way of maintaining and building protocols, in turn advancing the adoption of digital assets and driving blockchain development.