Staking-As-A-Service

Staking-as-a-Service (SaaS) refers to blockchain platforms that enable users to engage in staking within Proof of Stake (PoS) consensus models, offering their cryptocurrencies in exchange. These platforms are designed to provide a user-friendly environment where individuals can deposit their cryptocurrencies and receive rewards in return.

Staking-as-a-service platforms act as intermediaries, simplifying the crypto participation process, which allows beginners with limited knowledge to deposit their assets and commence staking. They operate as automated services on behalf of users. However, some specific staking-as-a-service programs have encountered legal challenges and are currently subject to legal proceedings.

• Staking-as-a-service is a service offered by platforms that allow users to deposit their tokens and engage in staking. In this arrangement, the platform handles the staking process on behalf of the users.
• Participants in staking receive block rewards for the tokens they have staked, with a small percentage, typically ranging from 1% to 20% or more, serving as a platform fee or commission.
• SaaS providers operate decentralized nodes and facilitate the staking process. These platforms can come in various forms, including custodial, non-custodial, or liquidity-based services.
• Notable providers in this space include Coinbase, Ethpool, Bloxstaking, Kraken, and Stakefish, among others.

Staking-as-a-service has become a widely adopted offering on various platforms, enabling users to retain their cryptocurrency tokens while reaping block rewards in return. It provides an accessible avenue for individuals with modest investments to engage in staking and earn profits. Through decentralized nodes, these services undertake the staking process on behalf of investors.

Nevertheless, they levy a nominal fee for their services, which is deducted from the earnings. Consequently, this allows small-scale retail investors to participate in staking without needing to maintain blockchain infrastructure or nodes. It is worth noting that this approach is primarily available for Ethereum SaaS programs and those operating within the PoS protocol, like Coinbase, stakefish, Ethpool, and Bloxstaking, among others.

The process of staking-as-a-service differs from traditional staking in some respects, though there are points of convergence. In this model, investors pool their crypto tokens and pledge them as a deposit to the platform. In essence, they entrust their coins to a validator, with the actual node operations being managed by a third-party SaaS provider.

These SaaS providers maintain multiple decentralized nodes that operate on PoS-based blockchains. In return for these services, users are required to pay a recurring monthly fee. Additionally, users entrust their crypto keys to the provider for mining purposes, with the Ethereum SaaS provider, for example, mandating a stake of 32ETH for staking.

According to forecasts by J.P. Morgan, the staking industry has already generated $9 billion in revenue. This figure is expected to increase significantly, reaching $40 billion annually by the close of 2025. It has led to various SaaS providers recognizing the lucrative potential for expanding their businesses. Consequently, the staking-as-a-service fees charged to users are typically calculated as a percentage of the block rewards earned, with rates ranging from 5% to 20% or even higher, depending on the profits realized.

Here are the types of staking-as-a-service options for users.

1. Non-custodial SaaS: In the non-custodial staking-as-a-service, the process is straightforward. Users retain control of their private keys. The SaaS provider manages various network nodes and stakes the client's cryptocurrencies. In return, the user receives incentives, and these rewards are directly credited to the user, bypassing the need for an intermediary or validator.
2. Custodial SaaS: As the name suggests, in custodial staking-as-a-service, the custody of private keys remains with the SaaS providers. Users place trust in these providers and engage in staking through them. However, the reward distribution process can be more complex. The staking providers initially receive the block rewards, which are then distributed to the crypto users. Major crypto exchanges often use this type of service for ease of management.
3. Liquid SaaS: The liquid staking program allows users to maintain liquidity for the staked assets. The platform provides a derivative token in exchange for the liquidity provided. These derivative tokens can be traded like other cryptocurrencies and used as collateral for obtaining crypto loans.

Let us look at some examples to comprehend staking-as-a-service in a better way.

Example #1

Imagine that Christian has been actively trading in the cryptocurrency market for the past three years. During this time, he has invested in various tokens that have yielded significant returns. After years of successful trading, Christian expresses an interest in entering the world of staking. However, he faces a common challenge—lacking the hardware and complex setup required for staking.

To overcome this hurdle, Christian decides to use a staking service. He registers with the service provider, who assists him in setting up the necessary infrastructure. Christian then deposits approximately 100 ETH into this staking service platform. The provider, in turn, takes half of these tokens and places them into liquidity pools designed for staking. Decentralized computer nodes manage these pools to help secure the network.

After a certain period, Christian received a staking reward of 0.223 ETH. However, the staking platform applies a commission fee of 0.0111 ETH to this reward. In summary, Christian's net earnings from the staking service amount to 0.21185 ETH after accounting for the commission fee.

Example #2

As of February 2023, the Securities and Exchange Commission (SEC) took action against the popular Kraken staking-as-a-service, discontinuing its operations in the United States due to its failure to register as a security. Consequently, U.S. citizens were unable to access the platform. However, a subsequent settlement between the SEC and Kraken saw the platform agree to pay a fine of $30 million.

The SEC's complaint did not allege violations of federal laws in terms of staking and rewards received. Instead, it focused on the lack of certain essential disclosures in Kraken's staking service. It led the SEC to categorize the staking service as an investment contract rather than a security.

In summary, the SEC's enforcement action against Kraken's staking-as-a-service underscored the importance of regulatory compliance and transparency in the crypto industry, serving as a notable case within the evolving landscape of digital asset offerings and investor protection.

When considering various staking-as-a-service providers, it is essential to assess and choose the right platform carefully. The following vital parameters should be taken into account:

1. Available coins: Begin by examining the range of cryptocurrencies offered by the SaaS provider. With numerous digital assets available, it's crucial to confirm that the desired one is supported.
2. Yield rate: Another critical factor is the rate of return on the staking process. While providers generally operate competitively, slight variations in rates may exist due to unique selling points (USPs). Therefore, it's essential to compare rates before staking.
3. Type of platform: In staking protocols, the control of digital signatures and keys is significant. Some users may feel comfortable with custodial staking-as-a-service, while others may prefer non-custodial options. For example, a busy professional might entrust private keys to a trusted platform, while a trader may opt to retain control.
4. Fees: In addition to the parameters mentioned, consider the commission or platform fees. Different providers have varying fee structures, so it's prudent to be aware of the associated costs.
5. Security features: Security is a primary concern for crypto users when selecting a SaaS provider. Given the risks associated with yield rates, the security of the platform and the protection of funds are paramount. Frequent audits and rigorous testing are crucial to ensure the platform's integrity.

Furthermore, some platforms offer bug bounty initiatives, allowing users to help identify and report vulnerabilities. In return, users may receive rewards for their contributions.

Let us look at the advantages and disadvantages of the staking-as-a-service program for a better understanding:

This article has been a guide to what is Staking-As-A-Service. Here, we explain its examples, types, what to consider when choosing it, pros and cons. You may also find some useful articles here -

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