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Staking Service Providers: What are they & why do we need them?

Blockchains are undergoing a shift from Proof of Work (PoW) to Proof of Stake (PoS) consensus mechanisms.

Staking Service Providers: What are they & why do we need them?

PoS is appealing due to the energy efficiency and greater decentralization it promises. Staking Service Providers manage a set of validators and allow even the smallest users to delegate their assets to them. This model provides the economic benefit of staking for the masses while at the same time solving the challenge of ongoing maintenance of validators for non-technical users.

What is STaaS?

Simply said, Staking-as-a-Service is when a user posts a stake required to validate transactions and receive the wanted return via a PoS-based protocol network.

A PoS network encourages users to contribute to its security by granting validators rewards composed of network inflation and/or transaction fees. Users are encouraged to stake rather than simply hold their assets if they don’t want to be subjected to dilution in networks with inflationary supply schedules.

Custodial & Non-custodial STaaS

Custodial StaaS providers take control of clients ’assets and maintain them throughout the investment process. The most well-known investment providers of this type are Coinbase and Kraken.

Custody STaaS is generally intended for users who want to earn a return on their assets without worrying about backend processes. The custodial STaas functions similarly to banks. The relationship between the user and such a stacking provider is based on trust.

When it comes to the non-custodial STaaS provider, the process of transferring stake is called delegation and it is built into the network itself. Anyone that already runs a validator may accept delegations and increase their rewards.

The rewards system in non-custodial STaas is different — the network can distribute a delegator’s share of rewards directly to the delegator instead of leaving it up to the validator to pass the rewards.

Some of the best-known non-custodial STaaS are:

  • Everstake
  • InfStones
  • Flow Team
  • Chorus One
  • Staked
  • Bison Trails
  • Certus One
  • P2P Validator.

Potential Risks

Any validator can lose part or even all of the stake, which is called slashing.

The slashing penalties occur due to downtime or double signing. Downtime can be understood as every time the validator is offline and fails to perform his duties. When a STaaS provider keeps a backup validator running to prevent downtime and both of its validators use a single private key to vote for a block, that’s a double signing penalty.

The Bottom Line

PoS is replacing PoW and becomes the leading consensus mechanism for blockchain networks.

StaaS providers have recognized this opportunity as more and more investors are looking for a way to make a reliable return on their PoS assets.

To learn  more about Kerberus Prime — a Swiss-based non-custodial StaaS (Staking as a Service) platform, visit here.

For the updates, you can follow us on Twitter and LinkedIn. And you can reach out to us via Discord, Telegram or directly at hello@kerberusprime.com

*This article is available also on Medium.

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