Unlocking Institutional Staking Success: White-labeled validators, Taming Risks, and boosting Yields

Zeeve held a webinar on May 30, 2023, titled "Unlocking Institutional Staking Success: A Deep Dive into White-labeled Validators, Taming Risks, and Boosting Yields." Dr. Ravi Chamria, CEO and Co-Founder of Zeeve, led the session, exploring staking in proof of stake blockchain technology. The discussion covered the energy efficiency of proof of stake, differences between individual and institutional staking, and the associated risks and compliance issues. The importance of maintaining sufficient validator nodes and options for enterprises and institutional investors was emphasized. Additionally, the benefits of Zeeve's fully managed service supporting over 40 blockchain protocols and collaborations with insurers for cybersecurity and slashing coverage were highlighted.

1. Unlocking Institutional
Staking Success:
A Deep Dive into White-Labeled
Validators, Taming Risks, and
Boosting Yields

By: Ravi Chamria, Co-founder, CEO of Zeeve

2. Staking in a Nutshell
Staking is a key feature of Proof-of-Stake (PoS)
blockchains.
It involves token holders committing their assets to
support network security.
Unlike PoW, This model does not require miners to work
through complex math problems to validate transactions
and add blocks to the blockchain.
Instead, transactions on the blockchain are validated
by the entities, called validators.
Validators are chosen based on factors like the number
of tokens staked and staking duration.
Staking allows participants to earn rewards in the native
cryptocurrency for their contribution to network security.

3. How Staking Works in a PoS Blockchain
Owner stakes their native
tokens in staking pools
Algo psuedo-randomly
selects next validator
The selector validator proposes
a block of transactions
Other validators verify and
approve the transaction
The block is added to
the existing blockchain
The validator earns
a transaction fee
1 3
2
4
5 6

4. Why Institutional Staking is on the Rise
•Traditional investments like bonds offer relatively low returns, as seen in the case of AA/AAA rated bonds in various countries
(e.g., US, UK, Germany, Japan).
Low Returns in Traditional Investments:
•These low yields have led investors to seek alternative investment options.
Country 10-Year Yield (%)
U.S.A 3.819
China 2.728
UK 4.377
Japan 0.440
Australia 3.750
Germany 2.480

5. •Despite the short-term price fluctuations risks, many institutions consider staking an integral part of their VDA investment
strategy for several reasons:
oStaking can offer passive income on assets that may otherwise be underutilized.
oStaking rewards are akin to compound interest, like in traditional markets when dividends are reinvested. Users
can “reinvest” rewards and receive a higher payout at the next period.
oIt doesn’t require giving up or lending out assets in order to stake.

For example, to earn yield on AAVE or Compound, investors must physically give up their tokens to a borrower with
potentially no guarantee that they will receive the principal paid back in full. With staking, all tokens could remain
in self custody.

6. How Institutional Staking is Different?
Institutional staking involves large-scale participation by
organizations, such as banks, hedge funds, and asset
management firms, compared to individual investors in
traditional staking.
Institutional stakers often have higher staking volumes,
which can impact network dynamics and rewards.
Institutional staking may involve custodians, and
high-maintenance infrastructure to engage in staking
activities across multiple blockchains.
Institutions may have specific compliance requirements
and risk management protocols to adhere to, adding an
additional layer of complexity to their staking activities.

7. The Staking Yields & Rewards
BlockchainEthereum Solana Cardano Avalanche Polkadot Kusama Moonbeam Tezos Coreum
Reward
Rates
1 – 18% 5.59% 5.26% 9.28% 14.74% 15.38% 3.48% 5.87% 4%
Inflation 1% 8.43% 1.96% 26.07% 9.99% 2.35% 5% 5.51% 20%
Slashing YES NO NO NO YES YES NO NO YES
Lockup 365 Days 5 Days No Locking 14 Days 28 Days 1 Day 7 Days NO 7 Days
•Yields differ on a token-by-token basis, with some offering higher percentages than others. However, nominal yield isn’t the
only consideration for staking participants.
•The process of issuing rewards to token holders who participate in staking in the native token is inherently inflationary
(inflation in this case referring to money supply growth).
•Therefore, those token holders who choose to stake are less impacted by the inflationary effect of minting new tokens.
Our Analysis of the Top Blockchains

8. Risks Associated with Institutional Staking
Custody (someone taking your assets)
Maintenance (network updates)
Slashing (Caused by errors in your staking setup & downtime)
Other Considerations
 Like any investment vehicle, staking comes with risk. The three big risks in staking are:

9. Custody Risks
Who is going to manage the assets? Will that be via a custodian that has full control over your
assets, or a non-custodial solution where you still manage your own private keys?
The main risks with using a custodian are that a third party has some form of access
to the assets.
The main risks with doing it yourself are that you need to have the knowledge and security
protocols in place to ensure you cannot lose access to your assets or have them stolen.
In some staking solutions, you transfer/delegate the assets completely to a third party who will
then stake on your behalf. This might mean your assets will be mixed with other participants,
but this can be more cost effective.

10. Maintenance Risks
Blockchain networks are not 'set and forget'.
It regularly goes through a wide variety of changes. These can be upgrades to the base
software, network changes and security patches.
When staking, it is important to ensure that you have as much uptime as possible, in order to
take as much advantage of your capital as possible.
Even worse, is losing access to your assets via some form of exploit in code or missing out on
returns due to the occasional network updates

11. Slashing
PoS protocols employ a penalty mechanism to revoke or slash a portion of a validator's stake
for rule violations.
Slashing incentivizes proper consensus and deters bad actors from participating in the
blockchain.
Active network actors act as whistleblowers, catching offenders and constructing infringement
statements in a new block.
When a validator is found guilty, they face penalties such as invalidation of their validator ID
and monetary fines.
The severity of the penalty depends on the number of validators involved, with a greater
number leading to higher penalties.
Whistleblowers receive a fraction of the collected penalties as a reward.
There are two behaviors that generally trigger slashing:
oDowntime
oDouble signing

12. Downtime & Double-Signing
•Downtime occurs when a validator is offline for any reason when the blockchain calls on it.
•When this occurs, validators will miss out on the opportunity to validate the transaction and forfeit the
rewards they would have received.
•If this happens on a consistent basis, validators can be penalized by forfeiting a small amount of their staked
tokens. Somewhere around 0.1% of the stake.
•Because of downtime issues, less technically-inclined investors may choose to utilize public validators
instead of being a dedicated validator themselves.
•Double signing occurs when a validating entity (private key) submits two signed messages for the same
block.
•This can happen if a node operator or infrastructure provider optimizes their node configuration to prevent
downtime by having a highly available backup entity running at the same time as a primary entity.
•This is a much greater offense than downtime, making double signing penalties much larger (could be
around 5% of the stake)
Downtime
Double-Signing

13. Other Considerations
Setup & Educational Time:

oEach blockchain requires a separate node for staking, leading to challenges in managing
and maintaining multiple nodes with different requirements and learning curves. So, it
doesn’t make strategic sense to get the necessary skills in-house always.
 Cost Analysis:
 
oBuilding and maintaining a staking system can incur substantial costs that may outweigh
the potential returns, considering the rapidly changing and evolving nature of this new
generation of financial products.
Unbonding Periods:
 
oUnbonding Periods: Staking involves protocol-enforced periods where tokens are locked and
unavailable for sale or immediate use, varying in length from hours to weeks depending on
the specific token.

14. So, What Options do Enterprises have for Staking?
There could be three ways:
Go Self-Hosted:
•When you want to manage staking on your own, it means running your own node infrastructure, which keeps you in full
control.
•However, this decision should be approached with caution, as it involves strategic considerations and diligent planning,
such as building an in-house team and making substantial investments in the required infrastructure.
 
Custodial Solutions / Delegation Route:
•On a high level this is the simplest solution. However, there may be third-party costs involved for custody and also the
potential for third-party data breaches.
•You may also choose to delegate your tokens to the validators instead of becoming a validator and live on the
delegator % rewards.
Become White-Labeled Validator:
•Here a third-party service provider (an infrastructure provider) operates the validators and provides the necessary
infrastructure and expertise, while allowing the entity to maintain their full control of their nodes.
•It’s a fully non-custodial solution with all the benefits any particular blockchain offers for their validators.

15. Why Zeeve for your White-Labeled Staking Nodes?
Enterprise-Grade Security
We provide 24/7 security monitoring and security tools to manage your staking node.
Uptime Guarantee
Our multi-layered proactive monitoring ensures that your validator node is forever active.
Non-Custodial
Control your own dedicated staking node while we manage the underlying infrastructure
Support over 40 PoS Networks
Support for all legacy blockchains like Ehtereum, Polygon, Binance Chain, Avalanche, Near etc, plus comparatively newer
ones like Shardeum, Aptos, Coreum, DCOMM, and many more.
ISO/ SOC2 TypeII & GDPR Compliant:
Zeeve complies to all these major standards, ensuring security & data privacy for even the most demanding customers.

16. Thank
You