Taking a deeper dive into Proof-of-Stake blockchain networks, and the growing Staking-as-a-Service industry

1. A FUTURE BLUE-CHIP BLOCKCHAIN INDUSTRY –
STAKING AS A SERVICE
BY JASON S HEFTER
FEBRUARY 2022

2. CONTENTS
I. Purpose
II. The State of StakingToday
III. Staking-as-a-Service
IV. Appendix
2

3. PURPOSE
Over the past several years, blockchain has transformed from a nascent technology and cottage industry to a global
phenomenon reaching over $2 trillion dollars in market capitalization. Through this paradigm shift, we’ve seen new
businesses created as investors and entrepreneurs look for ways to capitalize on the “web3” movement by developing
products and services that allow greater access to the crypto ecosystem for users worldwide. These products and services
vary across many subsectors including exchanges, payment platforms, wallets, custodian services, blockchain auditing services,
network infrastructure, enterprise blockchains, and many more.
Compared to traditional internet companies where value is largely captured at the application-level, the open-sourced
protocols of blockchain networks are more valuable than the applications built on top. This is clearly illustrated by the
increased adoption and activity of a new digital primitive; crypto tokens. Users can obtain tokens in various ways. This
includes (but isn’t limited to) via centralized exchanges, DeFi, airdrops, SAFTS, crypto faucets, and most notably through
block rewards from achieving consensus. While most first-generation blockchains achieved consensus through proof-of-work
(PoW), the industry has begun to shift towards a less energy intensive mechanism known as proof-of-stake (PoS).
The goal of this report is to highlight PoS networks and in particular, focus on the staking-as-a-service (STaaS) subsector and
its potential to be a future blue-chip industry.
Jason S. Hefter
hefterj@umich.edu
Linkedin

4. THE STATE OF STAKING TODAY
4

5. 5
POS OVERTAKES POW
The growth of PoS networks have led PoS to become the leading consensus mechanism for blockchain networks. In 2021 alone, staking rewards
totaled $15.0 billion as of December, 20211 (representing a +939% year/year increase). For CY2020, investors earned >$20 billion in staking
rewards. JP Morgan estimates staking payouts to reach $40 billion by 2025.
As we enter a multi-chain era, users and developers alike will need to consider the different specifications for various blockchain networks in
accordance with their requirements and preferences.
Source(s): Messari, JPMorgan.
1According to projections from Staked.
Top 5 PoS assets include BNB, SOL, ADA, DOT, and AVAX and is as of November 24, 2021.
 The market capitalization of PoS platforms is
$728 billion (+571% yr/yr increase)
 PoS networks command a 31% share of the
total blockhain market cap (+127% yr/yr)
 25 of the top 100 chains use proof-of-stake
for consensus (50% dominance ex-Bitcoin)
 The average yield for staking was 14% for the
top 25 staking chain by market cap (+9% yr/yr)
Staking as of 12/31/2021
Growth of POS by Market Cap

6. 6
L1 & L2 POS NETWORKS CONTINUE TO CAPTURE MARKET SHARE
The shift towards PoS networks has been a dominant theme in 2021 and is expected to continue its rapid growth over the next several years.
Contributing to this theme are successful dapps, liquidity incentives, and the launch of several Layer 2 protocols like Arbitrum, Optimism and Polygon
that aim to increase scalability and lower gas fees. These factors (plus others not mentioned here) have resulted in record-levels of total-value-locked
(TVL) for PoS networks like Solana, Polygon,Avalanche, andTerra.
TVL MoM Growth in 2021
Source: DeFi Llama, Doses of DeFi
*D – through December 15th, 2021

7. 7
ETHEREUM CONGESTION HAS CONTRIBUTED TO POS GROWTH
Congestion on Ethereum has also contributed to the rise of new PoS platforms,, as demand for block space outstrips supply. Despite the recent EIP-
1559 upgrade and ETH2.0 slated to launch their PoS chain in 2022, users and developers are still flocking to other layer-1 protocols that offer higher
rewards and require lower gas fees. Therefore, market participants will be intently focused on Ethereum in 2022, serving both as a market beta for
smart contract platforms and as an indication for where Layer 1 protocols are headed.
Source: Etherscan

8. 8
REWARDSVARY ACROSS DIFFERENT POS NETWORKS
A PoS network incentivizes users to “stake” their tokens to the blockchain to validate the blockchain, which in turn rewards these validators with
block rewards. These rewards are comprised of network inflation and transaction fees. Each PoS network will vary in term of staking rates and offer
their own unique token incentives, emissions schedules, governance rules, target applications, etc. over the long term. As more stake enters a network,
the active rewards rate decreases as staking rewards must be distributed to a larger group and vice versa. Today, the majority of the top PoS networks
today have >50% network participation.
While many PoS networks offer double digit staking rewards, the real return typically is in the single digits due to inflation from new tokens being
minted.The exception here is BSC, where block rewards are composed entirely of transaction fees.
Source(s): Staking Rewards, Messari.
As of November 25, 2021
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
BSC SOL ADA DOT AVAX LUNA MATIC ALGO ETH 2.0 XTZ ATOM FTM NEAR
%
opf
Network
Staked

9. 9
WHAT DOES IT TAKE TO BE AVALIDATOR?
There are several specifications to consider for investors looking to become a validator. Due to the large required minimum stake for most Layer 1s,
most retail users end up being priced out of this option.
Source(s): Galaxy Digital – Ready Layer 1 Report, Messari
As of November 25, 2021.
*Only the top 130 validators in terms of stake weight are allowed to participate in Terra’s consensus.

10. STAKING-AS-A-SERVICE
(STaaS)
10

11. 11
DELEGATING TOKENSVIA STAKING AS A SERVICE
Due to the high investment minimum required to become a validator, many users choose to delegate their tokens to staking pools in order to
contribute to securing a network and earning staking rewards. This trend has created a brand-new industry: Staking-as-a-Service (STaaS). Within
STaaS, users can choose a service that either takes control of the staking process from start to finish (custodial) or one that allow users to still
maintain control of their tokens (non-custodial).
Source(s): Staking Rewards, Messari.
As of December 15, 2021.

12. Non-Custodial STaaS
As Web3 grows, more companies and institutional investors will invest in tokens to diversify their balance sheet. For companies and projects built on
the blockchain, it will be commonplace for them to own and stake the layer-1 token, thus contributing to the networks success and participating in the
PoS consensus. If crypto falls outside of a firm's core-competency, they are more likely to use a custodial service for staking. Therefore, expect
custodial STaaS adoption to increase in the short-medium term.
Liquid Staking solutions are another STaaS option that is in the early stages of development and offer users the ability to trade a derivative token that
represents their staked tokens. For example, ETH holders can stake their ETH on Lido Finance and receive an stETH derivative which can then be
used on DeFi protocols such as Maker, Curve, andYearn Finance.
Custodial STaaS
12
STAKING-AS-A-SERVICE: STAKING FOR THE MASSES
Source: Messari
As of November 25, 2021.
1Does not include liquid staking protocols.
Total
Staked
Value
8 of the Top 10 StaaS providers1 do not custody their customers’ assets.

13. APPENDIX
13

14. 14
STAKING RISKS & CONSIDERATIONS
Staking is not without risks. Investors must consider a variety of factors before choosing to stake or investing in a staking project/company.
Stakers Staking Companies/Projects
Loss or theft of tokens Team experience and reputation
Lock-up periods VC investors
Blockchain liquidity Network security
Rewards duration Developer activity
Validator risks (slashing)
1:1 staked/nonstaked peg mismatch
Network Security
% of network staked
Reward fluctuation
Market volatility

15. SUPPORTING RESOURCES AND PUBLICATIONS
 Etherscan.com
 Defillama.com
 Dosesofdefi.substack.com
 Dune Analytics (dune.xyz)
 “LidoWhitepaper.” Lido, 2020, https://lido.fi/ethereum.
 Messari.io
 Pitchbook.com
 “Galaxy Digital Research - Ready Layer One.” Galaxy Digital, 4 Nov. 2021, https://docsend.com/view/tdgbf4sfmyd7sr3m.
 Staked.“State of Staking: Q3 2021 Report.” State of Staking, https://staking.staked.us/state-of-staking.
 Saleuddin, Rasheed, and Chase Devens.“What's at Stake in Staking-as-a-Service?” Messari.io, 15 Dec. 2021, https://messari.io/article/what-s-at-stake-in-staking-as-a-service.
 “Staking Is the Quiet Giant of CryptoYield.” Nasdaq, 23 June 2021, https://www.nasdaq.com/articles/staking-is-the-quiet-giant-of-crypto-yield-2021-06-23.
 Stakingrewards.com
 Tokenterminal.com
15

16. 16
THANKYOU!