Staking-as-a-Service: Everything to Know
By Beluga Research July 17, 2023
- Staking-as-a-Service (SaaS) is a process by which a user earns passive crypto income
- SaaS allows a user to support a blockchain network without having expensive equipment or the technical knowledge of a validator
- SaaS allows a user to earn rewards for staking their cryptocurrency, typically paid out in the same cryptocurrency that is being staked
- SaaS is an energy-efficient alternative to cryptomining
Staking-as-a-service (SaaS) is the process of staking a specified amount of cryptocurrency held in a wallet to support the operations of a blockchain network. The action of staking a specified amount of a certain type of cryptocurrency allows a user to support a blockchain network without having to purchase and maintain expensive computing equipment. SaaS offers a cheaper, more energy-efficient alternative to cryptomining. It is increasingly gaining popularity as a different path to supporting blockchain networks.
A Brief History
Staking has been around since the early days of cryptocurrency. It became a viable alternative to mining with the introduction of proof-of-stake (PoS) consensus algorithms. Blockchain networks that allow users to validate transactions and earn rewards utilize PoS.
PoS algorithms were designed to be more energy-efficient than proof-of-work (PoW) consensus algorithms. PoW consensus algorithms are used by Bitcoin and many other cryptocurrencies. The first cryptocurrency to use PoS was Peercoin, which was launched in 2012. Since then, many other cryptocurrencies have adopted PoS, including Ethereum, Cardano and Binance Coin - among many others.
What is Staking-as-a-Service?
SaaS allows users to participate in staking without having to manage the technical details of the crypto staking process. SaaS providers typically charge a fee for their services. This can range from a fixed fee to a percentage of the staking rewards earned.
SaaS providers typically operate nodes on behalf of their clients. Clients do not need to run nodes or manage wallets. Instead, clients deposit cryptocurrency holdings with the SaaS provider and receive staking rewards in return.
SaaS providers typically offer a range of services, including staking pool management, node management and wallet management. Some providers also offer additional services, like market analysis and portfolio management.
The benefits to using a SaaS provider include providers offering better staking rewards than individual users can earn on their own. This is because SaaS providers typically have larger staking pools. The providers can earn higher rewards due to economies of scale.
SaaS providers can also provide additional security for users' cryptocurrency holdings. By operating nodes and managing wallets on behalf of their clients, SaaS providers can offer enhanced security features. These include multi-factor authentication and cold storage.
Lastly, SaaS providers can offer greater convenience for users. By handling the technical details of staking, SaaS providers allow users to earn passive income. The users do not have to spend time and effort managing their own nodes and wallets.
- Choose a service provider. There are several providers in the market, each with unique features and benefits. It is important for an investor to do research to choose a provider that meets specific needs.
- Deposit cryptocurrency into a staking pool. The provider uses the investor's cryptocurrency to stake on the investor's preferred blockchain network. The rewards that the provider earns from staking are distributed to all participants in the staking pool in accordance with their respective contributions.
- Note minimum deposit amount. This varies depending on the provider and the cryptocurrency being staked. Additionally, there may be fees associated with the service, like a percentage of the rewards earned or a flat fee.
- Stake cryptocurrencies without being concerned with technicalities. A user does not need to know how to run a node or maintain the infrastructure required for staking. This makes staking more accessible to a wider audience, including those who may not have the technical knowledge or resources to set up staking nodes.
- Providers typically offer a range of different cryptocurrencies to stake. Providers usually offer investors a choice of cryptocurrencies. This is beneficial for users who want to diversify a cryptocurrency portfolio.
- Providers offer additional features and benefits to users. These include automatic compounding of rewards, which can help to maximize returns. Some providers also offer insurance on deposited funds, providing users with an added layer of security.
- Convenience. SaaS is convenient for users who do not have the technical expertise or resources to set up and maintain staking nodes. With SaaS, users can delegate coins to a staking service provider. They can begin earning rewards without dealing with technical details.
- Accessibility. SaaS makes staking accessible to a wider range of users. Previously, staking was only an option for users who had the technical expertise and resources to set up nodes. With SaaS, any user with coins can participate in staking and earn rewards.
- Flexibility. SaaS allows users to delegate crypto to multiple validators or service providers. This can help reduce risk and increase rewards. Users can also switch service providers easily if not satisfied with the service or rewards.
- Passive Income. SaaS provides users with a passive income stream. Users can earn rewards for staking coins without having to actively trade or manage their investments.
- Centralization. SaaS can lead to centralization of the network if a small number of service providers control a large portion of the staked coins. This can lead to a loss of decentralization and security for the network.
- Counterparty Risk. When users delegate coins to a staking service provider, they are trusting the provider to act in their best interests. If the provider is hacked or goes bankrupt, a user's coins are at risk.
- Fees. SaaS providers typically charge fees for their services. These fees can reduce the overall rewards earned by users and make staking less profitable.
- Lack of Control. When users delegate their coins to a staking service provider, they give up some control over their coins. They may not be able to withdraw their coins immediately.