Staking Weekly #8 — The rise of custodial staking

Published in

ClayStack

2 min readMay 1, 2021

Staking is the process of actively participating in validating network transactions on a proof-of-stake (PoS) blockchain. In the early days, staking was limited to individuals with technical expertise to set up and actively run the nodes.

However, with the rise of PoS chains, there was a surge in staking-as-a-service companies offering institutions and high net worth individuals to participate in the network and earn passive rewards in a non-custodial manner without the need to manage the infrastructure.

Since 2020, staking has seen tremendous growth, with TVL in staking rising by over 2300% from $6B to $146B. One of the primary reasons for this growth is custodial staking services like exchanges and wallets. As per stakingrewards.com, three out of the top five staking providers based on staked value are custodial services.

As per stakingrewards.com, three out of the top five staking providers based on staked value are custodial services. — Source: stakingrewards.com

By abstracting the blockchain component and using centralized databases to track customer interactions, exchanges and wallets provide an easy UX for an average user looking to earn passive rewards rather than simply holding an asset. But, the core nature of custodial services goes against decentralization and is prone to attacks.

With the rise of the multichain ecosystem, there is an imminent need for newer solutions that allow both individuals and institutions to stake their crypto in the most secure way possible.