StakeWith.Us <> Seeking Alpha AMA
The following is a translated transcript for an AMA with Seeking Alpha on 06/12/2019.
Participants: Mervyn Chng, Michael Ng, Soros Report (Host) and chat participants.
Q1: Could you give an introduction to StakeWith.Us? How does the business works, what is the company vision and what kind of problems does the company wants to solve?
Mervyn: StakeWith.Us is a secure Staking-as-a-Service provider for high quality blockchain projects. While validation remains the core business, we are also building out tools and services to provide additional value for the project and its community.
Michael: Validation requirements for newer Proof of Stake based projects are higher as there are in-protocol slashing risks for malicious actions and service levels, which makes it harder to maintain and run as opposed to Proof of Work based projects and Masternodes. Overall, I think it might be more beneficial to the network in terms of stability and security to have a core set of professional companies to run validation operations.
Mervyn: That being said, in Proof of Work based projects, individuals have to spend huge capital to purchase hardware, spend on electricity, manage mining farms to secure the network and earn yields. Proof of Stake based projects have lower capital outlay which encourages and allow more people to participate in securing the network. Staking service providers like us provides reliable and secure infrastructure which gives token holders a peace of mind to earn yield in a non custodial manner and without the technical hassle.
Michael: We will be publishing an article regarding our validation setup within the next few weeks. We think that besides fees, delegators should look into the kind of validation setup a validator has as your staked tokens are subjected to slashing risks.
Mervyn: We believe that the Proof of Stake ecosystem will help decentralize the powers from miners to token holders. We want to play a big part in helping token holders participate in securing the network in a fairly decentralized manner.
Q2: What is your team background? How did you guys enter the crypto rabbit hole and why did you decide to setup a staking service?
Michael: We started from diverse backgrounds ranging from code development to finance and trading. We have a 5 man strong team (we are hiring!) and the founding team is based in Singapore. We fell into the crypto rabbit hole in 2017, formed MW Partners and invested into many projects such as Loom Network, Skale Labs, etc.
Mervyn: We are big believers in Layer 2 and trusted Loom’s ability to constantly ship product. Having a sizable position of their tokens, we decided to help bootstrap and secure their network. We started our research into validation back in November 2018 and went on to become their first bootstrap validator in February 2019.
Michael: We realized the potential of the staking ecosystem as we dug deeper into new, upcoming Proof of Stake based projects. The launch timeline for high profile projects such as Cosmos Network, Skale Labs and CasperLabs Official and other projects under the tendermint ecosystem was another reason for setting up a staking service. You can see the list of our validation projects on StakeWith.Us.
Q3: Could you elaborate more on why you choose to target staking servicing? What do you think are some opportunities and exciting prospects within staking?
Mervyn: Since 2017, we believe the main bottleneck to scalability has always been on the consensus layer due to the limitations of Proof of Work as blocks are linearly produced. In 2018, we have witnessed many new blockchain 3.0 projects focusing on variants of Proof of Stake consensus, even with the likes of Ethereum shifting towards Proof of Stake (Casper FFG first, eventually Casper CBC) and sharding to achieve scalability.
Michael: While you might still need to spend capital to purchase tokens to stake, there is no need for huge capital outlays on physical hardware like ASICs. This allows more people to participate in securing the network. It is also more environmentally friendly to secure transactions through Proof of Stake based blockchains.
Mervyn: As a staking service provider, our aim is to provide a secure and reliable staking service to token holders without the hassle of running their own infrastructure.
Michael: Put your crypto to work, hassle free!
Q4: We have seen an influx of staking service providers within the ecosystem consisting of crypto VCs, wallets, dedicated staking provider, etc. Which type of staking servicer do you think you are? How do you think the staking ecosystem will develop?
Mervyn: We started as a validator for projects invested through MW Partners. Since then, we have built a team and developed the expertise to provide staking services to institutions and retail investors.
Michael: Our short term aim is to remain as a high quality validator within the staking ecosystem and our long term aim is to build tools and services that will aid application deployment on blockchain. One important note is that StakeWith.Us makes validation decision independent of what MW Partners have invested in.
Mervyn: Wallets, exchanges and custodians will have a big share of the ecosystem as its a natural complement to provide staking services alongside their existing service. Users ultimately prefers convenience over everything else. However, we are also of the view that independent staking service providers will survive and continue to play a pivotal role within the staking ecosystem.
Q5: What are your strength and weaknesses? How do you differentiate yourselves?
Michael: We believe that eventually, most of the technical infrastructure and industry best practices will be commoditized. Our strategy is to focus on projects that we believe will have the highest chance of driving real adoption. While we understand the current crypto market is still primarily speculation focused, we don’t judge the quality of a project by its token price. StakeWith.Us is our long term bet on our validation projects to accrue value and bring about adoption.
Mervyn: We are certainly weaker when it comes to the number of validation projects as compared to other validators. We noticed that majority of newer Proof of Stake projects offer higher yield initially to attract token holders to stake. While spray and pray tactics results in better token yields and higher chances of selecting projects that will accrue value, we continue to be more selective. We want to be more focused in providing value to these projects (and we have limited time and resources to do that).
Q6: What are your future plans? Which new projects would you consider to offer staking services for?
Mervyn: Blockchain applications will come in droves (not a matter of why or how, but when), and we will focus our efforts building the ecosystem for those better suited to capture value. We believe it will come in one of the 3 forms :
i) Layer 2s like Loom Network and Skale Labs on top of the vibrant ETH ecosystem (Ethereum first, but not Ethereum only). These layer 2s are also highly interoperable;
ii) Application specific blockchains connected via Cosmos hub (interoperability focused). Some notable examples include BinanceChain, Terra, IOV, Sentinel, DLive and Loom Network;
iii) Truly decentralized scalable layer 1s like CasperLabs.
Michael: We are currently live on tendermint ecosystem projects like Loom Network and Cosmos Network, and will be announcing more validation projects when the time comes!
Q7: We noticed that StakeWith.Us has a very deep connection with the Loom team. Can you elaborate more about your relationship with the team and your views on the project?
Michael: For those who went through the ICO boom, you should noticed the first signs of scalability bottleneck ever encountered with Ethereum during mid 2017. It became even more apparent when Cryptokitties launched as gas fees went through the roof. It was during this period of time when we found Loom Network through their medium article targeted at Cryptokitties. We instantly resonated with their product offering — to become the defacto Layer 2 solution for Ethereum as not every transaction needs to be on the main blockchain. We were one of the larger investors into Loom Network during their private raise.
Mervyn: Michael is also an advisor to Loom Network and have been working closely with the team since late 2017. Why are we bullish on Loom Network?
i) There are already >26+ quality applications building on Loom Network: https://loominfo.com/projects-being-built-on-loom/;
ii) They are already interoperable between Ethereum and Tron, and have announced integrations with Cosmos and EOS. Being an interoperable Layer 2 project allows them to integrate with any Layer 1 project that succeeded in driving adoption;
iii) BaseChain has been in production are have been used by several applications since February 2019. They have a pool of solid validators. Currently, more than 6 million blocks produced with more than 30,000+ transactions on average a day.
Q8: StakeWith.Us has a monthly newsletter called Staker Digest which we find to be very informative and well written. Why did StakeWith.Us started its own newsletter?
Michael: Thanks! We started Staker Digest as a channel to communicate to our delegators the latest updates on our validation projects. There is a lot of stuff going on within each project and we felt that each delegator might not have time to stay up to date with all the information. Staker Digest aims to be the go-to newsletter for delegators who prefers a TLDR of the key updates from our validation projects.
Q9: It seems that you guys are providing the staking services out of Singapore. Do you know the location of your customer base? Are you more focused on domestic users or international users?
Mervyn: Our team spreads across Singapore, China and Vietnam. Our servers are based in 2 different Tier 3 data centers within Singapore.
Michael: Our delegators come from all around the world.
Q10: What do you think are the main considerations for ordinary token holders in choosing staking service providers? What advice would you give them?
Mervyn: We think that delegators are usually investors with a longer term investment horizon. As the validation market is pretty nascent, there is little differentiator between validators that are not well known or without a first mover advantage in a particular project. Delegators also have a tendency to focus on fees amongst other factors such as branding, security of validation setup, amount of skin in the game, etc. We think more emphasis should be placed on security and the value the validator is bringing to the community.
Michael: In our opinion, a secure setup is one that runs their validator on physical hardware servers with HSMs (non-cloud based) as it reduces attack vectors and security vulnerabilities. The use of physical HSMs also ensure that signing keys are securely isolated from the validation setup and cannot be easily accessed by attackers. Validators should also have ample monitoring tools and good security policies in place.
Mervyn: Uptime risks and double signing risks can affect the return on your staking assets significantly. Choose validators that have a secure and highly available setup.
Michael: Currently, the double signing penalty on Cosmos is 5% of your bonded tokens and service level penalty is 0.01% of your bonded tokens (>9,500 blocks missed in any consecutive 10,000 blocks).
Q11: As for ordinary investors, in combination with your selection criteria for staking tokens, what advice would you give them? Are there any staking projects you are particularly positive about?
Michael: Staking is a long term proposition and best way for token holders to show their support for the network. It is also much easy and less risky as opposed to doing short term trades to accumulate the token (and trying to beat network inflation, if any).
Mervyn: Majority of the network incentives are deliberately set high initially to attract stakers to secure the network. Delegators should be aware that high network incentives are a temporary measure to bootstrap networks. Eventually network usage (and transaction fees) have to increase in order for the network to be sustainable and for the staking token to accrue value.
Michael: Our thesis is that the biggest drivers of adoption will come mainly from Layer 2 solutions like Loom Network and Skale Labs, as well as from application specific chains connecting to interoperability solutions like Cosmos. While many question the value accrual of Layer 2 and interoperability tokens, we think of each ATOM or LOOM as yield generating assets that produce fees after work is done (from validating transactions). Value will accrue on the staking token as the network grows.
Mervyn: Basically, think of each ATOM or LOOM as an ASIC miner.
Mervyn: The public blockchain networks with the highest usage right now is Bitcoin and Ethereum, both of which are based on Proof of Work. Ethereum is poised to transit from a Proof of Work network to a hybrid Proof of Work plus Proof of Stake network (Casper FFG), and eventually to a fully decentralized Proof of Stake network (CBC Casper). While we don’t doubt that the transition will eventually work out, we think that it might take a really long time — this is the reason why we took a bet on CasperLabs, a project that is building to fulfill the eventual ambitions of Ethereum.
Michael: In short, stake tokens of networks that you believe have the best shot at adoption and real network usage in the long run.
Michael: Please wait a moment, sending a picture on staking economics.
Q12: Do you think that the staking space is competitive? Is it more competition or more collaboration?
Mervyn: Staking is a competitive space and we are definitely seeing a lot more players coming into the space, including big players such as exchanges and wallets. However, we believe there is sufficient space for a diversified set of validators, each with their own value proposition to keep networks decentralized and secure.
Michael: We also work actively on research and share these with other validators to help increase overall security of the network, one example being our research on HSM.
Mervyn: Here it is: https://medium.com/loom-network/hsm-policies-and-the-importance-of-validator-security-ec8a4cc1b6f
Michael: We are also working on a few tools that we plan to open source and share with the community!
Q13: We had our AMA with Wetez last month when POS was still a hot topic. We feel that the hype is dying down. Do you think so too? What are some future developments you are excited about?
Michael: We believe that staking is a long term game and Proof of Stake networks are here to stay.
Mervyn: Infact, there are many other new Proof of Stake based projects launching this year, such as CasperLabs, Dfinity, Algorand, etc.
Michael: We envision that future discussions on Proof of Stake networks will hover around governance related issues — it is already happening on Cosmos and it is exciting to see how for the first time, a decentralized group of stakeholders can collectively make constructive changes to a network.
Q14: Could you elaborate more on how StakeWith.Us can guarantee safety and reliability?
Mervyn: Like most other professional validators, we have a secure validation architecture: Baremetal servers that are securing cryptographic keys with Hardware Security Modules (HSM) that are directly connected to cloud hosted sentry nodes in Tier 3 data centers.
Michael: We will be publishing our validator architecture within the next few weeks, stay tuned!
Q15: Currently, the only way to earn yield from POS network is just through staking. Do you think that in the near future there will be more financial products and services available?
Michael: We believe that as the staking industry matures, there will be more complex financial products made available to hedge and insure your collateral and yields.
Q16: Do you have a backup plan if the staked tokens from delegators get stolen, or slashed?
Mervyn: Most of the newer Proof of Stake projects have non-custodial delegation processes, where assets are entirely owned and controlled by token holders even if they are delegated. In such networks, there are no risk that your tokens will be stolen. The real risks come from downtime and malicious action (double signing) from validators.
Michael: We are confident in our service offering. In the unlikely event that slashing occurs, we will find ways to cover losses to our delegators.
Q17: Huobi Pool claims to have bought insurance to cover risks associated with slashing, what about you?
Michael: We do have future plans that involves setting aside profits for an insurance fund.
Q18: Why do you have such a deep belief in layer 2 solutions when majority of the domestic VCs do not support layer 2 projects? You guys are unique in the sense that you made very big bets into layer 2 projects.
Mervyn: We made big bets into layer 2 solutions due to the agnostic characteristics of these scalability solutions. Layer 2 solutions can easily integrate into any new blockchains that gains traction. This seems like a pretty good hedge to us.
Michael: We don’t think that every transaction has to be on layer 1. Cryptokitties was a good example of this. A censorship resistant Twitter or Weibo will not likely be deployed on a layer 1 (like Ethereum) due to high gas costs incurred for every like, retweet or comment.
Q19: What is the arrangement between you and your delegators on governance?
Michael: We will (and have continuously) update our community through our social media channels in Telegram, Twitter and WeChat on upcoming governance proposals and our reasoning behind them. In Cosmos, though the votes are proxied to us, you are still able to vote independently of our votes. We basically just want to give you more information to make an informed decision.
Q20: Multicoin Capital is also very optimistic about layer 2 and have written many articles about Skale Labs. What are your views on Multicoin Capital? Do your reasons for investing into layer 2 solutions resonates with them?
Mervyn: We do read their articles and think that they are very well articulated. We had also invested into Skale Labs in the same round as them.
Michael: Their articles and Twitter engagement provides the best form of marketing for their portfolio investment (VCs are usually good marketing firms). They are a very sharp and notable investment firm.
Mervyn: This is a translated article for the arguments for value capture on layer 2 and layer 1: https://www.chainnews.com/articles/944322438519.htm. We have very similar views as we do not think that every application has to be onchain — offchain scaling solutions are very viable alternatives.
Q21: Why do you think that staking on POS networks are sustainable? With constant inflation there is no way token price can rise.
Michael: Not all Proof of Stake based networks will survive in the long run. It ultimately will still be dependant on real network usage which will drive transaction fees and make the platform sustainable. Choosing the right projects to stake is probably the most crucial.
Mervyn: We mentioned earlier that staking is for investors with longer investment horizons. With high inflation, prices will not be sustained unless there are demand for staking tokens, which is derived directly from high network usage. Choose the correct projects to stake!
Q22: Have you guys invested into sharding projects to hedge your risks against your layer 2 bets? Sharding, just like layer 2 solutions, have been pitched as another viable alternative to solve scalability issues. Have you invested into Harmony? If so, can you share your views on the project?
Michael: We previously invested into Chainspace (acquihired by Facebooked), which worked on smart contract sharding as well as Multivac and Zilliqa. We did not invest into Harmony but have been actively looking into their project.
Mervyn: CasperLabs is another project that is working on composite sharding. CBC Casper has properties that enables composite sharding — where a single consensus protocol operates on many homogenous shards.
Q23: Layer 1 blockchains must utilize Proof of Work at all cost. What are your views on this statement?
Michael: Proof of Work requires longer confirmation time and will not be able to reach finality fast. It will not be able to support applications that requires high throughput.
Mervyn: Proof of work priortizes liveness over safety. You have to wait 6 confirmations for Bitcoin transactions to be considered as “safe”, which severly limits throughput. In Proof of Stake, nodes come to an agreement before blocks are generated, leading to fast finality and helps greatly with scalability.
Q24 (from Host): What do you think of the Proof of Stake Weekly report and how do you think we can make it more professional and influential?
Michael: The newsletter is very well writen — There can be more visual data points for delegators to witness the growth of the networks they support.
Mervyn: The Proof of Stake newsletter by Soros is one of the most professional and reliable content I have seen to date. It was very well put together with all the important news for the week in a concise manner. I enjoyed reading it!
Host: Time is almost up and I think that everyone’s question has been covered — if there are no new questions, we will be ending the AMA session. Are there anything StakeWith.Us would like to add?
Mervyn: We encourage potential stakers to take a look at our validation portfolio. We have very strong belief in these projects.
Michael: In addition, please do not forget to StakeWith.Us. We are currently live on Loom Network and Cosmos Network. For a complete list of validation projects please check out our website!
Mervyn: Feel free to add us on WeChat (@mcry89 @gobigordietrying), follow us on Twitter and join our Telegram group! We would love to chat with you!
StakeWith.Us is a secure Staking-as-a-Service provider for leading blockchain projects. Put Your Crypto to Work — Hassle Free.
Here are our staking guides for Loom Network and Cosmos Network.
To get more updates on our validation updates, please follow StakeWith.Us on Twitter, Telegram and Medium. If you are interested to join our WeChat group, kindly approach gobigordietrying or mcry89 on WeChat. Also, subscribe to our monthly Staker Digest updates if you want to learn more about our staking projects!
Alternatively, reach out to Earn@StakeWith.Us if:
- you have any burning queries for us;
- if you are a project looking for a professional validator;
- you are looking into investment and partnership opportunities with StakeWith.Us.
