White Label Staking
In white-label staking, the crypto holders get their validator node explicitly created for them. This is then managed entirely on their behalf by a third-party operator.
What Is White Label Staking?
Staking refers to the process of locking up crypto assets to earn a return on your principal and help secure the blockchain. The blockchains that support the staking process run on the Proof-of-Stake (PoS)
consensus mechanism.
In
Proof-of-Stake (PoS) blockchains, as more coins are added to the circulation, the staked assets grow the holdings of the validator simultaneously.
As shown by the diagram below, staking itself can be primarily segmented into two forms, namely white label staking and public delegation or staking pools.
White label staking is considered a more premium way of staking tokens. With white-label staking, the token and crypto holders get their validator node explicitly created for them. This is then managed entirely on their behalf by a third-party operator. This can be extremely helpful, especially for technology companies who are not familiar with the processes and best practices for the setup, maintenance and operation of
validator nodes. The ownership of the nodes and assets still remains with the crypto and token holders, which is beneficial and important for both institutional and retail investors. While it can be a great way to earn rewards on blue-chip crypto, such as
Ether, for validators staking the assets, there are also risks and penalties to bear in mind for improper operation and malicious behaviour.
Mechanisms such as
slashing can penalize validators for a percentage of their staked amount. As staking continues to raise institutional and retail interest, it is thus critical to partner with active validators on the network that possess the right infrastructure for staking needs. With a minimum of
32ETH or Ether required, and a penalty of above 0.5ETH to the entire stake for every instance of “improper” operation as a validator, proper setup and operation are thus essential to preserving the value of the staked assets.
Additional potential benefits of white label staking include the offering of a fully customizable, branded offering for white label validators. While rewards are generated on the customer’s behalf, the fees charged at a protocol level can be fixed.
If the white label staking provider has high-security standards and robust infrastructure where high-quality nodes are used, the maximum amount of rewards can be earned. This is because the flow of funds across PoS blockchains relies on high-quality validator nodes.
Lastly, the white label staking provider can also tailor the node to the customer’s specific needs while being maintained with 100% slashing insurance, constant uptime and 24/7 engineering support.
The only downside for white label staking would be the high minimum staking requirements, such as the minimum of 32ETH as mentioned above. This is more of an obstacle for smaller retail investors, however, as many
institutional investors and individuals choose the white label option because they have access to a large pool of capital. This capital allows them to earn staking rewards on their own, without needing to delegate to a third party.
However, the effectiveness of white label staking varies across blockchains. While 32 ETH and gas fees are required to run a validator
node, other chains, such as Cardano and Solana, require a large amount of stake for white label to be more attractive than simply delegating to a public node.
On the other hand, public delegation is when a token or crypto holder delegates their PoS tokens to an existing public validator. This tends to be more beneficial for token holders who don’t have as much capital to meet the minimum requirements to set up their own validator nodes. The lower overheads thus make it a more attractive option for such token holders, as this is a simpler ‘off-the-shelf’ solution for generating staking rewards with minimal requirements for getting started. As token holders can also delegate and earn rewards as soon as possible, allowing them to get started staking rapidly, the speed to market is also much faster than white label staking. However, the quality and reliability of the public validator nodes are still essential factors, as they affect the consistency and amount of rewards.
While the validators do earn staking rewards for the token stakers, they have no ability to customize the validator to their specific requirements. All staking nodes are branded under the validator node provider, rather than the individual stakers.
Another similar option would be
staking pools, which allow multiple crypto token holders to pool in their tokens, thereby granting the staking pool operator a validator status and rewarding all stakeholders with tokens for their combined contributions.
Staking pools allow token stakers to earn rewards in proportion to their holdings and share of the pool, even if the quantity staked is a fraction of what is needed to achieve validator status on the blockchain.
While the lower minimum overheads make this an attractive option, especially for retail investors, the staking pool should be chosen cautiously, as the staked tokens act as a guarantee for the blockchain. It is thus important that the pool operator, which is acting as a validator on the blockchain, performs their role properly and without malicious intent. If the validator facilitates invalid or fraudulent transactions, slashing will still occur, which results in the penalty and loss of the staked token.
Additionally, once the token holder joins a staking pool, their crypto tokens are locked in a specific blockchain address or with a third party, which may result in stakeholders having to sacrifice control or custodial ownership over their staked tokens.
A staking pool will also give smaller rewards than if the tokens were directly staked with the blockchain since every staking reward is split among the participants of the staking pool. After deducting platform fees and commission rates, the final payout reduces further.
It is critical to research and evaluates which methods of staking are most suitable for each token holder, as they all have respective pros and cons.
Author:
Andrew Vranjes, is the VP of Sales and GM (APAC), Blockdaemon, the leading institutional-grade blockchain infrastructure building a full suite of staking, node, API and custodial products connecting institutions and developers to leading networks.
With extensive experience from holding leadership roles in established technology and data companies such as Amazon Web Services (AWS), Cisco Systems and Singtel/Optus, sales and business development for several acquisitions, and internally built software solutions – Andrew is also an expert in building partnership with startups, digital natives, Crypto/Fintech with venture capital and private equity communities.
Based in Singapore for over a decade, Andrew is passionate about bridging the gap between institutions and digital assets through blockchain technology for the APAC region, through a foundation of sound infrastructure and developing innovative, accessible, secure solutions that scale seamlessly.