Ethereum Staking as a Service Providers: Under pressure

Firstly let me start by saying Staking as a Service providers are an important and useful part of the Ethereum staking ecosystem. They are good people doing good work and I wish all of them wealth and health.  However, as we have seen customers move away from Staking as a Service providers to become solo stakers with Launchnodes, they have asked me to write this blog to try and explain the difference between solo staking and Staking as a Service providers, as well as the challenges both have today.

Ethereum Staking as a Service providers take customer deposits and deploy nodes allowing their users to earn rewards for validating and securing the network.  Users pay for the service as a percentage of their staking returns, or as a flat fee per node. Recently, however, Ethereum staking providers have been facing some serious issues that could prevent them from fulfilling their service promises to customers. Let’s take a look at why this is happening.

Their cost base is rising but their revenue is falling

Ethereum Staking as a Service providers are having to deal with falling revenue and rising costs. With the price of ETH having fallen almost 75% these services are earning less and becoming increasingly difficult to manage.  Their lack of transparency means that customers do not know which Ethereum clients are being used, what the hardware and design configurations are, and how this reduction in revenue is forcing them to make design changes regarding how they stake your funds to manage costs, whilst hopefully still maximising clients’ returns through staking. 

This is largely due to the fact that these services operate on a shared infrastructure model and as a black box, which makes it difficult to know and understand stress points. In addition, most of these services are designed to give their customers an economic outcome, not share with you the mix of technical and financial decisions they are making on your behalf to stake Ethereum.

Another issue lies in the complexity of running an Ethereum Staking as Service business. Many of these services require expensive technical engineering teams in order for them to function properly. As the network changed to become a full Proof of Stake network the costs for Staking as a Service providers went up at the infrastructure level. As the network continues to upgrade, these costs will likely increase.

Solo Staking = De-risking

What is Solo Staking? 

Solo staking refers to the process of using one’s own infrastructure through public cloud or bare metal to run an Ethereum node and validate blocks in order to earn rewards. Launchnodes helps its clients become solo stakers on public cloud, or our clients’ own bare metal or data centre infrastructure.

Benefits of Solo Staking

The main benefit of solo staking is that you do not have to share any rewards with a Staking as a Service provider. This makes it attractive for larger holders who have enough capital (multiples of 32 ETH) to make solo staking feasible. Launchnodes helps clients to run their own nodes. When you are running your own node, you have full control over the configuration and security settings, allowing you to customise your setup for maximum returns. Finally, solo stakers will get paid their inclusion fee and MEV directly today and have it liquid to spend.  They don’t need to wait on a pool or Staking as a Service provider to make it available to them.

Another key benefit is helping to decentralize the Ethereum network further.  Staking as a Service providers can be seen to present systemic risk in the Ethereum network.  Any outage resulting from a Staking as a Service provider’s technical or business failure could mean significant impact and downtime for thousands of nodes.  With solo staking, everyone is making their own technical decisions and running their own nodes.

Drawbacks of Solo Staking

You need 32 ETH or multiples of 32 ETH to do it.

It’s technically harder than using some Staking as a Service provider unless you use Launchnodes, who charge you a fixed fee to enable you to become a solo staker. But even then it is a bit harder and you do need to manage your mnemonics, your keys and your passwords.

Conclusions

There is a reason why the Ethereum Foundation recommends that people become solo stakers.  It is harder but ultimately it’s the best way you maximise your returns, and to help the network grow.  Launchnodes’ work to make it easier to become a solo staker – both on cloud platforms and on premise/bare metal – is an ongoing process, and we promise to do better explaining.

Staking as a Service providers need to be transparent about how they stake their clients’ funds, and to share all the IP they can with their clients.  This will help stakers to understand and learn how staking returns are actually being generated, as the Ethereum network and their own operation evolves.  They also shouldn’t change their fee structure without warning or consent from their clients as some operators have recently done.  There should always be a clear and painless path for a customer prior to the Shanghai upgrade to stop using one service to switch to another, making sure their clients have the mnemonics for their node. “Not your keys, not your ETH” is not enough.

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