Introduction

The revolutionary Proof-of-Stake consensus changed the way the world viewed cryptocurrencies. The concept of mining and the questions regarding the environment and vulnerabilities were always deterrents to mainstream adoption. With the advent of staking, the mining farm fiasco and issues that came along with it substantially tempered down. Ushering a new generation in which cryptocurrencies could progress towards the goal of decentralised finance and acceptance as tender. The whole concept relies on one core component - staking.

Staking creates an efficient way to secure blockchains, with validators participating by locking up a certain amount of cryptocurrency as collateral, thus giving them a vested interest in the network's well-being. This innovative approach enhances network security by discouraging malicious behaviour and introduces a more environmentally friendly and economically efficient approach.

Doing all this also opened up a new investment option in the process. Institutional and individual stakers have the opportunity to earn rewards in the form of additional cryptocurrency, effectively turning their holdings into income-generating assets. This dual function of contributing to network integrity while generating passive income has made staking an attractive choice for both crypto enthusiasts and institutional investors looking for sustainable, long-term investment opportunities in the blockchain space. At the time of writing, $37 billion worth of funds are currently staked via various protocols according to DefiLlama. In this article, we take a look from an investor’s perspective and provide some clarity about this space.

Passive Income Potential: The Lucrative Returns

Cryptocurrency staking aligns perfectly with the concept of passive income generation, addressing a fundamental issue with traditional investments. When money sits idly in a traditional bank account, the interest earned is often negligible, rendering it ineffective as an investment. This stands in stark contrast to staking, where assets can be put to work.

This predictable reward system is far more attractive, for example in recent years the annual ROI from staking has been in the range of 4% to ~20% - which is consistent, compared to the fluctuating returns in stocks, whereas savings or bonds have meagre returns. If one were to take into consideration the power of compounding - one can expect even greater returns. For example. the ETH value has risen 42% in the last year, making it a hugely profitable asset, subject to volatility though. Thus, in a sector that is still emerging and known for its higher-risk nature, staking provides investors with a passive way to be part of the market without the requirement to actively manage their assets. Staking also helps mitigate this very volatility, which will be discussed in the next section.

Risk Management: Mitigating Volatility by Staking

In the realm of cryptocurrencies, institutional investors frequently face apprehensions regarding price fluctuations. Staking in itself doesn't prevent market volatility, but it can mitigate the impact of market volatility on individual investors in several ways:

Consistent Rewards

When one stakes cryptocurrency, they typically receive rewards at regular intervals. These rewards provide a predictable income stream, which can help offset the effects of market volatility. While the value of staked assets may fluctuate, the rewards earned remain relatively stable.

Holding Strategy

Staking encourages a long-term holding strategy. When investors stake their assets, they commit to keeping them locked up for a specific period. This reduces the liquidity of those assets in the market, making them less susceptible to short-term price fluctuations. Investors are less likely to panic-sell during market downturns, contributing to overall market stability.

Network Security

Validators and stakers have a vested interest in the network's stability, as their own assets are at risk. This alignment of interests helps deter malicious actors and ensures that the network remains robust, even in times of market turbulence.

Reduced Selling Pressure

Staking discourages immediate selling. Instead of trading their assets, stakers opt to lock them up, which temporarily removes those assets from circulation. This can reduce the supply available for sale in the market, potentially mitigating sharp price declines.

Diversification

The availability of multiple stakeable assets allows investors to diversify their portfolios. By participating in multiple staking projects or networks, investors spread their risk. If one project experiences significant volatility, other assets in their portfolio may remain stable or appreciate, reducing the overall impact of market turbulence. In fact, for this very reason, Luganodes supports institutional staking on over 30+ Proof of Stake (PoS) networks, offering investors the opportunity to diversify their staking portfolio.

Stablecoins

Some staking projects involve stablecoins, which are cryptocurrencies designed to be pegged to a certain currency (e.g., USDt). These stablecoins can provide a haven during periods of volatility by offering a predictable value, which can be useful for preserving assets in turbulent times.

Long-Term Value Creation for Institutions

Large institutional investors have already started venturing into the staking space to initiate their long-term profit journey. Among those who haven't, a study shows that in the upcoming year, staking is on the radar for 56% of the investors surveyed, even among those who have never engaged in the process before. The majority of these institutions intend to allocate between 20% and 30% of their portfolio to staking activities.

In our own backyard, major cryptocurrency exchanges Bitfinex and CoinList have utilised Luganodes’ enterprise-grade staking infrastructure to put their accrued assets to use and provide their customers with rewards for owning tokens, often by an automatic staking mechanism. This venture has shown their users and the greater world how staking can offer an effortless way to make one’s funds work.

Our partnership case studies showcase our commitment to simplifying staking for institutional investors, removing the hurdles of technical expertise and other prerequisites. A significant example of this is our successful collaboration with Bitfinex, where Luganodes manages staking operations across seven different chains thanks to our state-of-the-art infrastructure. Additionally, CoinList has placed its trust in us due to our white-glove customer service and unwavering reliability, aligning perfectly with their objectives.

The Path to Success: Luganodes’ Staking Platform and Strategies

There are numerous platforms that now offer staking services. This makes the market filled with lucrative options, but investors must have concrete plans and go for options that offer them the best service for their individual needs. In our article about the Rise of Institutional Staking, we have highlighted some valuable information which can assist new players to assess their environment and come aboard. With the effort that Luganodes puts into checking all of these boxes, and the stellar track record - it would be hard to not recommend the simplest path to success - take a look.

• Reputation and Trust: Institutional investors prioritize reputation and trust. For investment purposes, enterprises prefer to go for industry leaders and make sure there is a clean track record. With an AAA rating on Staking Rewards and established partnerships with industry leaders, Luganodes stands out as a reliable staking infrastructure provider.

• Security and Compliance: Stringent security measures and regulatory compliance are crucial for institutional investors. Compliance certifications make it easy for enterprises to gauge the security standards set for their funds at a glance. Luganodes holds triple certifications in SOC2 Type II, GDPR, and ISO/IEC 27001, demonstrating a commitment to robust security standards.

• Reliability: A staking infrastructure must maintain an exceptional 99.9% uptime rate, backed by round-the-clock monitoring and support. Essential to the functioning of a PoS chain, a validator must adhere to these standards. An experienced infrastructure provider, such as Luganodes, fulfils the fundamental requirement of a consistently reliable experience.

• Diversification: In the world of institutional investing, diversification is key. As discussed earlier, diversification minimises risk and maximises potential rewards, an essential strategy when it comes to traditional finance and staking alike. Supporting over 30+ Proof of Stake (PoS) networks, Luganodes enables institutional investors to strategically manage risk and optimize returns, aligning with sound financial principles.

• Value-Added Offerings: Products need to be tailored to cater to the specific needs of institutional investors, facilitating seamless asset monitoring essential for managing diversified portfolios. Luganodes offers its Terminal to fulfil this necessity. Innovative offerings like Staking APIs, Nodes-as-a-Service, and custom RPC nodes also enhance overall utility.

Conclusion

Investors in any field play an important role in shaping the future, one well-placed investment can create a wide array of transformative changes across industries. For blockchain technologies, their investments go beyond monetary support; they represent a vote of confidence, strengthening projects and drawing like-minded investors into the fold.

Moreover, investors and validators get direct governance decisions to handle and their insights are invaluable, propelling these initiatives toward innovation and success.

Therefore it's essential for investors to explore the exciting opportunities to stake that await. Their involvement and strategic choices are pivotal in shaping the future of blockchain technology, marking a promising path for the evolution towards a Web3 future.

Much like our other valued partners, your organisation can also take advantage of our top-tier Web3 infrastructure. As a rapidly expanding company, we are enthusiastic about forming new partnerships and cultivating enduring relationships. If our offerings resonate with your needs, please feel free to reach out to us at [email protected].

About Luganodes

Luganodes is a world-class, Swiss-operated, non-custodial blockchain infrastructure provider that has rapidly gained recognition in the industry for offering institutional-grade services. It was born out of the Lugano Plan B Program, an initiative driven by Tether and the City of Lugano. Luganodes maintains an exceptional 99.9% uptime with round-the-clock monitoring by SRE experts. With support for 40+ PoS networks, it ranks among the top validators on Polygon, Polkadot, Sui, and Tron. Luganodes prioritizes security and compliance, holding the distinction of being one of the first staking providers to adhere to all SOC 2 Type II, GDPR, and ISO 27001 standards as well as offering Chainproof insurance to institutional clients.