Navigating the Staking Landscape: Part 1 - Market Overview
The staking market is growing, drawing both innovative ideas and new participants to the field. So we're launching a series of articles covering all aspects of staking.
While Proof-of-Stake (PoS) consensus, which enables staking, has been around since 2012, the staking market has only truly picked up momentum in recent years. The global staking market cap is now valued at $92.73 billion, offering impressive rewards of $5.33 billion per year at an average rate of 6.7%.
One huge catalyst for the recent growth of the staking market was Ethereum's transition to PoS last year. This attracted many new players and sparked several innovations in the space. Around $39 billion (24 million ETH) of Ether is currently staked, representing an astonishing 40% of the global staking market cap.
Demand for ETH staking grew substantially in 2023, and this trend is likely to continue. At the time of writing, around 20% of Ethereum's total supply was staked.
Other top blockchain networks that use PoS include: Solana (71% staked), Cardano (62% staked), Aptos (84% staked), BNB Chain (14% staked), Sui (74% staked), Polkadot (48% staked), and Avalanche (63% staked). Together, they make up the majority of the remaining portion of the staking market.
There are several ways to stake tokens, including liquid staking, staking through centralized exchanges, solo staking and staking-as-a-service (SaaS). Users can choose their desired method based on criteria such as ease of staking, yields, potential risks, and more.
Liquid Staking
A substantial amount of Ethereum is now staked through liquid staking platforms. It allows users to stake tokens in a proof-of-stake network and, in return, receive a derivative token for greater liquidity. These tokens not only earn staking rewards but can also be traded and used as collateral in DeFi protocols. Leading the innovation within this emerging sector are projects like Lido, Pendle, and EigenLayer.
Staking Through Centralized Exchanges
Staking tokens through centralized exchanges is another option. It can be convenient for beginners who lack the technical expertise to set up their own staking. However, users need to understand that when they stake with centralized exchanges, they give up custody of their funds. This exposes them to various risks, including regulatory, hacking, and bankruptcy risks associated with the exchange holding their funds. Not surprisingly, some of the biggest players in this category at the moment are Coinbase and Binance.
Solo Staking
Solo staking is somewhat similar to SaaS staking as described below. However, with solo staking, you operate your own hardware and maintain full control over it. While this method of staking can be less expensive, it comes with its own set of risks such as security concerns, hardware failure, and maintenance issues.
Staking-as-a-Service
Staking through SaaS providers is also an option. If you have 32 ETH (a minimum requirement for one node), but don’t want to manage all the necessary hardware, you can delegate node operation to a third-party provider, for a monthly fee. Although you do not give up the custody of your funds with SaaS providers, you still become vulnerable to counterparty risk. SaaS providers may potentially act maliciously or become a target of attack.
Nevertheless, there are now more than 200 SaaS providers, and even reputable non-crypto companies like the European telecommunication giant Deutsche Telekom are entering this market. We will delve in-depth into SaaS providers in the next article of this Observation series.
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