Enterprise-grade Staking: A Move to Durable Yields and a Stronger Web3

It’s no secret the market is ripe with fear over crypto lending yields. The meme, “If you don’t understand the source of yield, you are the yield” echoed across Twitter after the collapse of Terra/Luna and the Celsuis liquidity crisis. In response, many are exploring crypto staking as a durable alternative. But with a never-ending list of protocols, validators and industry-specific buzzwords, it is hard to navigate the technical risks and variables.   

For example, there is no doubt the average investor’s eyes gloss over any time they read “enterprise-grade infrastructure.” This overlooked classification looks like technical jargon, but industry leaders see it as an essential puzzle piece to a reliable and competitive staking yield strategy. And, more importantly, as the bedrock to a secure and decentralized Web3. We sat down with Figment, a leader in enterprise-grade staking, to gain a better understanding.

Enterprise-grade staking defined

In this context, Figment defines enterprise-grade staking as a method of structuring servers, blockchain data and developers to provide scalability, security and flexibility. It extends beyond a single team of engineers and carries layers of institutional support.     

Many use it as a defensive tactic to protect validators from liabilities like natural disasters, DDoS attacks, hacks, and server downtime from internet outages. But to understand why many see enterprise-grade staking as a durable alternative to crypto-lending yields and running your node, we need first to explain its fundamental value as the bedrock to Web3.

Enterprise-grade staking as the bedrock to Web3

Web3 doesn’t exist without blockchain, but secure networks aren’t enough. Web3 needs secure networks that can grow — and grow fast. Figment provided this analogy: “Blockchains like Ethereum are like living, breathing organisms. It runs multiple clients in multiple languages, all requiring frequent updates at varying times.” And soon, that organism plans to multiply 64x. 

Web3, at its current state, is at a bottleneck until its largest network, Ethereum, officially undergoes this metamorphosis and transitions to proof-of-stake. But this proof-of-stake merge doesn’t just need validators with liquidity. They need reliable, trustworthy participants that can scale vertically and horizontally. In other words, they need world-class players with a real stake in the game. Enterprise-grade staking meets that demand by integrating industry scaling standards that have been evolving since Web1. By using experts that have a stake in the entire industry, enterprise-grade staking institutions can help build Web3 from the ground up.  

When you contrast the utility of enterprise-grade staking with alternative yield-bearing instruments such as lending protocols, you can see why many classify it as a durable yield generator. Although staking does contain risks, it does not expose investors to impermanent loss or smart contract and oracle risks.

How institutional staking can support decentralization  

Institutional investment in staking is one of the most impactful methods large-scale businesses can use to support the decentralized ecosystem. By adding large quantities of liquidity that retail investors and smaller establishments cannot provide, institutions can help expand the networks of different blockchains immensely. 

Figment also believes that institutional staking will promote the faster adoption of cryptocurrency worldwide through its staking. By joining a decentralized network, many of these large-scale businesses will be encouraged to promote the use of blockchains for people around the world. 

In a commitment to support proof-of-stake’s founding principles. Figment stated: “Having a rock-solid infrastructure is important for stability, but it’s also important to have validator diversity, and to encourage more people to participate and stake over the long term.”

The liabilities of running your own node   

Because the Ethereum network can be seen as a complex organism, it grows every time a new validator joins the network. As it expands, the symbiotic relationship between the network, clients, protocols and smart contracts reinforces and strengthens. However, this type of growth cannot be left unchecked. 

The network requires a strong commitment from validators with protocol expertise. Enterprise grade staking isn’t just about the infrastructure, it is about the people behind the infrastructure. We talked with Figment to learn more about these demands. They explained that validators need to know how to apply an update and understand why it’s needed, often requiring a deep level of knowledge. Governance plays a crucial part in how decisions are made on proof-of-stake networks — it’s not just a case of being involved but actively proposing and helping guide the health of the networks over time. 

Figment noted that scaling becomes increasingly difficult with demand, and validators need to keep security paramount, to protect from malicious attacks, including distributed denial-of-service (DDos) attacks, and maintain 100% uptime.

When a validator operates improperly or goes offline for extended periods of time, they risk being removed from the network altogether. Figment explained that during periods of downtime, a validator can not only miss rewards but can be penalized through slashing. 

On top of all of this, validators need to track rewards, pay taxes and establish service-level agreements. Because of the lack of regulatory clarity, this is not an easy process.  

Figment explained that its robust enterprise-grade infrastructure combats these risks using dedicated and organized experts managing each element. It recently announced that it will offer slashing insurance to further guarantee this infrastructure. 

In partnership with Coinbase Cloud, it also announced liquid staking with Alluvial. It will allow users to stake their tokens and receive receipt tokens that prove ownership of the staked tokens. And it’s non-custodial — meaning that delegators retain ownership and responsibility for their keys. 

A lesson in game theory

Ultimately, the consensus protocols behind staking are rooted in game theory. The protocols set the rules and reward the validators who best follow those rules. Over time, these rules can also change, requiring validators to stay up to date to prevent expulsion from the network. With the proper enterprise-grade infrastructure, validators can rapidly flex to meet the evolving demands of the ecosystem.

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This content is sponsored by Figment.

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