Crypto exchanges tout ‘staking as a service’ as Ethereum 2.0 upgrade to proof-of-stake moves closer

More crypto exchanges such as Gemini and Bitstamp are offering staking services in Hong Kong with annual returns of 3 to 5 per cent

The staking model is gaining attention ahead of a planned Ethereum upgrade, as the services take advantage of cryptocurrency lock-up period

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Published: 8:20am, 25 Aug 2022Updated: 8:05pm, 25 Aug 2022

More crypto exchanges are allowing cryptocurrency investors to earn yields on pledged stakes using newly minted tokens as a reward for helping blockchains transition to a faster, cheaper and greener validation technology known as proof-of-stake.

The most widely anticipated of these transitions is the upgrade to Ethereum 2.0, slated to be completed in mid-September after suffering several delays. Rather than relying on the current proof-of-work model, which requires solving complex mathematical problems, proof-of-stake allows validators to stake a minimum amount of crypto to earn a reward for properly validated transactions, or risk losing their tokens.

Some exchanges are now offering “staking as a service”, which capitalises on a lock-up period during which the staked cryptocurrency is unavailable to users. This allows retail investors to earn cryptocurrency from the validation process even if they do not have the technical know-how or do not keep their computers running 24/7. They can also pledge less than the minimum required by the blockchain itself – currently 32 ether (US$52,300) in the case of Ethereum.

By locking up ether, solana and other cryptocurrencies, some firms are touting annualised yields of 3 to 5 per cent while also distancing themselves from decentralised finance (DeFi). Related lending services exacerbated a market sell-off and dragged several players such as Celsius Network and Voyager into bankruptcy this summer.

“Gemini Staking is not a lending product. Rather, it is a service whereby, for a fee, users are able to lock up their tokens with Gemini’s validators to process the blockchain transactions and in return earn rewards such as newly minted tokens,” said Feroze Medora, managing director and head of Asia-Pacific at crypto unicorn Gemini.