In this article, we explore custodial, semi-custodial, and non-custodial staking services and review the industry's leading non-custodial protocols for ETH 2.0 staking. Ethereum (ETH) has enjoyed a remarkable run this past decade - making it one of the top-performing assets for investors. As Crypto enthusiasts and believers in ETH's potential remain steadfast, anticipation builds for continued success far into the future. Investors looking for maximum returns in the ever-volatile crypto market have found their answer with decentralized finance, commonly referred to as DeFi in the industry. DeFi offers enticing yields and financial flexibility, allowing ETH holders to pursue the most lucrative opportunities. However, in light of recent industry developments with FTX, BlockFi, Celsius, and others, DeFi is no longer as appealing to the average investor. Consequently, many are now seeking profitable alternatives that offer a higher degree of security and peace of mind. Ethereum 2.0 is spearheading a rapidly expanding industry estimated to be worth $40 billion in 2025, according to . This presents a golden opportunity for savvy investors seeking passive income streams by staking ETH tokens! JP Morgan data For that reason, Pooled Staking continues to be a top choice for ETH holders as it offers an attractive combination of convenience and accessibility. With Liquid Staking, ETH holders are in complete control. They can exit their staked position anytime with the simplicity of a token swap. And despite the presence of custodial staking services (like Coinbase, for example), the recent events in the industry have propelled non-custodial ETH staking protocols (like SafeStake) to become a major force. Custodial vs Non-Custodial ETH Staking ETH 2.0 staking is a great choice for anyone looking to turn their ETH assets into a passive income stream. As an Eth2 validator, you'll be rewarded with fractions of ETH every ~7 minutes for helping secure the network. These rewards can add up and lead to substantial profits over time! In the most basic terms, the better a validator performs, the higher the staking yields. Therefore, when selecting a staking provider, it’s important to consider a number of factors in your decision such as shared rewards, fees, attestation and effectiveness rates, slashing protection and remediation measures, and perhaps most crucial, user private key management. As ETH becomes increasingly popular, the importance of security for users and investors on all scales cannot be overstated. Protecting these valuable assets is now a priority like never before. When considering a third-party staking service, we recommend researching their level of security and examining their key management policy. These are the factors that ultimately determine the safety of your crypto coins. Types of Third-Party Staking Services A centralized staking service that manages the entire ETH staking process on behalf of the user. They retain ‘custody’ of their users' private validator keys and withdrawal keys. Risks: severe slashing penalties, reduced overall rewards, increased likelihood of an attack on user keys. Custodial: Some staking services claim to be non-custodial but still retain custody of user validator keys, but not their withdrawal keys. Risks: severe slashing penalties and reduced overall rewards. Semi-Custodial: A staking service that provides streamlined Eth2 validator setup and management, but allows its users to retain both their private validator keys and withdrawal keys. Non-Custodial: Staking your assets with a custodial service can be risky, as trusting them to keep your private keys exposes you to potential threats. Make sure that the staking provider you select is the right fit for you. In addition, in centralized custodial services, the risks of a cut-off are even greater, so that their rewards can be severely affected and therefore their capital staked. While DIY solutions may incur individual consequences for mistakes, escrow and semi-custodial services can deliver a more significant negative impact on the entire user base if they make errors. ETH 2.0 staking services can be especially vulnerable to security risks if they are centralized. This year, these risks have been highlighted as DeFi protocols experienced devastating losses due to hackers exploiting singular points of vulnerability and stealing users' funds intended for passive income generation. Non-Custodial Staking Services (for ETH 2.0 Staking) Custodial and semi-custodial ETH 2.0 Staking options like Rocket Pool, Lido, Stake Fish, and those offered by CEXs (centralized exchanges) are capturing a large share of the market. However, their centralized nature creates an obstacle to true decentralization in this emerging industry. Solutions are now available that ensure the security and reliability of user funds without granting control to any third parties, while promoting decentralization at the same time. Let's explore some groundbreaking developments we are making in this space! SafeStake SafeStake is a decentralized staking infrastructure and protocol that maximizes staker rewards by implementing DVT (Distributed Validator Technology). With its unique non-custodial approach and commitment to security, this protocol is emerging as a groundbreaking solution in the ETH staking industry. It provides unparalleled levels of protection for users running validators by never taking control of their keys. Instead, SafeStake splits a validator key into shares and distributes them over several nodes run by independent operators to achieve high levels of security and fault tolerance. The cutting-edge protocol's frameworks are written in Rust, a top programming language in the industry, and maintain optimal performance in the face of transactional demand by preventing memory-related bugs and vulnerabilities. Coupled with the use of HotStuff for underlying consensus, the protocol keeps validators secure and online to perform Ethereum's Proof-of-Stake consensus tasks while minimizing the likelihood of validator cutoff. SafeStake provides a powerful solution for ETH holders, allowing them to maximize rewards while keeping their funds secure. By reducing periods of inactivity and providing protection from malicious withdrawals, SafeStake safeguards your potential profits in the ETH2 staking ecosystem. Additionally, SafeStake utilizes a threshold signature scheme a trusted dealer. By eliminating the trusted dealer, SafeStake removes another potential point of failure present in some other staking protocols. without This effectively eliminates the possibility that a validator’s rewards can be stolen. Because Ethereum’s Beacon Chain allows multiple deposits for a single validator public key, it does not verify that they all have the same withdrawal credentials. This can allow a malicious actor that has access to the validator’s private key to specify the withdrawal credentials for the validator and steal its rewards. Join the as a validator or operator to help us test while earning STATE tokens and entering to win ETH prizes! SafeStake Galileo testnet With Distributed Key Generation (DKG), SafeStake arranges the threshold signature scheme validation private key in a way that prevents any single entity from holding it or recreating it. Currently, the protocol (running on Stage 1 of our testnet dubbed ‘Galileo’) allows any user to participate in Ethereum 2.0 staking by depositing 32 ETH and choosing a group of four operators (an Operator Committee) to manage their validator. In the relatively near future (Q2 2023), we will introduce Stage 2 of the Galileo testnet that will drop the 32 ETH deposit requirement down to 8 ETH, enabling a lower threshold to kick off a Validator on the Beacon chain and the 'Pooled Validators’ with derivative tokens. An optional feature will allow users to receive sfETH liquid staking tokens in return. These tokens are fully liquid with all of the implied benefits, allowing users to trade or sell them whenever they want while generating passive income while they do hold them. In addition, DVT technology bolsters the entire Ethereum Proof-of-Stake network by providing an extra layer of decentralization and security to ensure reliable transactions. Blox Staking Blox Staking is an open-source, non-custodial staking platform for Ethereum 2.0. Staking with Blox doesn’t require key sharing. Blox has no control over their users’ private keys as the protocol never stores validator private or withdrawal keys, ensuring no compromises on custody. Instead, a dedicated remote signer is stored on a cloud account, like AWS. The remote signer, KeyVault, holds the private validator key and executes duties sent from the blockchain via a Blox node. Users can manage their validators and check a performance monitoring dashboard with the Blox Live desktop app. The Blox infrastructure ensures relatively consistent connectivity to the blockchain and manages signing requests for each user’s personal KeyVault instance. This configuration empowers validators to optimize staking returns, minimize risks, and keep complete control over their assets. One of the major limitations of the protocol is that it only supports a 32 ETH deposit to participate in ETH 2.0 staking. Obol Tech Obol is a trust-minimized staking protocol for public blockchain networks based on Distributed Validator Technology (DVT). DVT enables validators to configure clusters with active-active redundancy, an improvement on the widely used configuration of active-passive redundancy. This is achieved by being able to split a validator key across multiple independently operating instances and utilizing threshold signing to perform consensus duties. You can think of this as enabling your validator to operate like a multi-sig, removing single points of technical failure including: Availability Failure Validator Key Compromise Distributed Validator nodes operate together as ‘clusters’ through the inclusion of a distributed validator middleware client called Charon. Charon's job is to coordinate what each validator signs, and reconstitutes the partial signatures into an aggregate signature for the Distributed Validator. Distributed Validator Clusters are multi-operator, fault-tolerant clusters of servers running Ethereum Execution clients, Consensus clients, Distributed Validator clients, and Validator clients. Combined, they enable a subset of servers to fail and recover, without a Distributed Validator on the cluster going offline. Obol’s mission is to evolve DVT by offering a protocol that enables a sustainable public good by increasing the security and resilience of public blockchain networks. The network is designed to offer developers, institutions and individuals, including, custodians, DeFi protocols, DAOs, financial institutions, and home-based validators, a scalable layer to configure, monitor, and deploy their own multi-carrier participation clusters without the need to coordinate multiple carriers or manage complex infrastructure configurations. Conclusion Ethereum 2.0 staking services offer a variety of different approaches depending on how their developers have integrated users into the product experience when building out ideas and offering support. Security is key when navigating today's billion-dollar ETH staking industry and its plethora of staking options. Cryptocurrency provides plenty of opportunities for financial freedom but also comes with its own unique set of risks. Without taking the necessary precautions to protect your assets, it's easy to get left behind in this volatile market. Safeguard yourself by ensuring nobody else has access to those precious private keys!
