Node Providers

Running own staking nodes has lots of risks and needs a large amount of money to start. It is hard for individuals to maintain a 24/7 online server and not do anything wrong causing penalties. To help individuals easier to stake and earn rewards, there appears staking-as-a-service. Node providers will take care of the infrastructure and users only need to stake their funds.

Node providers provide node operation services. They provide service to individuals and liquid staking derivatives. To individuals, node providers charge a monthly node operation fee or commission fee. To liquid staking derivatives, node providers usually get a percentage of the staking rewards. Lido explains how they choose node operators.

There are lots of node providers in the market. They differ in the following aspects:

• Fee
• Supporting assets
• Reliability and safety

Source: Staking Rewards

Big players have already established large user groups, good reputations, and safe operation records. It is hard for new players to take a large market share. Big market players believe the opportunities for small players are the following:

• Better UX
• Supporting long-tailed assets
• Providing services besides staking, like ecosystem updates, simple financial engineer tools, information websites, and data analysis tools

Though small players are hard to compete with large players, large players do face some challenges:

• Risk of centralization
• Compliance
• Security and operation risk

Decentralization is the key to a network. If several node providers have a major stake in the network, these node providers are a stratum for cartelization. @djrtwo questions this in his passage “The Risks of LSD”.

To build a decentralized and permissionless product, compliance is a big problem. Stake.fish believes that “due to how staking looks like fixed income in some sense, this could invite regulators to consider validators closer to financial entities than miners. If this occurs, then there would be no way for validators to stay compliant without becoming a fully licensed custodian and guarding delegator access (which again, may technically be impossible to enforce)” in the “2021 staking ecosystem report”.

Node operators put safety first because the safety incident can cause asset loss. In Jan 2021, ETH2 validators got slashed due to a bug. Here is the recent slashing history for ETH2 validators.

Source: beaconcha.in

Node providers are trying to increase the stability of the infrastructure with new tech like SSV. The secret shared validator network is a tech that can reach active-active redundancy. All validators in the network actively produce new blocks. The mechanism is like a multi-sig wallet.

Source: OBOL

Other techs used for slashing prevention are the local slashing protection database which records messages causing slashing, and remote slasher which records all attestations and blocks received.

From the Staking Rewards survey, users do care more about reputation than cost, and node providers are trying to improve their reliability in order to build their reputations.

Source: Stake Rewards

Also published here.