Crypto Staking: The Key Role of Custody

What is Staking?

Staking is a way of earning rewards while holding onto certain digital assets in compatible wallets or staking platforms. These wallets or platforms are responsible for maintaining the necessary infrastructure to validate transactions and secure the network. When you stake your assets, you actively participate in the consensus mechanism of a blockchain network. In return for your contribution, you have the opportunity to earn rewards in the form of additional cryptocurrency. Instead of relying on Proof of Work (PoW) like Bitcoin, staking relies on Proof of Stake (PoS) consensus algorithms used by various blockchain networks.

The Benefits of Crypto Staking

Staking offers several benefits for crypto holders. First, it provides a way to earn passive income through regular rewards. These rewards can be a percentage of the staked coins or additional tokens issued by the network. Second, staking can also lead to potential asset appreciation if the value of the staked cryptocurrency increases. Additionally, by staking your coins, you contribute to the security and stability of the blockchain network.

Institutional Use Cases

Institutions and larger investors are also getting involved in staking. Staking ETFs, for example, allow investors to buy shares of an exchange-traded fund that pools staked cryptocurrencies and distributes the rewards to investors. Some exchanges or fund managers also offer staking services to their clients, allowing them to earn additional rewards on their investments.

In recent years, staking has piqued a lot of interest — J.P. Morgan analysts forecast that staking yields across PoS blockchains could double to $40 billion USD by 2025. And during a 2022 Q2 earning call, Coinbase CFO Alesia Haas noted that institutional staking of crypto assets could be a “phenomenon” in the future as soon as the market overcomes its liquidity lock-up.

Why Custody Matters

So where does custody come in? When it comes to staking, the importance of custody cannot be overstated. Custody refers to the secure storage and management of digital assets, including the private keys that provide access to those assets. In the world of cryptocurrency, self-custody and third-party custodial solutions, like Tetra, are available and necessary to ensure the safeguarding of your digital assets.

Factors for Secure Custody

When choosing a custodial service, several factors should be considered. Let’s break them down:

Reputation: A custodian with an excellent track record is essential. Look for custodians that have a history of trustworthy operations and have been in the industry for a significant period. At Tetra, we’re Canada’s only trust company that is licensed to custody digital assets. We regularly meet with regulators and industry experts to help shape the framework for digital assets in Canada.

Jurisdiction: It’s important to consider where your assets are located. In Canada, Tetra is the first and only custodian to receive regulatory approval for staking of digital assets. Why does this matter? Well, if you’re based in Canada then it’s important to understand where your digital assets are held. By partnering with Tetra, you choose to keep your assets in Canada, eliminating exposure to foreign jurisdictions.

Flexibility & Choice: When staking your assets, it’s important to have autonomy on the staking provider you can use. Our open architecture empowers clients to decide where they want to stake their assets, and Tetra is the only regulated platform in North America to offer such flexibility. This enables clients to exercise greater control and make informed decisions about their digital asset staking strategies.

Security: Always consider the security measures implemented by the custodial service. Are they using robust encryption, multi-factor authentication, and cold storage solutions? Be sure to prioritize custodial solutions that give you decision-making power over your private keys while ensuring your security and privacy.

Insurance: Check if the custodian offers insurance coverage for potential loss or theft of assets. (Hint: we do!) Having insurance coverage in place acts as an additional layer of security, ensuring that your digital assets are safeguarded not only by robust security measures but also by a financial safety net in case of any unexpected incidents.

Final Thoughts

As you embark on your journey into the world of cryptocurrency staking, it’s crucial to prioritize the custody of your digital assets. By understanding the mechanics of staking and choosing a reliable custodial solution, you can confidently participate in this exciting venture. Remember, custody ensures the safe storage and management of your crypto holdings, giving you increased protection from the risks of potential loss or theft.

If you’re interested in exploring staking opportunities further, we’re excited to announce that Tetra is now offering staking services through multiple partnerships with providers such as Kiln and Figment. Our team is dedicated to providing secure and reliable custodial solutions, allowing you to maximize the benefits of staking. To learn more about how we can assist you with your digital assets, reach out to our sales team at sales@tetratust.com.