The blockchain and cryptocurrency space has evolved significantly over the past decade, introducing various mechanisms to enhance network security and consensus. Staking plays a crucial role among these mechanisms, especially in Proof-of-Stake (PoS) systems and their variants.

As a delegator, staking allows you to lend your crypto holdings to validators, earning rewards without directly participating in network operations. However, selecting the right staking service provider is essential for maximising profitability. In this article, we will explore key considerations and steps involved in carefully checking out and choosing a staking service provider and what you should prioritise when making your choice as a delegator.

Understanding Staking and Delegation

Before choosing a staking service provider, let's clarify the basics of staking and delegation. Staking involves locking up some of your cryptocurrency to help secure a blockchain network. In return for your support, you earn rewards, usually in the form of more tokens. Think of staking as similar to placing money in a high-yield savings account. When you deposit funds into a savings account, the bank uses that money to issue loans to others. In exchange for keeping your money with the bank, you receive a share of the interest earned from those loans.

On the other hand, delegation is a method of staking that allows cryptocurrency holders (delegators) to entrust their staking power to a validator. This validator manages the staking process on their behalf. Delegation is ideal for people who might need more technical knowledge or time to handle their staking operations.

By delegating your staking tokens to a validator, you contribute to the security of the POS network. The more token holders delegate their tokens to a validator, the stronger the network becomes. Importantly, your private key and access to your tokens remain under your control they are never transferred to the staking provider.

In return for your participation, you receive staking rewards, which can vary from 5% to 30% based on market conditions and the specific staking network. These rewards are divided between the delegator (you) and the validator. The validator’s share, typically up to 15% of the total staking rewards, compensates them for their services. Staking is only possible with cryptocurrencies linked to blockchains that utilise the PoS consensus mechanism, such as Ethereum (ETH), Cardano (ADA), Polkadot (DOT), Autonity (NTN), and many others.

Key Considerations for Delegators

Staking, like every other form of investment, necessitates a commitment of monetary value. Therefore, investors must conduct thorough research and due diligence before committing. Here are key factors to consider before delegating your cryptocurrency to any staking service provider.

1. Check Past Performance and Track Record: It is very important to evaluate the historic performance of a staking service provider. Look for consistent uptime, reliable reward distribution, and a low incidence of slashing events (penalties incurred due to validator misbehaviour), and one way to find this information is by engaging with the community through forums, social media, and other review platforms. These sources can provide you insight into other delegator's experiences. Positive testimonials and active community engagement are good indicators of a trustworthy provider.

2. Fees and Cost Structure: Compare and contrast the commission rates charged by different staking providers. A lower rate might seem attractive; however, there should not be a trade-off for quality services and security. Also, look out for any additional costs, such as withdrawal fees or charges for transferring staked tokens. Understanding all possible associated costs will help you make an informed decision. Consider APR/APY (Annual Percentage Return (APR), also known as Annual Percentage Yield (APY)) when assessing staking. A higher APR means more income.

3. Security Measures: Ensure the staking provider has robust security measures in place. These should include hardware security modules, secure key management practices, and regular security audits. Additionally, understand their strategy for minimising the risks of slashing. This involves monitoring systems, response protocols, and redundancy measures to prevent issues like double signing or prolonged downtime.

4. Communication and Transparency: A trustworthy provider should provide regular operational updates, including performance reports, reward distribution schedules, and any infrastructure or policy changes. Transparent policies regarding fees, reward distribution, and risk management are essential. Clear communication about fee structures and reward calculations is crucial.

5. Network Participation: Staking service providers, who are also validators, often hold voting rights in network proposals. A provider actively participating in governance can positively influence the network’s development, making them a more attractive choice for delegation. Additionally, assess how the provider’s operations contribute to the network’s decentralisation.

6. Technical Expertise and Support: Explore the background and expertise of the staking providers’ team. Opt for a team with a robust technical background and experience in blockchain technology. Such teams are more likely to offer reliable, secure, and high-quality services. Additionally, they can provide responsive and knowledgeable support to address any issues during the staking process.

7. Regulatory Compliance: Consider provider's compliance with regulations and standards, especially in strict jurisdictions. Delegators must ensure staking providers do not fall under US legal jurisdiction to avoid counterparty risks. EU regulations offer investor protection for crypto assets. Some countries have restrictions that may affect international investors' access to staking services.

8. Utilise Available Tools: A valuable tool for deciding which staking provider to delegate to is the Staking Rewards platform. This platform allows you to compare staking providers side-by-side with access to real-time performance data that might otherwise be hidden. Find a provider that meets your staking needs by comparing metrics such as reward rate, fees, staked tokens in the network, network control, number of stakers, and the 7-day net staking flow. You can compare over 250 providers across 70 different PoS assets, including Ethereum, Cosmos, Solana, BNB Chain, and more. Go to the Asset Explorer, choose an asset, and scroll down to see the available providers. You can also use the "Verified Staking Providers" toggle to view providers that have already been audited by the platform to aid in your research.

The Autonity Network Staking Mechanism

Autonity Network offers a platform for staking with a unique liquid staking and Penalty-Absorbing Stake (PAS) model. In this model, a validator’s self-bonded stake is slashed before the delegated funds when slashing penalties are applied. This approach ensures that validators are held accountable for their actions, providing a more secure and reliable network.

The Autonity network uses a dual-coin system for its tokenomics. The first coin, ATN (also known as Auton), serves as the project's utility coin. The second coin, NTN (also called Newton), is used for staking. To stake on the Autonity network, users need to hold NTN. According to the Autonity network, anyone holding Newton can become a stakeholder, participate in securing the network, and earn a share of staking rewards based on their stake.

It is important to highlight that once the NTN coin is staked, it is locked and only redeemable by unbonding after an unbonding period. Upon bonding, NTN becomes locked, and liquid NTN is created for the delegated stake at an equal ratio to the locked stake. Liquid NTN receives staking rewards for the bonded stake it represents and can be traded.

Notably, if you intend to stake your NTN with an autonity validator, the same rules apply, however, it is important to take note of the difference in the commission rate of different validators. In Autonity a delegator can stake their NTN token with as many validators as they wish, and there is no staking limit to how much one can stake.

Claiming Staking Rewards in Autonity

To claim staking rewards, fund an account with ATN for gas costs, have an NTN stake equal to the amount bonded, and hold liquid NTN tokens for claimable rewards. Claiming rewards incurs gas costs and increases your ATN balance by rewards received minus claim transaction cost. The gas cost of a claim transaction can be calculated as gas used by the transaction multiplied by the gas price per unit of gas.

Slashing Policy on Autonity Network

Bonded stake is liable to economic slashing penalties if the accountability and fault detection (AFD) protocol detects misbehaviour by the staked validator node. The AFD protocol identifies infractions of consensus rules by validators acting as consensus committee members. Although Autonity’s PAS model reduces the risk to a delegated stake, it does not eliminate it entirely. Therefore, it is important to look out for validators track record before delegating to them.

Conclusion

Selecting the right staking service provider is essential for delegators in PoS networks. Staying informed and proactive is vital for successful staking and delegation. As the landscape evolves, a vigilant approach to choosing and reassessing staking service providers will help delegators navigate this dynamic environment with confidence and security.

References

How to Select a Staking Service Provider. Decentralised finance, 2021.

Operator Key Factors in Choosing a TOP Staking Provider. Medium: Exchange SELO 2024

Due diligence with crypto staking providers. Cyptoslate - Insights 2023

A Smarter Way to Compare Staking Providers. Staking Rewards-Staking Insider 2023

Crypto Staking: Nature, Benefits and Risks of Staking Lithium Digital 2024

Crypto Staking 101: What is staking? Coindesk 2024

Autonity Documentation – Claim Staking Rewards

Autonity Documentation - Staking

Autonity Documentation - Glossary