CryptoStake in focus: Insights from the co-founder and a crypto influencer
CryptoStake offers a recap of the AMA session featuring co-founder Andrii Shynkaruk (hereinafter -AS) and crypto influencer Roman Sobko (RS). Read on to gain insights into the origins of CryptoStake, its principles of operation, and an overview of the current state of the crypto staking industry.
RS: Welcome, Andrii! Let's jump right in. What sparked your interest in crypto staking and led you to create CryptoStake? Can you give us a glimpse into your platform's core features and what sets it apart in the increasingly crowded staking space? Don't hesitate to delve into some technical details to showcase your competitive edge.
AS: We entered the crypto staking space when Ethereum started moving from Proof of Work to Proof of Stake. Initially, we didn't have a clear plan – we were approached by investors wanting to explore Ethereum validator staking. With our IT expertise (over 15 years for the team, almost 20 for me) and 8 years in blockchain, we delved into research. At that time, there were no platforms like Lido, and the process was complex with no streamlined solutions.
RS: Before we dive into CryptoStake, let's take a step back. For someone completely new to this, could you explain what a crypto staking validator actually is? Break it down in simple terms, please.
AS: I'd describe it as the backbone or foundation of a blockchain network that operates on the Proof of Stake consensus mechanism. Unlike networks like Bitcoin, which rely on using massive amounts of electricity to solve complex math problems for decentralization and security, Proof of Stake is more eco-friendly. In simpler terms, it's like 'voting with money.' When someone stakes crypto, they use their digital assets to earn rewards in crypto, rather than relying on electricity, which is often produced in ways harmful to the environment, as seen in Proof of Work networks.
RS: It definitely gained a lot of traction last year, particularly with all the buzz around Ethereum validator staking and this new concept of "liquid staking."
AS: Ethereum validator staking truly took center stage around two years ago when they started actively implementing Proof of Stake solutions. Interestingly, the deposit contract, crucial for staking, had been operational for two years prior to the official Merge, which only happened a little over a year ago. So, imagine validators as individual units within the network responsible for critical tasks like validations, attestations, block production, and verifying other blocks. In return for these essential functions, the validator earns rewards in crypto. Any malicious behavior aimed at harming the network comes with hefty penalties, including the potential "slashing" of their staked funds.
The locked or 'staked' funds act as a sort of incentive for network participants to contribute positively. It's akin to a safety deposit, encouraging responsible behavior. To become an Ethereum validator, you need to commit a minimum of 32 ETH, and your performance directly determines your rewards or potential penalties. Skipping an attestation or failing to complete assigned tasks – remember, validators need to be online 24/7 – means missing out on potential rewards. In essence, doing a good job gets rewarded – it's as straightforward as that.
RS: Let's cut to the chase, Andrii. How do you define crypto staking in your own words? How did you translate your initial idea into the CryptoStake platform we see today? Are you essentially a third-party service that shares validator duties, or is there more to it?
AS: First and foremost, let's narrow down our discussion to Ethereum validators because each blockchain implements this mechanism differently. Our focus will be on the Ethereum validator and the validation process. In the initial stages of developing our staking solution, which did not yet include the mobile application, our goal was to create a technical solution that streamlines the work of validators.
Efficiency is a key characteristic for each validator, and it can be checked online. No validator has reached a 100% efficiency rate to date. Top performance is typically considered to be in the range of 98% to 96%. Here's where I can boast a bit about CryptoStake – our efficiency rate currently stands at an impressive 99.5% to 99.7%. Achieving this level of efficiency took meticulous organization and configuration adjustments over about a year. I'm referring to the configuration of nodes, servers, and even data centers, each playing a crucial role in this achievement.
RS: Can you break down what's under the hood at CryptoStake for non-tech folks like me? Help us understand the key components and features in simple terms.
AS: CryptoStake essentially comprises a network of servers that are online 24/7 – a crucial condition for effective operation. These servers boast an outstanding efficiency rate, surpassing what you'd find with regular rented servers. Additionally, we've implemented a sophisticated solution to balance the workload on these servers, essential for navigating through any challenging situations.
The challenging part of a validator's job is to avoid missing any blocks and ensure continuous 24/7 online presence. Mistakes in this realm can be costly – for example, activating several validators simultaneously to confirm a block can lead to severe penalties, even a ban from the crypto staking network. The primary challenge is to guarantee uninterrupted and correct functioning when only one Ethereum validator can be activated at any given time. This is a problem many major tech companies are grappling with, some attempting solutions like distributed validation technology (DVT). However, a solution allowing for full decentralization and achieving 100% efficiency is yet to emerge. Even prominent liquid staking projects like Lido tested DVT but only achieved a 70% efficiency rate, which is unacceptable for users receiving up to 30% less in staking rewards in crypto.
RS: Now, let's delve into some concrete figures – what can users expect in terms of profits when using CryptoStake? I know many staking providers offer high yields, with APY up to 18%. What's your edge here?
AS: CryptoStake operates differently from centralized exchanges that take control of customer funds and pay percentages, often in wrapped tokens. We embody what some refer to as 'pure staking' because our users receive native tokens. Making Ethereum validator staking incredibly easy is another facet of CryptoStake. A few taps on the screen, and users gain access to the validator where CryptoStake acts as a host, ensuring uninterrupted work and the execution of network tasks.
For those considering staking crypto, it's crucial to note that CryptoStake is a non-custodial provider, meaning we never collect or store private keys that grant access to users' funds. The only key we store is the Ethereum validator key, eliminating the risk of users losing funds due to a private key issue on our part. The only theoretical risk lies in potential penalties, but given our high efficiency rate, this is unlikely. Every 15 minutes, the CryptoStake app provides staking stats for users to monitor each validator's performance, allowing them to detect issues such as missed blocks. Penalties or slashing mean the staker won't receive rewards, and in such cases, they can request the withdrawal of their staked 32 ETH and exit the staking process.
It's worth highlighting that CryptoStake users receive rewards for staking in native tokens, unlike liquid staking providers that often exchange the stake in ETH for tokens lacking intrinsic value but are readily available. In the event of technical or legal issues with the issuer, these 'wrapped' tokens may become worthless.
RS: So, you're basically saying that liquid staking encompasses various industry segments and carries different types of risks. Now, let's revisit the topic of crypto staking rewards. What makes this segment particularly appealing, especially in terms of Ethereum validator staking and the rewards grid? How do you keep up with the competition?
AS: When discussing actual staking on real blockchains, transparency is key regarding the actual rewards paid to participants for their efforts. However, the rewards advertised on websites are often inflated or formulated in a way that can be misleading to users. For example, when someone sees "up to 5%" (APY), they may assume they are guaranteed to earn this amount. Yet, after a year passes, the staker may find themselves earning a significantly lower amount, perhaps only 2.8%, which can be underwhelming.
In contrast to this approach, CryptoStake calculates a specific APY based on the profits generated by all validators currently operated. Please note that the calculations shown in the CryptoStake Wallet app may slightly differ from those displayed on the official website, with the latter being potentially more precise. When considering staking rewards in ETH, it's important to factor in the so-called 'luck' element, which depends on the network favoring you to fulfill the Ethereum validator duty. For example, if a validator closes two or three blocks in a year, it could earn around 3% to 4% APY, fairly. While these numbers may seem modest compared to double-digit APYs offered by DOT and ATOM, they also mitigate high inflation rates, evening out the playing field.
Regarding our competitive edge, it once again lies in the efficiency of our validators, which is guaranteed by our staking setup. There are several ways to monitor validator performance, allowing users to stay informed about their crypto staking rewards.
I'd like to expand on the concept of the "luck" factor. The validator efficiency monitoring platform includes a specific metric that describes a randomizing script, which essentially 'chooses' who closes the block. We've observed instances where an Ethereum validator with a 99% efficiency hadn't had the opportunity to close a block for an entire year, only to then close two blocks within the span of a month.
We calculate and allocate rewards in strict compliance with the rules of the respective blockchain. Our statistics reflect all activities of the validator within the blockchain, including the gradual allocation of rewards released by the Ethereum network every 5-7 days, all in accordance with the underlying protocol. These rewards are sent to the digital wallet associated with each validator. At CryptoStake, we focus exclusively on protocol validation.
RS: From my own experience, I've noticed that many individuals who are contemplating investments starting from $50,000—considered serious money for retail investors—aren't necessarily pursuing high yields or triple-digit APY. More often than not, they prioritize securely staking crypto and minimizing risks as much as possible.
AS: The inflation rate holds significant importance, as reflected in the app's current stat of '-1.83%.' This percentage represents the deflationary model of the Ethereum blockchain, which has been in effect for several months. In a deflationary model, more ETH is burned daily than added to the circulating supply. Comparatively, Polkadot and Cosmos offer staking rewards of up to 17%, with inflation rates of 7% and 10%, respectively. Consequently, ETH staking offers more than a 3% APY, as investors hold an asset with a constantly decreasing supply. Non-liquid crypto staking caters not only to holders but also to positional traders, allowing them to maintain control over their private keys while staking ETH and keeping their funds active in trades for months.
His stake in ETH remains secure at all times; the staker only risks potential penalties and receiving fewer staking rewards. Currently, we are working on implementing anti-slash insurance or smart contract insurance for added security.
RS: Could you summarize in simple terms, what's the advantage of CryptoStake as a staking platform or as an intermediary.
AS: I'd like to emphasize that CryptoStake is not an intermediary for those who stake crypto. The main concept behind this product is to make staking any of the available PoS coins accessible with just one tap. I'm not aware of any other staking app that includes a digital wallet and offers Ethereum validator staking in the base version, along with DOT and ATOM staking. This is because these three coins utilize different approaches to staking in terms of complexity, among other factors.
RS: As someone with over 10 years of experience working with digital products, I must say that your crypto staking app is very impressive, both technologically and from a UX perspective. Initially, I was a bit skeptical about your product, unsure of who would be interested in this kind of offering. However, everything became quite clear during this conversation.
AS: Thank you for the appreciation. Regarding DOT and ATOM staking, and how CryptoStake generates revenue, we encourage customers to become nominators with DOT validators under CryptoStake's control. It's worth noting that acquiring a DOT validator can be a challenging and competitive task, given that there are currently only 297 validators. We've managed to configure the balancing algorithm in a way that, over the past year, we have never been at risk of being taken offline or relieved from the validator duty.
RS: Do you have any concrete plans to incorporate more PoS coins for staking in the app? Additionally, could you describe your typical users?
AS: As CryptoStake is a non-custodial solution, our primary customers are individual investors rather than institutions, though they vary in their financial capacities. The entry threshold for ETH validator staking (32 ETH) is quite high for most retail investors, while the thresholds for DOT and ATOM staking are lower, making them accessible to a wider range of users. Within the app, the staking process is simplified to just a few taps on the screen, akin to sending a regular transaction. Users receive daily notifications about their staking rewards, along with other on-chain statistics related to the blockchain where their funds are locked. Everything is consolidated into a one-stop-shop experience, eliminating the need for additional devices or programs to engage in real staking.
We've recently expanded our crypto staking options to include Cardano (ADA) and Solana (SOL) staking. While we initially considered adding Avalanche (AVAX) staking as well, we ultimately decided against it. The staking and reward allocation processes for Avalanche appeared to be overly complex for our app users, so we had to forego that idea.
RS: Let's talk about regulation. Could you shed some light on the jurisdiction within which CryptoStake operates, and how does being a Ukrainian-Swiss startup factor into this equation?
AS: The Ukrainian-Swiss startup designation indicates that our company operates within the jurisdiction of Switzerland, specifically in the Zug canton, where our primary office is situated. It's worth noting that we are registered as a provider of crypto staking services, rather than as a consultancy firm, which helps to mitigate regulatory oversight. Additionally, while our product development team is based in Ukraine, our legal team operates out of Switzerland. From a regulatory perspective, being a Swiss crypto startup carries more favorability with investors compared to a startup from Ukraine, which is still in the process of implementing a clear regulatory framework for digital assets. For this reason, CryptoStake pays taxes in Switzerland, as the country has clear regulations regarding taxation for businesses operating in the crypto industry.
RS: What were the challenges encountered when establishing a network of independent validators?
AS: We've been grappling with this challenge for more than a year, specifically in balancing the validator system. While we've developed a proprietary solution for validator management that's nearly ready for rollout, we're holding off because we're still refining the automation and transition mechanisms between inactive and active validators. Our data centers are strategically located in the United States, Canada, and Germany. Even in the event of a system failure, we have offline backups for all validators, ensuring we can restore them within a day.
RS: What about your support services, how do users communicate with the team?
AS: Our crypto staking mobile application features a support chat accessible at any time for users seeking assistance. The support team utilizes a comprehensive console displaying user information and suggested solutions to efficiently address any issues.
RS: What are the advantages of crypto staking compared to bank deposits?
AS: Comparing crypto staking to bank deposits is appropriate only when considering long-term staking strategies. Conceptually, the two are very similar; however, crypto staking offers unique features such as compounding interest, which is not available with traditional bank deposits. For instance, Polkadot utilizes compounding interest, where crypto rewards are automatically re-staked to potentially earn additional rewards during the next payout. This mechanism can significantly grow one's account over ten years, a benefit not typically seen with traditional banks, especially given the current low interest rates.
RS: How does Proof of Stake ensure better security of transactions compared to Proof of Work?
AS: It's all about energy efficiency and eco-friendliness. Bitcoin mining, based on the Proof of Work mechanism, consumes electricity equivalent to that of an average-sized European country each month. Therefore, Bitcoin's security is ensured by its large energy consumption, whereas Proof of Stake uses only the energy required to run the servers. Additionally, after transitioning to PoS, the Ethereum blockchain became significantly more stable, able to close blocks within 12 seconds without delays. Overall, Proof of Stake has an immensely positive impact on network speed, energy efficiency, and transaction fees.
I would like to mention our CryptoStake Wallet solution, which successfully passed the security test conducted by Hacken, a reputable digital security auditor. It received a perfect score of 10 out of 10 after the initial evaluation. A few more words about Distributed Validator Technology (DVT). This solution is crucial for the future of the crypto staking industry, especially with the anticipated influx of institutional investors. Put simply, DVT ensures the stability and security of the blockchain network during large-scale staking operations
