At Blockdaemon our mission is to connect institutions to blockchains with one integration and safely on-ramp millions of users without ever taking control of any user assets. We don’t see staking directly with protocols being affected by this, nor well-run reward programs that secure networks without moving assets from one entity to another.
We believe that the end goal of blockchain technology is to create a transparent, easily accessible global network that allows everyone to hold assets easily and to interact with each other, without the need for inefficient middle-men, expensive transfers and cryptic (sic!) institutions deciding to block or devalue someone’s assets arbitrarily. Ideally this is done via self-custody, aka no accounts managed by third parties can take/block/lose your funds over time.
We do not believe this will impact Blockdaemon or its institutional staking customers. Blockdaemon customers are always in control of their own tokens as we are a non-custodial service provider. Blockdaemon follows the rules of the protocols that we offer and engages with our customers in full transparency about the amount and structure of participatory rewards that may be generated from the protocol, as well as the service fees our team charges for enabling this direct participation. We believe that this transparency allows us to provide best-in-class institutional grade blockchain infrastructure technology. But just in case, we publish audited financials, are properly governed, hold insurance for our infrastructure, are ISO certified which requires an external audit of security policies and procedures, and are in partnership with the largest financial institutions in the world (just peek at our cap table).
We believe that this is a longstanding, iterative process, and we are in the early innings. In the current stage, CEXs that are transparent and regulated are the safest bets for most consumers to participate in this early phase of blockchain adoption. One reason for this is because the UX for key management is still terrible, and different technical requirements per protocol make it near impossible for the layman to confidently manage a diverse portfolio of tokens – not to mention the additional complication of other tasks like reporting requirements for taxes. CEXs handle that for you. It is a similar reason why institutions work with us to run nodes that are always up. There will be a time (not far off) when on-chain mechanisms and decentralized infrastructure, Defi and more comprehensive crypto operating systems will be the way, but at the moment there is still a way to go for blockchain usability.
We believe that CEXs should be allowed to operate transparent and auditable staking programs to retail users. The regulatory framework needs to delineate between the risks associated with centralized ‘earn’ programs and decentralized participation in proof-of-stake mechanisms. In the latter, CEXs facilitate participation in the protocol governance, but rewards are determined by the protocol itself. They are also an important component of decentralization, an often misunderstood concept. The primary purpose of cryptographic networks is ubiquitous access, security and functionality to serve as absolut agent of truth at massive scale. That requires all types of operators, including regulated ones, with capital to run fail-overs and so forth. It just makes these networks more inclusive and secure.
We believe that working with TradFi onramps is key in learning about their regulatory and technological security needs, so we can help translate massive volumes of assets over the next 10 years into cryptographically secured decentralized networks. There is room for financial institutions here — they should continue to secure customer assets and offer rewards to consumers over time in a transparent manner. Blocking these institutions from participation increases the likelihood of poor security alignment between the two.
We believe that technological progress changes the construction of underlying infrastructure and that we will see a world in which a vast system of global data-networks powered by mobile devices, computers, and servers (some private, some corporate) will provide unrestricted, free, and open access to the financial system for all people – regardless of where they live. Our own underlying infrastructure will move to a L2 over time, when the tech can handle regulatable infrastructure – a process we are accelerating quickly (more to come that will be announced at ETH Denver).
Crypto is about being the master of your own equity no matter who you are or where you live. Shutting down centralized and regulated entities here, or failing to provide a transparent regulatory framework, pushes US customers to off-shore/non-regulated actors for reward earning, creating much more risk for those users. Arbitrary enforcement action is not constructive regulation, and it benefits nobody.
Rather than punishing those that do in the absence of any clear rules, enforcement agencies should provide transparent rules and consider becoming active network participants, run nodes, offer to hold key shards for banks for example etc. Crypto will present regulators with never before seen tools to help create an even market-place, if that is what they intend to do.
We at Blockdaemon believe in staking, cryptocurrency and that over time the world leans toward fairness and openness, thus making these networks inevitable (it started with the Internet and won’t end with Web3). There is a lot more to come (just wait until you see our new operating system for self-custodial staking integrations).
Nothing coming out of the SEC this week has changed our mission: Blockdaemon will continue to support an open Web3 ecosystem while continuing to serve our institutional and regulated customers. Blockdaemon intends to work with all applicable regulators, including the SEC, to ensure that they understand and appreciate the proof-of-stake mechanism and will update our customers as we hear additional news.