It is imperative for crypto owners to understand the difference between custodial and non-custodial staking. This article will cover the benefits and downsides to both forms of staking.
What is custodial staking?
Custodial staking involves users depositing their tokens with a third-party service provider, such as an exchange or staking pool. The service provider is responsible for managing the staking process on behalf of the user, and in return, the user receives staking rewards.
Advantages:
Custodial staking is generally easier to use and requires less technical knowledge. Users can simply deposit their tokens with a service provider and start earning rewards, without having to worry about the technical details of the staking process.
Custodial staking can offer higher staking rewards, as service providers can pool the tokens of multiple users and stake them in larger amounts, which increases the chances of earning rewards.
Disadvantages:
The user is not directly involved in the staking process and does not have control over their tokens while they are being staked. This can be a security risk if the service provider is hacked or goes bankrupt.
The user may not have access to their staked tokens immediately if they want to withdraw them, as the service provider may have a lock-up period or withdrawal fees.
What is non-custodial staking?
Non-custodial staking involves users holding their tokens in their own wallets and participating directly in the staking process. Users can delegate their tokens to a validator, who is responsible for validating transactions and creating new blocks. In return, the user receives staking rewards, and they retain control over their tokens at all times.
Advantages:
Non-custodial staking offers users greater control over their tokens and is considered to be more secure. Users can hold their tokens in their own wallets and participate directly in the staking process, which gives them greater visibility and transparency.
In the case of bankruptcy or validator issues, users' crypto will remain in their wallet and will be available to be transferred elsewhere.
Disadvantages:
Non-custodial staking can be more technically challenging and requires users to be familiar with the staking process and the underlying blockchain technology. To help with this, StakeSeeker has built out Staking Guides for all supported blockchains!
StakeSeeker by BTCS Inc. is dedicated to providing non-custodial delegated staking for our users. For more information about staking and supported networks check out these articles:
