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Banks may one day become key players in ETH2.0. It’s a trend that could soon gain traction like institutional interest in Bitcoin, according to companies like Blockdaemon and Bison Trails, which provide the infrastructure to make staking nodes running on Ethereum 2.0 low-risk and easy to deploy. These powerful intermediaries in the staking space are surprised by the access they have to large companies looking to participate in Ethereum’s next-generation network. The Ethereum 2.0 network’s proof-of-stake reform provides interest-like returns, denominated in ETH, at a time when yields on traditional savings instruments remain negligible. “We are working with some big banks, but the regulatory order is important to them, so unfortunately we cannot reveal their names just yet,” said Konstantin Richter, founder and CEO of Blockdaemon. Blockdaemon has just completed a $28 million funding round including from Goldman Sachs. Institutionalization of pledge Unlike Bitcoin's energy-intensive cryptocurrency mining system, the ETH2.0 network uses a PoS consensus mechanism. By staking, validators can get some rewards, but if the validator does not behave in a problematic or expected manner, he will be punished! There are many PoS blockchains currently in operation, such as Polkadot, Cardano, and Algorand, but the most anticipated is Ethereum’s transition away from Proof of Work. “Ethereum 2.0 is a very important thing,” Richter said. “This transition will make it as easy to hold ETH in your wallet and earn interest as it is to hold a checking account at a bank. You just hold the currency and earn interest.” Switzerland’s performance Perhaps the biggest progress crypto-friendly Switzerland has made is in offering institutional collateral. For example, digital asset bank Sygnum now offers Ethereum 2.0 staking capabilities. This is not the first time Sygnum has been involved in staking: a few months ago, the crypto bank allowed its asset management, hedge fund, and family office clients to participate in staking on the Tezos blockchain. This is part of a suite of early-stage digital asset yield opportunities offered by Sygnum, which announced support for a range of major decentralized finance tokens earlier this week. Sygnum’s Ethereum staking service will involve locking up multiples of 32 ETH for a currently undefined period until the transition to Ethereum 2.0. This is expected to generate an annual yield of 8% to 6.5%, said Eisenberg, head of Sygnum’s Bank business unit. “Given its market cap and the importance of the network, Ethereum is gaining a lot of attention from institutional clients who don’t necessarily understand the entire space but want to focus on a few large-cap tokens as a first step,” Eisenberg said in an interview. Eisenberg said Sygnum’s institutional pledge is “bank-grade,” using hardware security vendor Securosys to process withdrawal keys. For digital asset custody, Sygnum leveraged Custody Digital Solutions, which involves Swiss technology provider METACO, which provides cryptocurrency custody services to banks such as BBVA, Standard Chartered and Gazprombank Switzerland. “One of our target customer groups is other banks, and when we talk to these banks, there is always a question of what tokens are being offered and how to make these things available to us and our end customers as well,” Eisenberg said. SEBA Bank, another major Swiss digital asset bank, will also launch Ethereum 2.0 staking functionality, according to SEBA’s head of digital assets. “We at SEBA are about to launch staking services to our clients,” he said in an interview, adding: “Institutional pledge will be a game changer because it blows traditional yield products out of the water.” Tax nightmare While institutional interest in Ethereum extends beyond just trading tokens, there are still issues to be resolved when it comes to earning yield on tokens. “We’ve been doing a lot of training with the major banks,” said the head of business operations at Bison Trails, which was acquired by cryptocurrency exchange Coinbase in January. The technical integration and maintenance of staking nodes is not a big challenge and can be easily outsourced. However, before large institutions can really adapt, regulatory gray areas such as taxation and accounting need to be resolved. A lot of progress has been made by the Proof-of-Stake Alliance, which is working closely with the IRS on this issue. “Right now, it’s a tax nightmare for both token holders and tax authorities to get staking rewards and have them classified as a taxable event,” said Bison Trails’ head of business operations. “Our goal is to treat staking rewards like any type of new property. So it’s never income when you create new property, it’s income when you sell and dispose of it.” To further clarify the issue, given the large number of PoS protocols that have emerged in the market, he said: "Can you name a recently launched PoW coin?" |
