The Importance of Non-Custodial Staking: A Twitter Space with SNC
Just before Shapella, we were joined by Mark and Rudolf from SNC to discuss the importance of non-custodial staking.
Apr 12, 2023
As we reach an exciting time for the Ethereum community with the Shapella hardfork deploying on mainnet this week, we were joined by Mark and Rudolf from SNC — one of Swell’s Node Operators — to discuss Shapella and the importance of non-custodial staking.
In case you missed it, here are the top five questions from the event:
1. Why is permissionless and non-custodial staking important?
It is of paramount importance for SNC, as technical infrastructure, to make permissionless and non-custodial staking possible.
With Proof of Stake, validators are in control of the security of the network. Currently, there are a few centralized exchanges that have high amounts of ETH staked within their protocol, which increases the chances of them colluding and potentially attacking the network.
All entities that offer reliable non-custodial staking are a step away from this, and in the right direction for stakers and the Ethereum network as a whole. Permissionless and non-custodial staking is the ideal scenario going forward.
2. Why did you choose to collaborate with Swell?
At SNC, we support all liquid staking protocols that emphasize non-custodial and permissionless staking.
What we liked about Swell is your diligence to find market-based and learn and evolve through different iterations. With the new design and architecture, we believe that Swell is building a strong solution for users that are willing to take the plunge and stake their ETH.
3. What is custodial staking and how is Swell different?
Custodial staking requires you to give up control over your staked ETH, surrendering it to a centralized staking service.
Swell's non-custodial staking enables you to keep assets in your own wallet, and receive staking rewards without compromising on control.
4. What should potential stakers consider before taking the plunge for the first time?
We are currently in a very exciting time, with Shapella allowing stakers to redeem their assets and once again choose where and how they would like to stake their ETH.
If you are choosing this moment to stake for the first time, you should consider how much experience you have relating to blockchains work and how best to interact with them. That means educating yourself on how Ethereum works — including the difference between Proof of Stake (PoS) and Proof of Work (PoW) — as well as the different liquid staking options you have to choose from. I.e. where you would like to stake your ETH, be it with a custodial or non-custodial solution.
5. How do you see the Ethereum market changing following the Shapella upgrade?
At present, there is only currently around 15% of the supply of ETH currently being staked on the Ethereum blockchain. This is a relatively low number compared to other PoS blockchains as smart contract platforms.
It is easy to understand why users would be hesitant to currently stake their ETH with withdrawals not being enabled, as there are risks associated with having your assets locked up, especially with crypto being highly volatile.
Once Shapella is deployed, it will ease users' minds by making it possible to exit the active validator set. This will also allow for liquid staking protocols and other DeFi solutions to automatically exit validators if they are not behaving correctly, according to their protocol.
Given this, we expect the staked ETH percentage to increase tremendously over time — although there may be some short term turmoil, either from users exiting the active validator set or restaking elsewhere.
As the percentage of ETH that is staked grows, we also expect the market share of liquid staking protocols to grow. New DeFi primitives will thus emerge based on liquid staking, creating a virtuous cycle in which more ETH is pledged to support the blockchain.