The Risks and Rewards of Digital Asset Token Staking for Institutional Investors

The Importance of SOC2 Attestation Reports

Institutional investors looking to earn rewards from digital asset token staking need to be aware of the associated risks and take steps to protect their clients. Andrew McFarlane, the CTO at Validation Cloud, a Web3 infrastructure company, emphasizes that slashing is one particular risk that asset managers must be cautious of. Slashing refers to the penalty imposed on tokens staked on a validator who violates the rules of the network.

To mitigate the risk of a rogue validator's actions, asset managers should ensure that their chosen validator has the necessary experience. McFarlane suggests that asset managers should engage staking-as-a-service providers with strong security measures and slashing insurance. Additionally, asset managers can further reassure their clients by selecting an audited staking platform. These platforms are issued SOC2 Type 1 or Type 2 attestation reports, with Type 1 being considered a better attestation report according to McFarlane.

When discussing the low staking ratio on the Ethereum network, McFarlane explains that this is due to the fact that complete staking only became effective after the Shapella upgrade in April. Since the upgrade, there has been a significant increase in staked Ethereum over the last six months.

What is Staking-as-a-Service and Why Do Institutional Asset Managers Want It?

Staking-as-a-Service allows asset managers to support blockchain network operations without the burden of launching and maintaining the necessary infrastructure. In return, asset managers earn significant rewards generated by the network. The key advantage of this service is that asset managers can provide it without taking custody of the tokens, making it non-custodial. This is in contrast to protocols like Lido or centralized exchanges, which require asset managers to deposit funds into their systems first.

Institutional asset managers typically have obligations to hold assets with qualified custodians and work with tech partners who are SOC2-compliant. Staking-as-a-Service satisfies both of these obligations, allowing asset managers to keep their tokens in a custodian while being serviced by secure and compliant infrastructure.

The Risks and How to Mitigate Them

The main risk in Proof of Stake (PoS) networks is slashing, which is the penalty imposed on tokens staked on a validator who violates the rules. Asset managers should be aware of the specific slashing risks for the networks they stake on. Validators are responsible for proposing and validating new blocks of transactions, and any violation of the network's rules can result in slashing. While such events are rare, experienced operators significantly reduce this risk. Asset managers should engage with Staking-as-a-Service providers who have strong preventative measures, such as security, and corrective measures, such as slashing insurance, in place for their clients.

Validation Cloud's Institutional Staking-as-a-Service Platform

Validation Cloud has introduced an institutional staking-as-a-service platform that offers on-demand deployment and rewards automation, among other features. On-demand deployment refers to the ability to quickly deploy the necessary infrastructure to facilitate staking. Rewards automation simplifies the flow with on-chain smart contracts, eliminating intermediaries and counterparty risk. These features provide asset managers with a superior experience and performance.

The Importance of SOC2 Attestation Reports

Validation Cloud's staking platform is SOC2 Type 1 compliant. SOC2 is a set of criteria for managing customer data, including security, availability, integrity, confidentiality, and privacy. SOC2 Type 1 focuses on security controls at a specific point in time, while Type 2 covers those controls over a period of time. Validation Cloud's Type 2 observation period will conclude at the end of 2023.

Ethereum's Staking Ratio and Institutional Adoption

Ethereum has a relatively low staking ratio compared to other proof-of-stake networks like Solana, Cardano, and Aptos. This is because complete staking only became possible after the Shapella upgrade in April. Since the upgrade, there has been a significant increase in staked Ethereum, driven by institutional asset managers. The increased institutional adoption of staking is expected to further impact Ethereum's staking ratio.

These insights from Andrew McFarlane shed light on the risks and rewards of digital asset token staking for institutional investors. As the Web3 landscape continues to evolve, asset managers must stay informed and take steps to protect their clients and maximize their rewards.

Frequently Asked Questions

Who is the owner of the gold in a gold IRA

The IRS considers gold owned by an individual to be “a type of money” and is subject taxation.

This tax-free status is only available to those who have owned at least $10,000 of gold and have kept it for at minimum five years.

Owning gold can also help protect against inflation and price volatility, but it doesn't make sense to hold gold if you're not going to use it.

If you plan to sell the gold one day, you will need to report its worth. This will affect how much capital gains tax you owe on cash you have invested.

A financial planner or accountant should be consulted to discuss your options.

Do you need to open a Precious Metal IRA

Precious metals are not insured. This is the most important fact to know before you open an IRA account. If you lose money in your investment, nothing can be done to recover it. This includes all investments that are lost to theft, fire, flood, or other causes.

You can protect yourself against such losses by purchasing physical gold and silver coins. These items can be lost because they have real value and have been around for thousands years. These items are worth more today than they were when first produced.

When opening an IRA account, make sure you choose a reputable company offering competitive rates and high-quality products. It is also a smart idea to use a third-party trustee who will help you have access to your assets at all times.

You won't get any returns until you retire if you open an account. Do not forget about the future!

Is gold a good IRA investment?

Anyone who is looking to save money can make gold an excellent investment. It can be used to diversify your portfolio. There's more to gold that meets the eye.

It has been used throughout history as currency and it is still a very popular method of payment. It's often referred to as “the world's oldest currency.”

But gold, unlike paper currency, which is created by governments, is mined out from the ground. It's hard to find and very rare, making it extremely valuable.

The price of gold fluctuates based on supply and demand. People tend to spend more when the economy is healthy, which means that fewer people are able to mine gold. The value of gold rises as a consequence.

On the flipside, people may save cash rather than spend it when the economy slows. This causes more gold to be produced, which lowers its value.

This is why both individuals as well as businesses can benefit from investing in gold. You will benefit from economic growth if you invest in gold.

In addition to earning interest on your investments, this will allow you to grow your wealth. You won't lose your money if gold prices drop.

How does gold perform as an investment?

The supply and the demand for gold determine how much gold is worth. It is also affected negatively by interest rates.

Due to limited supplies, gold prices are subject to volatility. Physical gold is not always in stock.

How much is gold taxed under a Roth IRA

An investment account's tax rate is determined based upon its current value, rather than what you originally paid. All gains, even if you have invested $1,000 in a mutual funds stock, are subject to tax.

However, if the money is deposited into a traditional IRA/401(k), the tax on the withdrawal of the money is not applicable. Capital gains and dividends earn you no tax. This applies only to investments made for longer than one-year.

The rules governing these accounts vary by state. Maryland is an example of this. You must withdraw your funds within 60 calendar days of turning 59 1/2. Massachusetts allows you to wait until April 1. New York is open until 70 1/2. You should plan and take distributions early enough to cover all retirement savings expenses to avoid penalties.

What is the tax on gold in an IRA

The fair value of gold sold to determines the price at which tax is due. You don't have tax to pay when you buy or sell gold. It's not considered income. If you decide to make a sale of it, you'll be entitled to a taxable loss if the value goes up.

You can use gold as collateral to secure loans. When you borrow against your assets, lenders try to find the highest return possible. This often means selling gold. The lender might not do this. They may hold on to it. Or, they may decide to resell the item themselves. In either case, you risk losing potential profits.

In order to avoid losing your money, only lend against your precious metal if you plan to use it to secure other collateral. If you don't plan to use it as collateral, it is better to let it be.

What precious metal is best for investing?

This depends on what risk you are willing take and what kind of return you desire. Gold has been traditionally considered a haven investment, but it's not always the most profitable choice. For example, if you need a quick profit, gold may not be for you. You should invest in silver if you have the patience and time.

If you don’t desire to become rich quickly, gold may be your best option. However, silver might be a better option if you're looking for an investment that provides steady returns over long periods.


  • If you accidentally make an improper transaction, the IRS will disallow it and count it as a withdrawal, so you would owe income tax on the item's value and, if you are younger than 59 ½, an additional 10% early withdrawal penalty. (
  • Contribution limits$6,000 (49 and under) $7,000 (50 and up)$6,000 (49 and under) $7,000 (50 and up)$58,000 or 25% of your annual compensation (whichever is smaller) (
  • If you take distributions before hitting 59.5, you'll owe a 10% penalty on the amount withdrawn. (
  • The price of gold jumped 131 percent from late 2007 to September 2011, when it hit a high of $1,921 an ounce, according to the World Gold Council. (
  • You can only purchase gold bars at least 99.5% purity. (

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A rising trend in gold IRAs

The gold IRA trend is growing as investors seek ways to diversify their portfolios while protecting against inflation and other risks.

Owners can invest in gold bars and bullion with the gold IRA. It can be used as a tax-free way to grow and it is an alternative investment option for people who are not comfortable with stocks or bonds.

An investor can use a gold IRA to manage their assets and not worry about market volatility. Investors can use the gold IRA for protection against inflation and potential problems.

Investors also get the unique benefits of owning physical Gold, including its durability, portability, flexibility, and divisibility.

A gold IRA provides many additional benefits. One is the ability for heirs to quickly transfer ownership of gold. Another is the fact that gold is not considered a currency or a commodities by the IRS.

Investors looking for financial security are increasingly turning to the gold IRA.


By: Terence Zimwara
Title: The Risks and Rewards of Digital Asset Token Staking for Institutional Investors
Sourced From:
Published Date: Sun, 03 Dec 2023 12:30:45 +0000

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