Clear DefinitionsCustodial Staking
1 min read
Pronunciation
[kuh-stoh-dee-uhl stay-king]
Analogy
Custodial Staking is like depositing money in a bank savings account: the bank holds your funds and pays you interest, but you trust the bank to keep your money safe.
Definition
A staking service where a third party holds users’ tokens in custody and operates validators on their behalf, simplifying user experience but introducing counterparty risk.
Key Points Intro
Custodial Staking provides convenience through:
Key Points
Managed validators: Service runs and maintains nodes.
User simplicity: No technical setup required.
Liquidity services: Often issues liquid tokens representing stake.
Counterparty risk: Users trust custodian’s security practices.
Example
A cryptocurrency exchange offers custodial staking: users lock tokens on the platform and receive staking rewards credited to their exchange account.
Technical Deep Dive
Users transfer tokens to the custodian’s smart contract or wallet. The custodian pools these tokens, runs validator nodes, and aggregates rewards. They may issue an ERC‑20 token representing user share. Custodian smart contracts enforce withdrawal and reward distribution policies.
Security Warning
Custodian hack or insolvency can lead to total loss of staked funds; evaluate the custodian’s security audits and insurance.
Caveat
Lack of self-custody means users rely entirely on the service’s integrity and security.
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