Staking Services: Taxonomy, Risks and Regulation

Staking is a core infrastructure of crypto-asset markets, yet the term is routinely used for arrangements that differ significantly in function, risk allocation, and regulatory relevance. At the same time, the legal literature offers limited analysis explaining what staking is at protocol level, how ‘staking services’ emerge as an intermediary layer, why a functional taxonomy is needed, and which risk and regulatory questions arise once intermediation (especially custody) is introduced. My paper seeks to address these issues. 

Staking means having ‘skin in the game’. The term comes from the expression ‘to put something at stake’ (from a literal stake to a wager, to the metaphor of exposure to loss). That evolution is used to frame modern staking as a mechanism of voluntary asset exposure designed to support compliance in environments where traditional legal enforcement is structurally difficult. In proof-of-stake (PoS) systems, participants ‘put something at stake’ so that opportunistic conduct becomes costly and honest participation is rewarded.

In a nutshell, ‘staking’ can be defined as the immobilisation of crypto-assets within a validator node in order to participate in transaction validation activities on PoS blockchains. 

Staking services use three key elements in a protocol’s incentive architecture:

• Rewards, commonly paid as newly minted crypto-assets and/or a share of transaction fees. Selection to validate and the level of rewards are generally linked to the amount staked.
• Sanctions, above all slashing, which is the forfeiture of staked assets if the validator misbehaves (eg validating fraudulent transactions, attempting to manipulate consensus, or remaining offline beyond permitted thresholds). In other words, slashing makes misconduct financially irrational.
• Time, because protocol rules require assets to remain locked for a predefined ‘bonding’ period. If a validator withdraws its stake, it generally becomes ineligible for further rewards, which encourages continued participation.

Having described the phenomenon and provided a definition, the paper develops the following taxonomy of ‘staking services’ based primarily on who performs validation and—crucially—who controls the assets.

1. Solo staking: the holder runs the validator node independently and stakes their own assets. It is presented as the baseline model. Intermediation is absent.
2. Delegated (non-custodial) staking: the holder delegates validation rights to a third-party validator operator but does not transfer control of the assets (private keys remain with the holder). The driver is practical: operating a validator node requires technical expertise, resources, and ongoing maintenance. ‘Validator-as-a-service’ operators lower these costs, enabling broader participation. The intermediary typically takes a fee and forwards rewards to delegators.
3. Custodial staking: the intermediary both validates and holds the client’s assets in custody. This is treated as a meaningful shift in the service’s nature because custody changes the holder’s legal and risk position and is often the regulatory ‘pivot’ in crypto market frameworks.

The paper also distinguishes proper ‘staking’ from practices labelled as ‘staking’ in Decentralized Finance (DeFi) that do not involve validation. These ‘staking-in-name-only’ (SINO) structures may lock up tokens to earn additional tokens, but they do not contribute to consensus or security in the sense described above.

Add-ons that change the service: insurance, pooling, and liquid staking

A recurring point is that staking services are rarely offered ‘pure’. Providers frequently bundle features that materially alter the economic character of the arrangement and, therefore, its regulatory and contractual implications. The paper flags, in particular:

• Slashing coverage, ie contractual arrangements where the provider bears or indemnifies losses from slashing;
• Early unbonding, which effectively gives the client liquidity before the protocol would ordinarily permit withdrawal (implying some form of liquidity provision);
• Alternative reward schedules, smoothing, or minimum-yield commitments, which change the nature of what the client is receiving relative to protocol-native rewards; and
• Pooling/aggregation, where assets are combined to meet minimum staking thresholds.

The paper also identifies liquid staking as a further evolution: the holder delegates assets while receiving a transferable token representing the staked position (and accrued rewards). This increases liquidity and capital efficiency, but it adds market and structural risks (and prompts closer scrutiny of legal characterisation), since the ‘liquid staking token’ can be traded, depeg, or be affected by governance and smart-contract vulnerabilities.

The ‘risk stack’: information asymmetry, moral hazard, and systemic concentration

With reference to risk taxonomy, the paper proposes a basic division between (i) risks borne by the individual holder and (ii) risks borne by the broader ecosystem.

At the holder-level risks, information asymmetry is central. Even in solo staking, where the holder interacts mainly with the protocol’s rules, the complexity of code and governance can be opaque. Intermediaries can reduce transaction costs and lower informational barriers—making staking accessible to non-technical users—but they introduce moral hazard and therefore counterparty risk.

Counterparty risk is particularly acute in custodial staking, because the client relinquishes direct control and becomes exposed to the intermediary’s solvency, reliability, and integrity (including the possibility of mismanagement or misappropriation). Solo staking concentrates risk in technical performance and compliance with protocol rules. Delegated non-custodial staking sits between these poles: the holder retains control but still depends on the operator’s infrastructure and operational robustness.

At the ecosystem level, concentration risk needs to be considered. As staking services scale, the risk of validator concentration increases: a small set of intermediaries may come to dominate validation, undermining decentralisation and making the network more vulnerable to capture, collusion, and correlated failures. The distribution of governance powers and the contractual allocation of decision-making over staked assets can amplify these systemic vulnerabilities when concentrated in a few hands.

Regulation: why custody and ‘promises’ matter

The paper’s regulatory analysis starts from a clear proposition: staking is, at its core, ‘just’ a technical activity, and staking services often look like technology-enabled participation rather than financial intermediation. However, the regulatory perimeter may shift depending on (a) whether custody is involved and (b) whether the provider makes promises that transform the client’s risk profile.

In this framework, solo staking and delegated non-custodial staking are not regulated services under MiFID II and MiCAR. In particular, MiCAR does not include a staking-specific category, and neighbouring categories (such as ‘transfer services’) do not capture staking’s core validation function. However, where staking is provided through an arrangement in which the intermediary controls users’ private keys, authorisation is required as a MiCAR custody and administration service provider. The paper also notes the supervisory concern that, in custodial staking, losses linked to intermediary behaviour (including slashing-related losses) should fall on the intermediary, raising doubts about contractual clauses that shift these risks back to clients.

Outlook: institutionalisation and the next research questions.

The paper closes by anticipating continued innovation in staking services—particularly in delegated and pooled models—and heightened regulatory attention as staking’s perceived ‘stable returns’ attract larger pools of capital, including institutional investors managing savings. 

It also identifies two main directions for future research: (i) clarifying the private-law characterisation of the user–provider relationship (eg service, mandate, custody-type constructs) as distinct from an ‘investment relationship’; and (ii) developing a consumer-protection analysis for retail-facing staking services, focusing on disclosure, transparency, and the enforceability of contractual allocations of slashing and operational risks. More broadly, staking is presented as emblematic of the challenge of applying frameworks designed for person-based intermediaries to technologically mediated services.

Read the author’s article.

Salvatore Luciano Furnari is a Fintech and MiCAR lawyer with a focus on blockchain, crypto-assets, and DeFi.