November 9, 2023 at 17:33 GMTModified date: November 9, 2023 at 17:33 GMT
November 9, 2023 at 17:33 GMT

Proof of Stake Alliance urges firms to adopt updated staking practices

The move comes “in light of the rapid advancements in the staking space and the need for updated best practices”.

Proof of Stake Alliance urges firms to adopt updated staking practices

Proof of Stake Alliance (POSA), which advocates for clear and forward-thinking public policies that foster innovation in the proof-of-stake (PoS) ecosystem, has come out with a new set of updated practices for the staking industry.

As per press release, the move comes “in light of the rapid advancements in the staking space and the need for updated best practices”. Published on Thursday, the principles seek to ensure consumer protections and promote responsible innovation. These were prepared with the assistance from Paradigm’s Policy Labs.

It is an updated version of the original set of principles that was established in 2020. Back then, it addressed potential regulatory concerns in order to encourage the continued growth of responsible staking in the United States and advocated Staking as a Service (STaaS) providers to adopt their proposed industry-driven standards as they commercialise their services.

The latest version of these principles called for things like clearer communication from service providers in disclosing relevant information to stakers. This includes the risks, obligations, and legal rights associated with staking.

It also asked providers to avoid using financial terms like ‘interest’ or ‘dividend’ and instead use terms like ‘Block Reward’ or ‘Staking Reward’ to accurately describe earnings from staking. There should be a transparent fee schedule for users that outline the service fees taken from staking rewards.

Users should have control over whether and how much of their assets to stake, requiring affirmative action or consent to stake assets. Providers should also emphasise on the fact that they have access to the protocol and that users retain ownership of their staked assets and any rewards.

Other suggested staking practices laid out by POSA asked providers to not manage user liquidity or provide guarantees on the amount of rewards, as these are determined by the protocol itself. They should also provide no guarantees of a certain amount of rewards, as the staking reward rate is controlled by the protocol and can change.

These principles have been designed to ensure that staking is better understood and that services related to it are treated as technical rather than financial activities.

The founder of POSA, Evan Weiss, commented on the move saying: “Amid rapid technological advancement, self-regulation from leaders of the proof of stake ecosystem is essential. The updated POSA principles underscore the ecosystem’s commitment to clarity and responsibility, especially in a time of increased scrutiny and misconceptions. Together, we aim to build trust, inform regulations, and champion the boundless potential of the technology.”

As per POSA’s official website, PoS blockchains have grown to include 19 of the top 20 smart contract platforms with millions of users globally in the recent years. It now represents a market capitalisation of over $250billion as of September 2023.

The advocacy group aims to set an industry standard for self-regulation to allow proof of stake networks and their supporting ecosystems to thrive responsibly. It therefore updates its principles over time, as proof-of-stake ecosystems continue to grow and mature.

Adding on, it said: “Our collective goal is to ensure that staking is better understood, and that technical services related to staking and block production are treated similarly to operating any other technical service providers. We need to ensure that those who participate in proof of stake ecosystems by providing these services are properly recognised as offering technical services, separate and distinct from engaging in financial activities, and that consumer protection remains paramount as the number of PoS token holders grows year over year.”