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Strong Security Essential for Asset Managers when Engaging Staking Platforms – Insights by Andrew McFarlane

Staking Platforms and Security: An Essential Guide for Asset Managers

In the digital financial investment world, staking or pledging tokens from certain cryptocurrencies can open the door to potential rewards. But it’s crucial for institutional investors to be vigilant about risks related to slashing, a piece of advice that comes straight from Andrew McFarlane, the CTO of Web3 infrastructure company, Validation Cloud.

Significance of SOC2 Compliance Reports for Asset Managers

To mitigate risks associated with rogue validators, it’s instrumental for asset managers to align with a validator having relevant experience and capabilities. A stronger focus should be on engaging providers of staking-as-a-service who are seen as the industry stalwarts with top-notch security practices and sufficient slashing insurance cover in place.

Additionally, asset managers can quell their customers’ concerns over security by choosing those staking platforms that have undergone in-depth audit checks. Staking service provider validation often comes down to receiving either a SOC2 Type 1 or Type 2 attestation reports. McFarlane weighs in by stating that he views SOC2 Type 1 as a more superior attestation when compared with its counterpart.

Delving into the Ethereum network’s seemingly low staking ratio, McFarlane attributes this to the network’s staking functionality fully coming into effect only post the Shapella upgrade in April. He added that a striking growth of over 50% in staked Ethereum has been witnessed in the last half year since the aforesaid upgrade.

Elucidating the Concept of Staking-as-a-Service

For the uninitiated, staking-as-a-service can be a game-changer for asset managers. It allows them to back the functioning of a blockchain network sans the hassle of launching, maintaining and scaling necessary infrastructures. In return, they get substantial rewards generated by the network. This apart, non-custodial staking of tokens, as opposed to protocols such as Lido or central exchanges, that need asset managers to deposit their funds into pre-existing systems instead of staking straight from wallets/custodians, is yet another stand-out feature of staking-as-a-service.

Staving off Staking Risks for Asset Managers

The primary risk in Proof of Stake (PoS) networks relates to slashing that’s levied as a penalty on tokens staked on a validator if they breach network rules. The extent of the penalty varies across different protocols. Asset managers are well-advised about the specific slashing risks associated with the networks they stake in. Engaging staking-as-a-service providers with foolproof and corrective measures in place to deal with any security-related eventuality adds an additional layer of protective coverage against slashing.

Validation Cloud’s Impressive Staking-as-a-Service Solution

Validation Cloud has made a big splash in the institutional staking-as-a-service arena by introducing an platform that caters to on-demand deployment and rewards automation. Their system was primarily designed to bring onboard institutional asset managers as major players are swiftly seizing the opportunities in Web3. Automation of rewards has been simplifies with innovative smart contracts on-chain, thus getting rid of intermediaries and reducing the risk of counterparty default.

Understanding SOC2 Compliance Types and Ethereum’s Staking Ratio

SOC2 compliance is a key factor for a company like Validation Cloud, considering the importance for institutional asset managers and traditional enterprises. Especially within Web3, SOC2 is a key player to bridge the gap with traditional enterprises and meet industry standard of Web2. Validation Cloud’s Type 2 observation period is slated to conclude by end of 2023.

In regards to Ethereum’s low staking ratio, it can primarily be attributed to its complete staking mechanism being in effect post April 2023, when the Shapella upgrade made unstaking Ethereum feasible. This was essentially a major turning point for institutional asset managers, leading to an over 50% increase in staked Ethereum in the last six months.

How Bitcoin Code Can Benefit Asset Managers

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Frequently asked Questions

1. What is the significance of strong security for asset managers engaging staking platforms?

Answer: Strong security is crucial for asset managers when engaging staking platforms as it helps to protect their clients’ assets and investments from potential cyber threats and unauthorized access. In the digital age, where financial transactions are increasingly conducted online, robust security measures are essential to mitigate risks and ensure the safety of investors’ funds.

2. How can asset managers ensure strong security when utilizing staking platforms?

Answer: Asset managers can ensure strong security when utilizing staking platforms by implementing multi-factor authentication, utilizing advanced encryption methods, regularly updating software and security patches, conducting thorough due diligence on staking platforms’ security protocols, and staying informed about emerging cyber threats. Additionally, maintaining strong internal security practices, such as having secure network infrastructure and training employees on cybersecurity best practices, is also essential.

3. What are the potential risks associated with engaging staking platforms for asset managers?

Answer: Engaging staking platforms can expose asset managers to various risks, including hacking, phishing attacks, insider threats, and vulnerabilities in the platform’s software or infrastructure. These risks can lead to financial losses, reputational damage, and legal implications. Therefore, asset managers must be aware of these risks and implement strong security measures to mitigate them effectively.

4. What factors should asset managers consider when assessing the security of staking platforms?

Answer: When assessing the security of staking platforms, asset managers should consider factors such as the platform’s track record and reputation, the strength of their security protocols, the use of industry-standard encryption methods, compliance with relevant regulations, transparency in reporting security incidents, and their ability to promptly address and resolve security vulnerabilities. Conducting thorough due diligence and collaborating with reputable platforms can significantly enhance security.

5. How can asset managers respond to emerging cybersecurity threats in the context of staking platforms?

Answer: Asset managers should adopt a proactive approach to respond to emerging cybersecurity threats when utilizing staking platforms. This includes staying updated on the latest cybersecurity trends and threat intelligence, regularly assessing the platform’s security measures, promptly applying security patches and updates, and maintaining open communication channels with the platform provider. Furthermore, establishing an incident response plan and having cybersecurity experts on standby can help asset managers respond effectively to any potential threats.

6. Can asset managers leverage any industry-standard frameworks or certifications to assess the security of staking platforms?

Answer: Yes, asset managers can leverage industry-standard frameworks and certifications to assess the security of staking platforms. Examples of such frameworks include ISO 27001, NIST Cybersecurity Framework, and SOC 2. These frameworks provide guidelines and best practices for evaluating and improving security controls. Additionally, certifications like PCI DSS (Payment Card Industry Data Security Standard) can also indicate a platform’s commitment to maintaining a secure environment for financial transactions.

7. What are the potential benefits for asset managers who prioritize strong security when engaging staking platforms?

Answer: Asset managers who prioritize strong security when engaging staking platforms can benefit from enhanced protection against cyber threats, reduced risk of financial losses, improved client trust and confidence, and a strengthened reputation in the industry. By safeguarding their clients’ assets, asset managers can also attract more investors who prioritize security as a key criterion in their decision-making process. Ultimately, prioritizing strong security contributes to the long-term success and sustainability of asset management activities.