How Staking Rate Benchmarks Can Build Digital Assets Markets
By comparing their returns to a trusted industry benchmark, Ethereum operators can identify areas for improvement and optimize their operations, as well as to differentiate their staking products in a competitive market, says Tom Whitton, CFO, Pier Two.
Updated Jul 12, 2024, 7:24 p.m. Published Jul 10, 2024, 4:10 p.m.
As the staking industry matures, and more node operators enter the market, the need for performance metrics becomes increasingly important for gaining a competitive edge. The Ethereum staking rate is the closest equivalent to the “risk free rate” of digital currencies.
Institutional staking service operators, like Pier Two (where I work as CFO) and Figment, are dedicated to providing security and stability to the Ethereum ecosystem while delivering premier staking yields to customers.
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Understanding CESR
One such metric gaining prominence is the CESR (Composite Ether Staking Rate) benchmark, created by CoinDesk Indices and CoinFund. CESR measures the average staking rate across the Ethereum network, providing a reliable standard for operators and stakers to gauge performance. By comparing staking rates to CESR, operators can objectively assess their competitiveness and effectiveness.
Why benchmarks are important
Benchmarks are important in financial markets to create structure, standardization and comparability for many financial products, including ETFs. CESR is a useful rate for issuers that are looking to offer ETH Staking funds, and for validators that are looking to engage in performance monitoring, or swaps to lock in rates and build more sustainable and less volatile business models.
How Operators Can Use the CESR Benchmark
1. Performance Benchmarking
CESR offers operators a metric to benchmark their validator performance against the broader network. By comparing their returns to a trusted industry benchmark, operators can identify areas for improvement and optimize their operations, as well as to differentiate their staking products in a competitive market.
The CESR benchmark fosters healthy competition among operators. Those who outperform are rewarded with increased delegations, while those who don’t are incentivised to enhance their performance to remain competitive.
2. Market Monitoring and Strategic Insights
CESR enables operators to gain deeper insights into the Ethereum ecosystem. By monitoring trends, operators can make informed strategic decisions and adapt to market conditions and network changes (including recent Shapella and Dencun upgrades).
The CESR benchmark demonstrates that well-managed operators can achieve consistent returns despite market and network fluctuations. This underscores the value of robust operational practices and vigilant monitoring.
3. Enhancing Infrastructure Performance with Rated RAVER
Reliable and performant infrastructure is key to yield success. Operators must leverage high uptime, low latency, and rigorous operational protocols to maximize staking efficiency and rewards. Using Rated’s Validator Effectiveness Rating (RAVER) helps measure these factors, considering uptime, participation in consensus, and overall reliability.
By using CESR as the industry signal and Rated's RAVER metrics to measure infrastructure performance, an Institutional staking service operator may optimise to maintain a competitive edge. This comprehensive approach allows operators to fine-tune strategies and operations continuously, to further enhance services.
Final thoughts
The CESR benchmark offers a tool for operators to measure and enhance their performance within the Ethereum ecosystem. By leveraging CESR alongside operational metrics like Rated RAVER, operators can achieve greater transparency, trust, and efficiency. As the Ethereum network continues to evolve, these benchmarks will play an increasingly vital role in guiding and evaluating validator success. CESR will continue to be used by market participants, validators and financial institutions worldwide when engaging in products that reference Ethereum as the first bedrock financial rate of return for the Internet.
Note: The views expressed in this column are those of the author and do not necessarily reflect those of CoinDesk, Inc. or its owners and affiliates.
Tom Whitton
Tom Whitton is the CFO of Pier Two, one of the fastest growing staking service operators in the APAC region. A qualified Chartered Accountant, Tom holds a Bachelor of Commerce degree with a major in Accounting and Finance from The University of Queensland. Before joining Pier Two, Tom served as a consultant at one of the leading financial organizations in Australia, assisting clients with business acquisitions, asset protection, business and management structures, and tax advice. In his role at Pier Two, Tom has been pivotal in managing the financial strategy and operations, ensuring the organisation’s robust financial health and facilitating its growth within the broader APAC market. Beyond finance, he has been a core contributor to product, UI & UX design, operations, growth, and strategy matters.
