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.

AccessTimeIconJul 10, 2024 at 4:10 p.m. UTC
Updated Jul 12, 2024 at 7:24 p.m. UTC

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.

You're reading Crypto Long & Short, our weekly newsletter featuring insights, news and analysis for the professional investor. Sign up here to get it in your inbox every Wednesday.

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.

Edited by Benjamin Schiller.


Please note that our privacy policy, terms of use, cookies, and do not sell my personal information has been updated.

CoinDesk is an award-winning media outlet that covers the cryptocurrency industry. Its journalists abide by a strict set of editorial policies. In November 2023, CoinDesk was acquired by the Bullish group, owner of Bullish, a regulated, digital assets exchange. The Bullish group is majority-owned by; both companies have interests in a variety of blockchain and digital asset businesses and significant holdings of digital assets, including bitcoin. CoinDesk operates as an independent subsidiary with an editorial committee to protect journalistic independence. CoinDesk employees, including journalists, may receive options in the Bullish group as part of their compensation.

Tom Whitton

Tom Whitton is the CFO of Pier Two.