Part 3: Digital Asset Infrastructure Providers

"Infrastructure creates the form of a city and enables life to go on in a city." – Paul Goldberger, Author and 1984 Pulitzer Prize winner (May 2009)

 

Digital asset infrastructure is the bedrock upon which all digital asset activity occurs. Just as the roads, buildings, bridges, and railways of a city shape the lives of its residents, digital asset infrastructure shapes a blockchain's functionality, the applications on top of it, and how users interact with it. Businesses do not typically build the physical infrastructure that supports their operations; in much the same way, it is often impractical for developers of digital asset projects to construct the digital infrastructure necessary for their activities. Delegating their infrastructure needs to specialized providers allows them to concentrate on their core competencies.

 

This section focuses on node-as-a-service, staking-as-a-service, and wallet solutions. The following figure displays the key players that are covered.

While staking-as-a-service and node-as-a-service providers both offer node-related products, it is important to note the difference between the functionality of the nodes they provide. Staking- as-a-service providers facilitate access to PoS validator nodes, which execute consensus protocols, verify transactions, and append transactions to the blockchain. These nodes are integral to upholding the security of the blockchain, and products that provide access to them are useful for individuals and institutions who seek to earn the block rewards that incentivize entities to participate in maintaining this security.

 

In contrast to staking-as-a-service firms, node-as-a-service firms provide RPC nodes that allow developers to access blockchains. Unlike the validator nodes operated by staking-as-a-service firms, RPC nodes typically do not participate in consensus and earn block rewards. Instead, they focus on submitting new transactions and field requests to the blockchains they are a part of. RPC nodes are of particular importance to dApps that field a high volume of transactions and requests to operate at sufficient speed and scale, as well as to data analytics companies that purely seek to query blockchains for information. RPC and validator nodes are effectively identical in their architecture; however, it is most practical for a node operator to separate them, as splitting resources between them could prevent a node from doing either adequately.

 

As displayed in the chart below, leading staking-as-a-service firms have emerged as major participants in the PoS landscape. Several firms stake hundreds of millions of dollars worth of PoS assets, while others now stake billions. The subsection below provides an overview of these firms and their product and service offerings.

 

Blockdaemon provides five staking-related products: Staking API, public validators, whitelabel validators, custodian staking, and liquid staking. The API for staking providers allows their clients to automate staking transaction signing and scale up validator nodes on PoS networks over time. Retail or institutional users can delegate their tokens to public validators run by Blockdaemon and earn passive rewards. Institutional custodians such as Coinbase and SEBA Bank use Blockdaemon's staking integration through which they offer staking products to their customers. Under its liquid staking product, Blockdaemon partnered with Stakewise to offer institutional- grade, KYC-compliant staking solutions so that institutions have access to liquidity while staking their assets.

 

Chorus One's whitelabel staking solution offers clients (with assets exceeding $10 million) managed nodes for their users to stake with. The firm also provides liquid staking services which provide access to liquid staking derivatives such as Lido's stETH and stSOL. Chorus One's staking API for institutions, OPUS, simplifies staking while providing guarantees against slashing, double-signing, and security breaches.

 

With ~$6.2 billion in staked assets, Everstake is one of the largest staking service providers. It manages its validator nodes across over 40 networks and allows users to delegate their tokens. With the help of liquid staking protocols such as Lido, Everstake lets users take advantage of staking derivatives. In November 2022, Everstake announced a strategic partnership with Nexus Mutual, a decentralized insurance protocol, to insulate users from the risks associated with Ethereum staking.

 

Figment is an institutional staking service provider. It manages staking infrastructure for clients and offers staking-related services such as staking dashboards with analytics, diligence reports on PoS networks, analyst calls, and integrations with third-party custody solutions. Figment has partnered with Liquid Collective, a liquid staking protocol with multi-chain capabilities, to offer staking derivatives such as LsETH. Figment also provides insurance against downtime, double signing, and missed rewards.

 

HashQuark is the web3 infrastructure-focused subsidiary of Hashkey Group, a digital asset exchange and investment platform. HashQuark runs public validators of all major PoS networks and users can delegate their stake to these validators. The organization has built a solution called EtherPocket Pro, a node validation software that offers staking in the form of dedicated or shared validators to institutional and individual users. It also offers insurance against slashing and low activity.

 

Lido is the largest ETH staking service provider - approximately 30% of all staked ETH is staked through Lido. Lido's flagship ETH staking product stakes ETH on behalf of users and issues them a liquid staking derivative (stEth) in return. Although Lido launched with support solely for Ethereum, it has added support for KSM (Kusama), DOT (Polkadot), MATIC (Polygon), and SOL (Solana). Lido operates as a DAO and is governed by its native token, LDO.

 

P2P Org offers non-custodial staking infrastructure for individuals, funds, exchanges, and custodians. The company's products currently support staking for ~40 PoS networks. Its whitelabel node product enables individuals, custodians, and exchanges to avail themselves of having to operate high-performance PoS nodes. P2P also offers insurance against slashing.

 

Rocketpool is an Ethereum-focused liquid staking derivative protocol. It offers two kinds of ETH staking: i) "stake and run node" allows users to stake and run their own validator nodes and ii) "stake ETH" lets users stake while Rocketpool manages the end-to-end infrastructure. Like Lido, Rocketpool also has its governance token, RPL. When users want to run their validator nodes, Rocketpool allows them to do so with a minimum of 16 ETH along with RPL instead of the standard 32 ETH requirement. It does so by assigning the other 16 ETH from the pool where users, who do not wish to run validator nodes, deposit their ETH.

 

Staked offers staking services to its institutional clients for over 25 PoS networks. The non- custodial nature of Staked's products means that users maintain control over their assets and can have a say in the governance process of different networks via staked tokens. Staked also offers ETH staking in the form of a trust for accredited investors.

 

Stakefish manages end-to-end infrastructure while allowing users to maintain custody of their assets. The primary drawback of this model is that users must stake at least 32 ETH if they want to use Stakefish's services to leverage Ethereum staking. Although Stakefish supports Lido (i.e., operates validator nodes on behalf of Lido), it does not offer staking derivatives when ETH is staked via Stakefish.

 

Like Rocketpool, Stakewise's products exclusively support ETH staking. Stakewise allows users to stake any amount of ETH and offers them liquid staking derivatives similar to Lido and Rocketpool. Stakewise's staking derivative serves as the underlying for Blockdaemon's liquid staking product, meaning that when users elect to use Blockdaemon's liquid staking services, they receive Stakewise's ETH derivative.

 

Staking Facilities is operationally similar to Stakefish in that the firm runs the infrastructure and users delegate tokens to their validators. However, instead of enforcing the 32 ETH minimum requirement for Ethereum staking, Staking Facilities uses Lido's liquid staking derivative, which allows for the staking of any denomination of ETH.

 

While node-as-a-service providers may seem fairly similar on the surface, as displayed in the table below, there is significant variation in their products and services, as well as their pricing models.

Alchemy is one of the leading infrastructure providers targeting developers in the digital asset ecosystem. Alchemy's Supernode is an enhanced Ethereum API with all the functionality of a node with high reliability, correctness, and scalability. Two of Alchemy's standout products are Transact and Spearmint. Transact is a smart transaction product that allows sending transactions with Flashbot's private relay to prevent arbitrage and frontrunning. Spearmint is a tool that allows NFT creators and developers to create allow lists. Allow lists enable NFT projects to manage their community better by easily letting them set the rules that dictate address eligibility for NFT mints. For example, they can mandate that only addresses linked with discord profiles with more than a certain level of experience points can mint the NFT at a specific price.

 

Ankr aims to address the node-level centralization problem for blockchains. Ankr incentivizes individual node operators to run nodes via its token, ANKR, which is also the governance token of the network. Users pay fees in ANKR and can stake tokens to secure the network. Individual node providers elect to use their own hardware or Ankr's servers and must stake 50,000 ANKR (~$1,300 as of 1/31/22) as collateral to offer their services to the network. The protocol also compensates node providers for their services using the ANKR token. Ankr has three categories of product offerings: node access for developers and enterprises, staking, and a game development kit compatible with Unity and Unreal engine that enables integration with web3 wallets.

 

BlockCypher focuses on providing infrastructure for developers. The company offers APIs through which developers can interact with the Bitcoin, Ethereum, Litecoin, Dash, and Doge blockchains. The company also operates a private test chain that closely resembles the Bitcoin main chain. BlockCypher's Bitcoin APIs host several unique features, including i) an unconfirmed transaction confidence factor that can accurately predict the probability of an attempted double- spend succeeding against a transaction, ii) push APIs that allow developers to quickly retrieve information regarding when a transaction was confirmed or relayed through the network, and iii) an address forwarding API that enables seamless payment acceptance and consolidation without requiring users to create new accounts. The company's Ethereum APIs are slightly less extensive than its APIs for Bitcoin and other UTXO blockchains; however, these Ethereum APIs still contain analogs to the aforementioned features excluding a transaction confidence factor. BlockCyhpher has also built block explorers for the five chains it supports.

 

Blockdaemon is among the leading infrastructure builders with a comprehensive product set that targets a broad range of potential clients, including developers, exchanges, banks, and custodians. Blockdaemon's node-related products span three verticals: access, connect, and secure. The 'access' vertical comprises products including the Ubiquity API suite, Native and NFT API, and dedicated nodes. Ubiquity allows users to query blockchain nodes and broadcast transactions without running nodes. It uses a single, unified Blockchain API format to access data across chains. With the help of Gem, a company that Blockdaemon acquired, the 'connect' vertical consists of a fiat on-ramp. In conjunction with its acquisition of Sepior, Blockdaemon offers an MPC wallet under its 'secure' vertical.

 

Bloq's node infrastructure offerings are twofold: connecting APIs and nodes. Bloq Connect is a set of autoscaling APIs that support Algorand (Mainnet and Testnet) and Ethereum (Mainnet and Goerli Testnet). This offering provides developers with a suite of REST and WebSocket APIs, the quick retrieval of blockchain data, and security monitoring for suspicious block activity. 'Bloq Nodes' allows customers to spin up private enterprise-grade node clusters to access Algorand, Avalanche, Bitcoin, Bitcoin Cash, Ethereum, and Litecoin.

 

Chainstack offers managed blockchain nodes and API services. One of the primary attractions of Chainstack's offering is the customizability it provides to developers. Chainstack's node hosting service enables clients to choose from cloud providers such as Amazon, Google, Chainstack, or their own cloud setup with a choice of the geographical location of the nodes. It also offers a global mempool view for enterprises. Regarding API provision, Chainstack offers NFT and IPFS APIs. The NFT API is standardized across smart contracts, which allows developers to avoid complex programming. The IPFS API allows for quick data retrieval and stores data across multiple Storj nodes. It complies with S3 (Simple Storage Service), allowing easy movement between S3 and IPFS. Finally, Chainstack also provides Subgraphs, an indexing27 solution that improves sync times.

 

GetBlock provides three node services: shared, dedicated, and node clusters. Although Getblock hosts nodes, it also allows clients to set up their own hardware at their preferred location. GetBlock also provides dApp developers with a technical stack that helps them quickly integrate with web3.

 

Infura is arguably the most widely used Ethereum infrastructure provider. MetaMask, another ConsenSys product and perhaps the most popular web3 wallet, connects to Infura endpoints by default. Infura's web3 infrastructure-as-a-service suite comprises three broad services- i) access to Ethereum's archive data, ii) easy smart contract deployment, and iii) transaction management. Infura's APIs allow developers to connect to the Ethereum network and IPFS storage. Full compatibility with all IDEs helps developers in building smart contracts. Infura also manages transactions to be published on the Ethereum network. It reduces the drop rate of transactions by using a dynamic gas price escalation algorithm and real-time fee adjustments to ensure that they are processed quickly. It also offers flexible payment schedules to institutions so that they can transact on Ethereum without holding ETH.

 

A blockchain ecosystem is only as decentralized as its most centralized component. Node infrastructure centralization has been a pain point for blockchains. Like ANKR, Pocket Network launched as an independent, application-specific blockchain solution trying to solve the node centralization problem by incentivizing individual node providers with its token, POKT, to join the network. Pocket Network created a marketplace for dApps and relay nodes. dApps send RPC requests to a global network of Pocket Network nodes which relay the blockchain data back to dApps to earn POKT. To ensure that a node's incentives are aligned with the network, every node must maintain a minimum stake of 15,000 POKT (~$900 as of 1/31/22). Node providers can manage their own infrastructure or use node hosting services such as BlockSpaces, BlokHub, CODR3, and Chainstack.

 

Quicknode has three APIs – Core, Token, and NFT. Quicknode's 'Core' API offers developers read and write access to blockchains. This is useful for real-time analytics, access to archival data of smart contracts and balances, and tracing and debugging transactions. Quicknode's 'Token' API allows users to easily retrieve ERC-20 token metadata without indexing. Finally, the firm's 'NFT' API allows for the retrieval of metadata of Ethereum and Solana NFTs and can be used by galleries to display NFTs and filter them by traits, creator, and collection.

 

The table below shows node-as-a-service firms' client tools.

While node-as-a-service providers make it easy for development organizations to deploy and manage their dApps, wallet providers allow users to tap into these applications by submitting and receiving transactions on layer-1 and layer-2 networks.

 

Argent Wallet is an Ethereum-based wallet with social recovery and multisignature security. Because Argent is a smart contract wallet, users can carry out transactions or set access parameters that are not possible using EOAs. For example, Argent allows users to set guardians (such as a hardware or software wallet or a trusted third party) that can authorize transactions, lock, or recover wallets without giving them access to the assets within or using a seed phrase. Argent generates revenue through a 0.5% crypto-to-crypto exchange fee for in-wallet swaps through its integrated DEX aggregator, Paraswap.

 

With the exception of multisig support, Coinbase Wallet offers all relevant wallet features and supports all EVM-compatible chains. The wallet features a dApp browser that allows users to access various DeFi applications such as Aave, Compound, PancakeSwap, Trader Joe, and Uniswap from within the wallet application. Coinbase wallet charges a 1% fee on all in-wallet swaps.

 

Exodus offers three kinds of wallets: browser, desktop, and mobile. Exodus's wallets allow users to stake multiple PoS coins and have an integration with Compound that enables users to lend assets without leaving the wallet application.

 

Keplr Wallet allows users to access all blockchains within the Cosmos ecosystem. It also provides users with staking on various chains such as Cosmos Hub, Secret Network, and Osmosis. It generates revenue by charging projects that want native integrations with the wallet.

 

With over 20 million monthly active users, MetaMask is one of the leading browser wallets and supports all EVM-compatible chains. MetaMask allows in-app swaps by aggregating prices from different DEXes. While MetaMask does not receive any network gas fees for the swap, it levies a service fee of 0.875% on each in-app swap transaction. MetaMask also provides an institutional wallet in partnership with pure-play custody firms.

 

Phantom was among the first user-friendly Solana-based wallets. For its swap feature, Phantom fetches the best execution price after scanning multiple DEXes. Apart from just viewing NFTs in the app, Phantom allows users to burn unwanted NFTs and earn rewards in SOL. Phantom charges 0.85% transaction fees on in-app swaps. Phantom has also announced its intentions to add support for Ethereum and Polygon.

 

Safe (formerly Gnosis Safe) allows users to create contract addresses that are smart contracts capable of triggering transactions after a set number of valid owner signatures are met. It allows owners to use on-chain and off-chain signatures. With on-chain signatures, every signature is recorded on-chain and consumes gas. The off-chain signature flow allows owners to store transactions after signing only call methods to execute transactions upon submitting a final signature. Unlike other wallet providers, Safe does not have any formal revenue drivers. Instead, Safe is governed by SafeDAO through SAFE, an ERC-20 token. Potential value capture mechanisms for the SAFE token can be implemented at the discretion of the SafeDAO.

 

Trust Wallet facilitates in-app swaps via 1inch's API. 1inch is a DEX aggregator that eliminates the need for integration with multiple exchanges. Similar to Keplr, Trust Wallet also generates revenue through native wallet integrations with third parties.

 

Hardware wallets like Ledger and Trezor are non-custodial cold wallets and considered to be a very safe way for users to store their assets. With these wallets, users need a physical (device- level) verification every time they want to initiate a transaction. These wallet providers generate revenue by selling hardware devices, charging in-app transaction fees, and providing institutional custody solutions.

 

 

Leading blockchain infrastructure firms announced significant funding rounds in the first half of 2022. Even on the heels of market turmoil in the back half of 2022, many institutions remained positive regarding the long-term impact of blockchain technology.

 

"If we are entering 'crypto winter,' it's unlike the bear markets we've seen before. The crypto market today has institutional adoption. They see the promise crypto holds. Many institutions are long-term bullish on the tech." – Konstantin Richter, Founder and CEO at Blockdaemon (Blockdaemon press release, February 2022)

 

Accordingly, several institutions have begun offering digital asset infrastructure products in- house. For example, BNY Mellon launched digital asset custody for BTC and ETH in October 2022 and Nasdaq announced that it intends to launch a digital asset solution in September 2022.

As discussed later in this section, many other institutions have adopted "picks and shovels" investment strategies and acquired ownership stakes in leading blockchain infrastructure companies.

 

The following table displays information on the most recent fundraising rounds across blockchain infrastructure and staking.

 

Alchemy announced a funding round in October 2021 in which the firm raised $250 million at a $3.5 billion valuation. Just four months later, in February 2022, Alchemy announced a $200 million "Series C-1" round which was conducted at a $10.2 billion valuation. The Series C-1 was led by Silver Lake and Lightspeed Venture Partners. While Lightspeed Venture Partners has invested in multiple digital asset-related companies since its inception, Silver Lake, a technology-focused private equity firm with more than $90 billion in AUM, has historically focused on investing in "web2" technology companies.

 

"Alchemy will primarily use this funding to reinvest in the growth of the ecosystem to further the mission of making blockchain development accessible globally. This includes expanding access to its tools for all developers, especially those just starting out, building out its educational resources to help onboard new developers to Web3, and continued strengthening of its infrastructure to support the industry's rapid growth. It will also continue its global expansion, including the opening of new offices in and outside of the US, and support for developers across new, emerging chains." – Alchemy blog, (Series C-1 Fundraise, February 2022)

 

Blockdaemon's $207 million Series C, which was announced in January 2022, was conducted ~$3.3 billion valuation. Blockdaemon has stated several planned initiatives following this round, including launching a DeFi fund to invest in institutional-grade DeFi offerings and supporting strategic partnerships with StakeWise and Obol Labs, a trust-minimized staking protocol for public blockchains. SoftBank Vision Fund, the largest technology-focused investment fund in the world, participated in Blockdaemon's Series C and ConsenSys' Series D fundraising rounds. Both Blockdaemon and ConsenSys have raised hundreds of millions of dollars at multi-billion dollar valuations.

 

In March 2022, ConsenSys, an Ethereum-focused decentralized protocol software company with a product suite including Infura, MetaMask, Codefi, Diligence, Quorum, Truffle, and ConsenSys NFT, raised $450 million at a $7 billion valuation. This Series D more than doubled the valuation set in ConsenSys' Series C in November 2021. ConsenSys has discussed its intentions to use this capital injection to hire over 600 new employees globally and to fund an expansion and redesign of MetaMask.

 

"I think of ConsenSys as a broad and deep capabilities machine for the decentralized protocols ecosystem, able to rapidly capitalize at scale on fundamental new constructs that emerge, such as developer tooling, tokenization, token launches, wallets, security audits, DeFi (1.0, 2.0 and beyond), NFTs, bridges, Layer-2 scaling, DAOs, and more. This view has resonated with our crypto native and growth investors in a Series D that will enable us to execute powerful growth strategies. " – Joseph Lubin, Founder and CEO at Consensys, (Series D press release, March 2022)

 

The table below shows notable acquisitions in the blockchain infrastructure industry in 2021 and 2022.

 

 

Following its Series C, Blockdaemon has made two acquisitions: Gem and Sepior. Gem, a blockchain firm focusing on crypto onramp technology and digital identity solutions, was acquired by Blockdaemon in March 2022. Blockdaemon intends to leverage Gem's offerings to allow institutions to access its node stack and connect to blockchains with as little friction as possible. Blockdaemon also acquiredSepior, a data and digital asset security company, in July 2022. Sepior is known for creating multiparty computation (MPC) algorithms to remove single points of failure in digital asset management institutions.

 

Coinbase's acquisitions of Bison Trails and Polychain Labs have bolstered its staking capabilities and allowed the firm to extend these services to clients. Coinbase also announcedthat it had acquired Skew, a data platform geared to serve institutional clients, in April 2021. Coinbase currently counts over 7,000 financial institutions as customers. To incentivize these institutions to continue using Coinbase's platform, it seemed critical the company carried out investments in data analytics software that provides insights similar to traditional financial markets.

 

In December 2021, Kraken, one of the largest centralized CEXes by volume, acquired Staked, a non-custodial staking solution. This acquisition further cemented Kraken's ability to support staking for customers who prefer to maintain custody of their assets rather than place them in the possession of others.

 

OpenSea, the largest NFT marketplace by trade volume, acquired Dharma Labs in a deal speculated to be worth between $110 million and $130 million in January 2022. Dharma Labs initially launched a protocol for tokenized debt agreements before offering stablecoin savings accounts and ultimately allowing automated clearing house purchases in multiple US states. Dharma Labs' wallet offering was shuttered upon the closing of the acquisition, and Nadav Hollander, former Dharma Labs Co-Founder and CEO, became OpenSea's CTO. No specific information has been given yet regarding how Dharma Labs' technology will be used to enhance OpenSea's platform. However, OpenSea stated that it acquired Dharma Labs to accelerate product development, expand trust, safety, and reliability, and meaningfully invest in the NFT and web3 ecosystem.