Crypto management fees have been historically expensive. Then staking arrived and changed all of that. Now, stakers have options to grow their wealth and maintain parity per value of their digital assets.
We had a sitdown with Sreejith Das CEO at Attestant,a boutique institutional staking firm to tell us more about the impact of fees and other issues within the crypto space.
Sreejith Das CEO at Attestant
- Why have wealth management fees been ignored?
When investment returns are healthy the main guiding set of statistics that is often discussed between wealth managers and their customers will tend to be the overall performance of a customers portfolio versus a standard index. The whole world of finance is built on a central premise of outperforming a benchmark/index in order to justify the fees customers are charged and when the outperformance or even the absolute returns are healthy customers have little incentive to delve further into the statistics to review fees in greater detail. However, in a world of high inflation, high interest rates and depressed returns the fees charged by wealth managers suddenly start to become an important statistic for customers especially when the performance returns make grim reading from both a relative and absolute standpoint.
- What is the impact of fees on the overall portfolio performance?
Often when fees are reviewed in isolation over a relatively short timescale of say 1 to 3 years their impact can seem minimal at first glance. However, when fees are compounded over decades they can have a tremendous impact. A base case is a portfolio X, without any fee, always returns 5% on an annual basis for a 20 year period compared with the same portfolio X plus a 0.5% annual fee, then the latter will have a reduced performance by 24% to the base case over the 20 year period. If we go further and have the same portfolio X with an annual fee of 1% then the performance will be reduced by 46% compared to the base case over a 20 year period. These basic examples show how relatively small changes in fees can over time erode returns substantially and why regulators have often looked at value or fee transparency such as trail commission and clean share classes to ensure customers are aware of all the fees charged on their investment portfolios.
- How has Ethereum’s Shappella upgrade removed the liquidity barrier for compliance managers?
Before the Shappella upgrade stakers essentially had to deposit their Ether with the Ethereum network without the prospect of being able to obtain their deposits or rewards until the code had been written and integrated into the network. This meant a staker’s Ether was illiquid as they could not withdraw the Ether as and when they wanted to do so. From a traditional asset management standpoint, compliance and risk managers could not allow any exposure to an asset class that did not have liquidity available. Once the Shappella upgrade was successfully implemented the liquidity available meant stakers could now withdraw their Ether deposits when required, hence removing the liquidity barrier for traditional asset management firms.
- What are the benefits of institutional staking?
Institutional staking is really trying to ask the question of what preventative measures a staking provider has taken to ensure that institutional staker’s assets are safe and will continue to receive regular returns from staking. In essence a staking provider will have reviewed the operational risks of the business, by placing themselves in the shoes of the institutional staker, and come up with a resilience model that gives comfort to stakers that their funds are safe, secure and likely to earn a regular return in the face of any events that occur in the Ethereum ecosystem. The important themes a staking provider should have to demonstrate this are highlighted below:
- The staking provider would be non-custodial meaning that the institutional staker would have no counterparty risk and that they would be in control of their Ether.
- To ensure the highest level of security it will use a distributed validator key manager for threshold signing. This provides slashing protection, securing validator accounts against accidental or malicious slashing events and also enhances security as multiple servers would need to be compromised simultaneously for an intrusion event.
- It will not have a cloud based infrastructure as this creates a single point of failure for the staking provider and more broadly the ecosystem as was noted in December 2021 when cloud providers were impacted.
- The validating infrastructure will have multiple server providers with data centres dispersed in a number of countries and cities to ensure resilience.
- Backup boxes would be available on standby should any faults or issues arise that would mean that active boxes could be swapped with backup boxes almost seamlessly as part of its business disaster and recovery process.
- Have an alerting system and process to ensure that if an unknown issue is occurring the staking provider is willing to shut down a staker’s validators in order to protect them from a slashing event.
- A reporting suite for stakers to review their returns and independently verify the invoice charges made to them.
Staking is crucial to the security of the Ethereum ecosystem and having institutional participants that are willing to invest their time, effort and money gives stability to the ecosystem to allow it to develop and mature.
- Please can you tell us about Attestant?
Attestant is a leading non-custodial Ethereum staking service. We’re widely recognised as thought leaders by the staking community, and the Ethereum foundation often refers to us on their website.
We write and open source our own software to meet our requirements for a secure, resilient, and robust staking environment. As validation for the quality of our work, our software is used by many other commercial staking firms. At last count, close to 25% of LIDO Ethereum staking was run using our software.
We designed our staking infrastructure from the ground up to ensure it meets the needs of our institutional customers. And we constantly monitor over 10,000 different data points across our network of 120 servers located in 14 different locations around the world. Our proactive monitoring approach allows us to anticipate potential problems before they can impact the performance of our systems.
Our in-house designed validating software makes use of multiple client nodes to ensure a failure of a particular node doesn’t impact our customers, and we use a distributed key threshold signing system to mitigate the risk of a signing server failing or being compromised.
- How has Attestant remained one of the longest-running Ethereum staking companies?
When we decided to create Attestant in the summer of 2019, we all knew we wanted to be staking from the start of the consensus chain. At that time, there was little to no institutional grade software available for staking, so we focussed our efforts on writing and building the tools needed to operate a staking business commercially. We decided to open source our tools for the good of the Ethereum community and it allowed other staking firms to build their offerings.
Our dedication to supporting the Ethereum staking community and our recognised technical expertise has given us the ability to attract customers that share the same values as us. Customers that value expertise and experience, and are committed to the long term success of Ethereum and the digital asset economy.
- What makes Attestant stand out from other staking companies?
Attestant was formed by a group of senior ex-banking professionals. That makes us think about risk first and foremost, and everything we do is based around how to mitigate and reduce it. We don’t “move fast and break things” because we know exactly what is at stake.
If you’ve ever had to run the global infrastructure for a multi-trillion dollar portfolio or execute a billion dollar trade, you see the world slightly differently. You worry about what could go wrong, you worry about making sure your clients are made whole, and most importantly you understand that your clients are putting their trust in you.
Risk management, expertise, trust, that’s what makes us different.
- Are there any challenges faced by stakers with each upgrade?
For a professional staking company like Attestant this is part of the job and we specifically designed the architecture so it can easily be upgraded without any downtime. The main challenge is being aware of all the moving parts and having clear channels to the appropriate teams and an understanding what is required and when. Attestant was the only staking company that was involved in all the devnets and testnets for the roll out of Shappella. This gave us complete confidence when it came to the mainnet release, as we had been through it numerous times and knew exactly what to expect.
- As other blockchains migrate to Proof-of-Stake (PoS), how can Ethereum remain ahead of the pack?
Ethereum continues to have a strong roadmap with clear deliverables and a great track record of success. Critically, Ethereum does not attempt to be the best chain for whatever the latest innovation may be (ERC-20s, NFTs, DeFi, etc.) but to provide a solid base on which such innovations may be built. This will continue, with Ethereum being the natural home for layer 2s that can take advantage of Ethereum’s security model and build entire new chains quickly and easily without having to deal with the complexities of building and maintaining a secure consensus mechanism. The on-going work for Ethereum covers hundreds of individuals in research, development and engineering, and continues to attract top talent in the space, keeping Ethereum well ahead of competing chains.
- Per Vitalik Buterin’s latest warnings regarding voting, how can the staking ecosystem be protected from abuse?
Ethereum researchers and developers are very much aware of the potential dangers of overloading a single stake with multiple roles and concomitant slashing conditions. This attempted leveraging of stake is something that will work up to a point, but we believe it has a natural ceiling as those who are more risk-averse will continue to carry out pure base-layer staking, and let those with ambitious return targets leverage their stake. The on-going work on allowing cheap security for layer 2 chains, such as EIP-4844, will result in leveraged staking having a level of diminished returns as chains place their proofs directly on Ethereum rather than through intermediary systems.
- What are the various components of the Attestant ecosystem?
Attestant uses its own open source multi-client validator software called Vouch. Vouch is the central coordinating component in which consensus clients and MEV providers connect. Vouch will request information from the consensus chain and then picks the most performant data to sign, which it then sends to the distributed key signer Dirk. Dirk is an Attestant open source distributed thresholding key signer system, so not all the signers have to be on-line in order to aggregate a valid signature. Dirk also provides double signing protection at the lowest level and will refuse to sign a message that has already been signed.
Reporting is provided by our chaindb and execdb software which we use to collect consensus information for every validator and all transactions on Ethereum network. This is a massive undertaking due to the size of these databases but has become a vital component for the data behind many of our blog posts. We also provide other software tools for the community for example ethdo, which is a bls command line wallet which has been the recommended wallet by the Ethereum foundation.
- How can customers stake their Ether and retain full asset control?
There are a few key elements that stakers should be looking for in their staking provider to ensure they retain full control over their Ether and to not have any counterparty risk with their chosen provider:
- The client retains control of their private key and this is never shared with the staking provider. This ensures stakers are the only ones ultimately in control of their Ether.
- All rewards are delivered directly to the stakers validators or execution address. The staking provider should not be receiving any of the rewards otherwise it could be viewed as handling client money and having the ability to transform a stakers return.
- The staking provider should invoice its customer separately for the use of its staking platform. If the staking provider is truly non-custodial it should not be able to take fees directly from the staked ether or rewards earned by stakers.
- The staking provider should provide the option of offering signed exit transactions from the outset of the relationship. This ensures, in the scenario where the staking provider becomes insolvent, the staker would have the ability to exit their validators independently and proceed to find an alternative provider without the loss of any Ether, other than the lost opportunity of transitioning to a new staking provider.
- What is Attestant’s backstory?
Attestant was born in the summer of 2019 following a meeting of collective minded individuals on the 39th floor of a London skyscraper. A core group of us wanted to contribute to the digital asset ecosystem so we gathered in a room to discuss potential ideas. Towards the end of a long day, the fact that Ethereum was moving to proof of stake was mentioned. Coming from the financial markets we recognised that the proof of stake return would become the risk free rate of Ethereum and we knew it was important to give institutions the ability to access that rate.
From that first summer in 2019 to the launch of the consensus Chain in December 2020, we knuckled down to build the software, relationships, and structures needed to create a staking service that could be trusted by institutional investors.
- Please can you tell us about your financial reporting process?
Financial reporting is a key requirement for customers, and clarity of information is critical to provide visibility into what is at heart a highly technical process. Gathering information from both consensus and execution chains, Attestant provides real-time reporting, allowing customers to see all current and past rewards that have been obtained, as well as full financial reports and statements that can be sent directly to the customer on a periodic basis. The ability to select the timezone in which reports are generated, the currency in which the reports are presented, and the format of the reports (PDF for presentation, CSV for processing, etc.) allow customers to obtain the information they need in the format they need it.
- How do clients interact with your API?
Clients can interact with the API via the web portal or calling the rest API endpoints with an API token which they can create from the portal. The API tokens are scoped so that they have different roles; reporting, validating and administration.
- Please can you tell us about your APIs functionality?
We have two aspects to our API; validating and reporting. The validating part provides the ability to allocate a validator key with the necessary deposit information, so the client can fund the validator with 32 ether. Attestant API also provides the ability to retrieve signed exit transactions encrypted with the client’s PGP key.
The reporting endpoints enable a client to query their reward data for a particular time interval for both their consensus and execution rewards. Attestant also offers a standard and customised set of reports that can be delivered to the client’s portal or their email. We also provide template spreadsheets for client’s to see their rewards in real-time.
- Who are the team of miracle workers behind Attestant?
Attestant is composed almost entirely of senior ex-banking professionals. A brief bio of the management team is given below:
Sreejith Das (Chief Executive Officer) – Sreejith is a financial specialist with decades of experience in the wholesale capital markets. Part of a small team that successfully obtained a new UK banking licence, he is skilled at building and developing multi-billion dollar investment corporations. He holds a Ph.D in applied mathematics, and has a keen interest in technology and the changes it can bring to society.
Jim McDonald (Chief Technology Officer) – Jim has worked on internet infrastructure for over 30 years, including running one of the first public access internet services. He has worked on hardware and software, in startups and multinationals, in technical, management and leadership roles. His current focus is on Ethereum staking, decentralised infrastructure, and advanced validator strategies.
Robert Olsen (Chief Commercial Officer) – Robert has over 30 years of sales and marketing experience in a wide variety of roles. Since 2012 Robert has focussed his attention on the digital asset space, and was an early pioneer in Ethereum. Through his extensive network of friends and colleagues he has helped a large number of startups to establish connections that have greatly assisted their growth.
Gary Rowe (Chief Development Officer) – Gary has over 30 years developing software and worked in many fields. He has been active in the crypto ecosystem since early 2011 with the development of the popular MultiBit Bitcoin wallet and several open source libraries. He has advised large financial organisations on their blockchain strategies and guided their implementation and operations.
Steve Berryman (Chief Business Officer) – Steve is a highly motivated professional with over 25 years’ software engineering experience within the financial industry, he has a degree and a Ph.D in Computer Science. Steve has worked for tier one investment banks across the globe, where his main focus has been on cutting edge derivatives and software to price and manage their risk. Now more focussed on blockchain technologies, Steve is also the co-founder of one of the longest running Tezos staking firms.
Numaan Ahmed (Chief Risk Officer) – Numaan has worked in the Risk and Compliance space for over 10 years, including a role as a Chief Risk and Compliance Officer (SMF16/17) at a hedge fund. He has a Ph.D in Computational Chemistry obtained from University College London. Numaan has primarily worked in asset management and private banking covering all asset classes from equities to alternatives. His focus has been investment, operational and regulatory risk. In addition to this he has developed automated performance reporting and strategic business analysis for senior management oversight of all financial products.
Gary Russell (Chief Operating Officer) – Gary’s career in finance has spanned over 30 years. During this time he has headed up the operations of a multi-billion dollar investment manager dealing in both funded and synthetic securities. More recently within Treasury he managed the financing and hedging requirements of a number of funds. His experience of both front and back offices has given him a rare insight into end-to-end processing, the benefits/challenges of automation and the changing regulatory environment.
- How do you maintain the security and fidelity of your infrastructure?
We have very restrictive access to all production machines and they are protected with a mixture of hardware devices, software and best security practices. The bare metal machines have minimal software installed and the components are distributed across multiple machines. For example, the Dirk signer machines do nothing but sign incoming messages from known Vouch machines and no employee has access to enough signing machines to create a threshold signature.
- Please can you tell us more about your open source interactions and contributions?
Attestant open sources all software used within its validating infrastructure, including its leading threshold key signer Dirk and multi-node validator client Vouch; these products are used by many staking services and individuals to provide a safer and more performant validating experience. In addition, Attestant builds and supports many underlying libraries and tools that are used in Ethereum staking and the wider Ethereum ecosystem, together used by hundreds of other companies. Finally, Attestant is a major contributor to the open development of Ethereum itself, participating in the specification process and supporting many devnets and testnets.