Solidus Labs, a category definer for crypto-native security and compliance, published this morning the first comprehensive whitepaper addressing risk management for block-building and the staking ecosystem. The paper – “Navigating Risks in the Staking and Block-Building Ecosystem” - was developed by the Solidus Labs team with contributions and review from leading subject matter experts, including Michael Mosier, Rebecca Rettig, Dr. Mikołaj Barczentewicz, Evan Zinaman, Eric Medoff and Nathan Catania.

This new resource is designed to equip staking service providers, institutions, compliance and risk professionals and policymakers with the essential knowledge needed to ensure effective risk management, robust compliance, and the continued growth of staking and block-building technologies on Ethereum. It provides extensive risk-minded research and analysis of key topics, including:

• The current mechanics and landscape of today’s block building, MEV and staking ecosystem.

• How staking and block-building are regulated today, and how that is likely to evolve.

• Unique risks in the block-building and staking process and how those risks are managed.

• New risk management technologies that enable continued, sustainable network growth.

The paper is published on the back of staking’s remarkable adoption by both retail and institutional audiences. As of June 2024, over $108 billion in ether (ETH) is staked, accounting for 27% of ETH’s total outstanding supply. Higher staking percentages are observed on other PoS networks like Polygon (37%), Avalanche (57%), and Solana (65%).

Some of the main insights discussed in the paper:

• The evolving legal landscape with some countries developing/enacting specific staking-focused rules (Dubai, Switzerland, Bahamas) and some enforcement-driven countries like the US, creates unique global policy challenges.

• Staking can pose regulatory and financial crime risks, creating additional compliance challenges for institutions securing the network - calling for continuous consideration and advancement of risk monitoring approaches.

• Amid evolving regulations, block-building participants risk unknowingly validating blocks with illicit or sanctioned transactions, which could create business, reputational and potential regulatory risk.

“For the adoption of PoS blockchain networks to continue it is crucial to address potential risks and regulatory challenges - and this first-of-its-kind whitepaper is meant to drive the discussion between industry leaders and regulators another step forward” said Asaf Meir, Solidus’ Founder and Chief Executive. “We see it as Solidus Labs’ and the blockchain ecosystem’s duty to lead the conversation and establish practical methods to separate fair and efficient block-building from the enablement of illicit finance.”

"As the block-building and staking ecosystems continue to grow, so does appreciation for potential risks and ways to natively manage them – for developers, users themselves, and policymakers – to optimize the resilience and opportunity of distributed systems," said Michael Mosier, co-founder of Arktouros legal boutique and former Acting Director and Digital Innovation Officer of FinCEN. "Great thanks to Solidus for convening cross-functional experts to help map the emerging landscape of democratized opportunity and risk management from a technical and practical perspective."

Solidus Labs recently launched Staking Guard, which enables an end-to-end solution to facilitate safe staking for institutional Ethereum validators. Powered by the Solidus Builder and Relay, Staking Guard delivers compliant blocks through an insulated pipeline, protecting against sanctioned activity and market abuse risks such as fraud and manipulation.

About Solidus Labs

Solidus Labs is the category-definer for crypto-native security and compliance solutions - trade surveillance, transaction monitoring, and staking guard. Our mission is to enable safe crypto trading throughout the investment journey across all centralized and DeFi markets. As the founder of industry-leading initiatives like the Crypto Market Integrity Coalition and DACOM Summit, and in everything we do, Solidus is deeply committed to ushering in the financial markets of tomorrow. To learn more, please visit: https://soliduslabs.com/

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