As proof of stake networks continue to grow, the role of the node operator has become increasingly important. At the time of writing, the Ethereum network has grown to $372B in market cap, with 26.35% ($97.72B) of available ETH supply currently being staked with a 3.25% CESR^TM (Composite Ether Staking Rate, as administered by CoinFund and calculated by CoinDesk Indices).¹ The traditional market participants have started to realize the potential in using their assets to earn rewards, but do not want to bear the risk themselves.

As a result, institutions are turning to professional staking node operators to help stake their assets and limit the exposure to being slashed or incurring network penalties. To gain comfort with staking node operators, institutions are conducting extensive diligence to understand the risks of staking, the controls, and insurances in place to mitigate them. With the expectation of a spot Ethereum ETF, the importance of due diligence, insurance and understanding of the risks becomes heightened.

Currently there have been seven applications pending with the SEC that are expecting a decision in May.² Notably, Fidelity was the first to revise their filing to include staking as an effort to try and maximize the opportunity for potential investors³, with other applicants considering the same approach.⁴ While it is still uncertain whether these applications will be approved this cycle, the efforts taken by large asset managers is a strong signal of the momentum gathering behind adoption and what is to come.

Since the approval of the spot Bitcoin ETFs in January, net inflows have grown at a rapid pace, sending Bitcoin’s price to new all-time highs. Out of the numerous ETFs approved, Blackrock’s iShares Bitcoin Trust set a record for the largest ETF launch in US history during the first month.⁵ This indicates that there is a strong interest for these new products from a new class of investor. These investors will seek to optimize their profits in an Ethereum ETF, and staking rewards are an important factor in this. With the added complexity staking brings to the makeup of a potential Ethereum ETF, scalable insurance solutions can enhance the risk profile of the node operators who empower these offerings. Insurance solutions can help to bring the trust and security that institutional investors require.

Aon has been focused on these challenges since Ethereum merged onto a proof-of-stake blockchain. Like many other web3 challenges, it has taken a collaborative effort between industry leaders to enable the development of the right products.

Now, staking insurance solutions that were once limited and unobtainable, have evolved into meaningful risk transfers that can be scaled with the support of experienced brokers who understand how to structure coverage and build capacity in a newer market. We are fortunate to have the support of many industry leaders and forward-thinking insurers to help create a safer market environment for all participants.

Increased activity in the digital asset markets has renewed interest from institutions and the assets dedicated to proof-of-stake networks is growing daily. Aon continue to dedicate resources and attention to the staking industry to educate insurers on the risks and enable solutions to scale. If you have questions or are interested in obtaining coverage, please contact your Aon broker.

For more information on staking risks and how Aon works with staking node operators and insurers to address these issues, please contact Glenn Morgan (glenn.morgan@aon.com).

Access the full whitepaper here.

1 Crypto Staking Explorer | Staking Rewards
2 Blockworks
3 CoinDesk
4 Grayscale Adds ETH Staking to Its Ethereum ETF Application - Decrypt
5 Cointelegraph