Validator Business Model Discussion and Recording

Chainflow and the Decentralized Staking Defenders organized this first ever validator business model discussion. A diverse panel of validators shared their perspectives as key participants in the emerging proof of stake economy. The discussion happened on 5 December 2019.

Introduction

Adrian Brink's talk at the Cosmos Guardian event during Devcon week in Osaka inspired this idea. This conversation's general premise is the one Adrian stated during his talk.

The premise is that running validators, without offering value-added services on top of them, is an unsustainable long-term business model. Instead, it’s necessary for validators to build value-added services on top of the foundational validator operations layer.

Topics we discussed include -

1 - Is this true? Is only running validators an unsustainable business model?

2 - Is this true for all validators ? Or is it true for validators who’ve raised certain levels of capital that need to meet particular return expectations?

3 - How can smaller operators compete with larger operators, as they may be spending most of their resources running validators. Are smaller operators doomed if they don’t add higher margin services to their business? Or can they build a successful, non-venture-backed-scale business without dong this?

4 - How does the amount of funding raised impact the urgency and need for these models to be successful? How fast do they need to succeed?

6 - What are some of the validator business models being experimented with right now?

7 - What validator business models seem to be gaining traction?

8 - What validator business models may emerge in the future?

Participants

Participants included this diverse set of smaller and larger validator operators, an independing staking research company, as well as a validator infrastructure provider.

Conclusions and Take-Aways

Here's a short-list of my conclusions and take-aways -

  1. Validators need to offer value-added services on top of core validator operations.

It felt like a forgone conclusion that core validator operations trending toward commoditization. While there may be some exceptions on smaller scales, the panel agreed it's necessary to offer value-added services on top of core validator operations to create sustainable business models.

2. Validators are well-positioned in the emerging staking economy.

There seemed to be a general agreement that validators play a pivotal role in the emerging staking economy and that value accrues to this role.

3. Business models are in the experimentation stage.

It felt like everyone is still experimenting with various business models. Nobody, big or small, has it all figured out yet.

4. Despite the uncertainty, some investors are willing to invest in validators at this stage.

The panel agreed that a validator business is unlikely to generate VC-scale returns. That said, a validator business could be an attractive to investors seeking stable cash flows.

Next Steps

This felt like the beginning of a longer conversation. The space is emerging fast. Related business models will too.

Chainflow will continue hosting these conversations. Inspired by the success of this first one, we'll be launching a Validator Life podcast. Future conversations will be done as episodes of Validator Life.

Subscribe to Validator Life here so you don't miss them!

And at long last, the recording!