Failed: Staking as a Service

At the beginning of the year, our team worked with BONK to help them launch bonkrewards.com. This was a major win for Armada to have a paying customer use the tokenomics infrastructure. Since then, Armada has helped over a dozen organizations on Solana bring staking to their token.

Our original thesis with Armada was that teams should be focusing on their product and not ancillary infrastructure like tokenomics. To some extent we’ve validated this. However, it has been invalidated at top level organizations. Those that achieve a level of public success and build a large treasury tend to justify building bespoke staking/tokenomics in house. It could also be product based nuances that require the core team to integrate staking directly into their protocol or network. However, there is still a lot of demand with the mid to long tail organizations that benefit from such infrastructure.

Over the last few months, Armada has onboarded over a dozen organizations to use the Staking product. Common business models for staking are to charge a flat fee on deposit or some sort of take rate on rewards being distributed. Looking at the data, the combined organizations (sans BONK) are adding roughly 80 new depositors a day and ~$850 in rewards distributed a day.

At current scale, there’s no way to generate a meaningful revenue stream given those numbers. The organizations using staking would need to scale by multiple orders of magnitude before any sort of fee or take rate could become meaningful. Scaling the usage is not without it’s hurdles due to the resource drain of onboarding each organization. Not to mention, there just aren’t enough teams on Solana to bring it to that sort of scale.

Any on-chain infrastructure that does not have network effects will be commoditized over a long enough time horizon. One exception to this rule is a product like Metaplex that became so entrenched in the Solana ecosystem before it was spun out that no other NFT/Token Metadata standard could compete.

While staking has high switching costs due to lock up durations, it does not benefit from network effects. This leads us to believe it will be difficult to build a mote for a defensible, sustainable business over time.

Going forward

While looking for a product that can scale, Armada has found the inkling of a successful services business. There’s some demand from quality teams that are willing to pay for development services to implement tokenomics using the teams many years of Ethereum and Solana experience. These early teams are building more complex infrastructure networks, or cross-chain solutions and could use serious architecture and engineering help to realize their vision.

As we continue this journey, we’ll be focused on servicing larger organizations that can pay upfront as opposed to a self service model or onboarding every project that reaches out.