This opinion piece on digital asset regulation is from Max Heinzle, CEO of 21X, the EU regulated digital asset exchange

The US is sending a powerful signal to the world: digital assets are here to stay. This growing enthusiasm, spearheaded by the new administration, is certainly a welcome development. However, as we celebrate this embrace of innovation, I believe we must also recognize the crucial role of regulation in safeguarding investors and ensuring the long-term health of this growing industry.

The winds of change are blowing through Washington. With it comes a wave of crypto zeal, spearheaded by nominating Paul Atkins at the SEC and appointing David Sacks as the White House Crypto Czar. An executive order signalling support for the industry by the new US president, Donald Trump – now a true advocate of the opportunities afforded by crypto – further cements the impression that the US is set to embrace it with open arms. At the same time, all the signs are there that as the US embraces crypto, it will also shift towards a more relaxed regulatory environment.

It is important to remember that while cryptocurrencies dominate mainstream media headlines and dinner party conversations, they actually represent just one piece of the rapidly expanding digital asset universe. The true revolution lies in the tokenization of traditional assets like stocks, bonds, real estate, and even intellectual property. This represents a paradigm shift in finance, with the potential to unlock trillions of dollars in value and democratize access to investment opportunities. Even Larry Fink, CEO of Blackrock, the world’s largest asset manager, recognizes this potential, stating that tokenization could “democratize investing in ways we can’t imagine.”

So, while the transformative potential of crypto and – more importantly – digital assets, is established, its full potential can only be realized within a secure and regulated environment. Institutional investors – the key to unlocking this future – require confidence and clarity. They need assurance that their investments are protected and that the market operates with integrity. This is where Europe’s regulatory framework, spearheaded by the European Securities and Markets Authority (ESMA), shines.

ESMA has been instrumental in developing a robust regulatory framework for digital assets, including the groundbreaking Distributed Ledger Technology Pilot Regime (DLT Pilot Regime). This regime allows for the testing and development of DLT-based market infrastructures within a controlled environment, fostering innovation while ensuring compliance with existing financial regulations. 21X has worked tirelessly to meet the stringent requirements of the DLT Pilot Regime, and in doing so become the first company to receive a license from the EU to operate a fully regulated digital asset exchange. When we launch our 21X exchange in the spring, this landmark achievement will demonstrate the effectiveness of a regulatory approach that fosters innovation while ensuring investor protection and market integrity.

The further EU regulations of MiCA (Markets in Crypto-Assets), which build upon the foundation laid by the DLT Pilot Regime, provide a comprehensive framework for the entire digital asset ecosystem, not just cryptocurrencies. By establishing clear rules for issuance, trading, and custody of digital assets, MiCA fosters trust and transparency, attracting institutional capital and paving the way for mass adoption. This aligns with Fink’s call for the SEC to “rapidly approve the tokenization of bonds and stocks,” recognizing the need for regulatory clarity to propel this innovation forward.

Regulation is crucial for addressing any perceived systemic risks associated with digital assets. The interconnectedness of the digital assets market with traditional finance is growing rapidly. Unregulated markets could potentially pose a threat to financial stability. Europe’s proactive approach to regulation mitigates these risks by promoting responsible innovation and ensuring that crypto activities are subject to appropriate oversight.  

Of course, finding the right balance is critical. Overly burdensome regulation could indeed stifle innovation and drive businesses away. However, the European approach is not about stifling growth; it’s about creating a sustainable ecosystem. By providing clear rules and guidelines, regulators are giving businesses the confidence to invest and innovate, knowing they are operating within a clear legal framework.  

The argument that a “light touch” approach will attract more investment is shortsighted. While it may lead to a temporary surge in speculative activity, it ultimately undermines the long-term health of the industry. A lack of regulation breeds uncertainty and risk, which will deter institutional investors and hinder the wider adoption of digital assets.  

The recent licensing of 21X is testament to the viability of this approach. It demonstrates that regulation and innovation can co-exist, and that compliance can be a competitive advantage. By embracing regulation, Europe is positioning itself as a global leader in the digital asset space, attracting responsible players and fostering a sustainable ecosystem for the future.  

While the US may be embracing crypto with enthusiasm, Europe’s focus on comprehensive regulation, led by ESMA, is the more prudent and farsighted approach. By establishing a clear and secure framework for the entire digital asset ecosystem, Europe is not only protecting investors but also laying the groundwork for a future where tokenized assets revolutionize the world of finance. This commitment to responsible innovation, echoing the sentiments of industry leaders like Larry Fink, will ultimately drive greater adoption and unlock vast economic potential.

The US is showing signs that it may be charting its own course, Meanwhile, Europe’s commitment to a regulated digital assets and crypto market is the right path forward. Regulation is not the enemy of innovation; it is the foundation for sustainable growth and mainstream adoption.

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Here’s what you might be missing out on:

> Secure the Persistence network

> Earn staking rewards

> Participate in governance

> Up to 2-5x reward multipliers in the incentivised testnet

So how do you get started?

👉 First, grab a supported wallet like Keplr Wallet or Leap Wallet and make sure your XPRT is on the Persistence Core-1 chain. You can follow the tutorial HERE. 

👉 Then, pick a validator of your choice through the 'Staking Page'. Choosing the right validator is crucial. Consider commission rates, voting power, and uptime. Avoid those with very high voting power, inactive status, or high commission rates.

Ready to stake XPRT?

Walk through the steps in detail with our guides.

a) Blog: https://blog.persistence.one/2024/12/02/a-step-by-step-guide-to-staking-xprt-on-persistence-one/…

b) YouTube: 

Where to get XPRT?

1) Centralized Exchanges

2) Decentralized Exchanges

Want to learn more about Persistence One?

Check out their blog, there is a lot of great information there including other guides.

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With the upcoming rollout of the new Zilliqa 2.0 network, significant changes are coming to how staking works.

With Zilliqa 2.0, we are introducing a permissionless delegated Proof-of-Stake (PoS) mechanism for validator selection. This transition will reshape the way staking functions on the Zilliqa network, enhancing security, decentralisation, and efficiency.

The move to Proof-of-Stake with Zilliqa 2.0 is a fundamental shift in the architecture of the blockchain that will improve transaction throughput, reduce operational costs, and create a more energy-efficient and decentralised network. 

To learn more about Proof-of-Stake, read our previous blog post.

With this transformation, the way users stake their ZIL tokens and earn rewards will also be updated to align with the new consensus mechanism.

How staking currently works on Zilliqa

Staking was introduced to the current Zilliqa network to incentivise Staked Seed Nodes (SSNs), which serve as archive nodes and maintain a historical record of transactions. They also offer API access and receive a share of block rewards in return for their services.

Staked Seed Nodes (SSNs) must stake a minimum of 10 million ZIL to be eligible for staking rewards. A verifier mechanism probes the individual SSNs' availability and calculates their rewards according to their performance. ZIL holders have the option to delegate their tokens to an SSN, and earn a share of the rewards generated by that SSN. Delegators can withdraw their stake at any time, and if the withdrawn ZIL amount leads to that SSN’s stake falling below the required minimum, that node stops earning rewards.

When a delegator withdraws their stake, there is a 14-day unbonding period before their tokens are unlocked. This period will be retained on Zilliqa 2.0 and can be changed by decentralised governance vote.

This legacy staking system is permissioned, with SSNs needing to be registered with the SSNList smart contract, controlled by the Zilliqa  team, to be eligible for rewards.

ZIL holders can delegate their ZIL to SSNs through Zillion, the staking interface available at stake.zilliqa.com which provides information on active SSNs and allows users to claim their rewards.

This legacy staking mechanism has been integrated with a number of exchanges and wallets in the Zilliqa ecosystem, with apps like Torch Wallet building on this system to offer tools such as instant unstaking and reputation.

Other examples of innovative tools built on Zilliqa’s current staking mechanism include the first liquid staking launched on the network, stZIL, which delegators can receive by staking through Avely Finance.

Learn more about Staked Seed Nodes (SSNs).

With the launch of Zilliqa 2.0, the network will adopt a permissionless, more decentralised Proof-of-Stake system where staked ZIL actually plays a role in securing the network.

Staking on Zilliqa 2.0 

To improve transaction throughput, finality, operational costs, and energy efficiency, Zilliqa 2.0 shifts its consensus model from Proof-of-Work (PoW) to Proof-of-Stake (PoS).

Instead of being secured by a network of PoW nodes performing expensive computations on hardware that consumes vast amounts of energy, validators on Zilliqa 2.0 are PoS nodes that emerge from the existing Staked Seed Nodes (SSNs), who stake ZIL as collateral to secure the network.

Rewards will be distributed amongst validators on a per-block basis proportional to their stake but depending on their performance, providing them with an incentive to maintain network security and efficiency.

50% of the epoch rewards (51,000 ZIL per 3,600 blocks) are distributed among the validators based on how many blocks they proposed. If they together manage to propose 3,600 blocks in an hour (maintaining a one-second average block time) they will earn 51,000 ZIL in an hour. If the block time increases, validators will need to work longer for the same 51,000 ZIL.

The other 50% of the epoch reward is distributed among validators based on how many times they voted for a block proposal, allocated to the fastest two-thirds of validators weighted by stake.

Zilliqa 2.0’s staking model consists of a permissionless system with two layers. The deposit contract acts as a system contract that enables anyone with the minimum stake to become a validator. 

Delegation contracts interact with the deposit contract and can be deployed by validators to receive delegated stake. Validators which do run a staking pool to accept delegated ZIL are referred to as solo stakers.

We have created two reference delegation contracts: a non-liquid staking variant that allows delegators to withdraw rewards manually and a liquid staking variant that issues a non-rebasing liquid staking token whose increasing price reflects accrued rewards. These contracts have been developed in Solidity and will be audited before being made publicly available.

This means that ZIL holders will still be able to delegate their tokens to validators and earn a proportional share of the rewards for helping to secure the network. While rewards can be claimed immediately, withdrawals and validator switching will be subject to an unbonding period to maintain network stability.

This unbonding period is crucial to the security of the protocol, as it prevents validators from withdrawing their stake before they are punished for misbehaving. There are two penalties introduced for dealing with bad validators in Zilliqa 2.0: slashing stake for safety violations (equivocation) and jailing for liveness violations (missing blocks).

To facilitate the transition to Proof-of-Stake with Zilliqa 2.0, a staking portal will be introduced to the Zilliqa website, providing an easy way for ZIL holders to delegate their ZIL to listed validators. 

Next steps for stakers and validators

Once Zilliqa 2.0 is live on mainnet, new PoS validators and SSN operators will need to set up and operate a node on the new Zilliqa 2.0 network and stake the minimum amount of ZIL to the deposit contract to join as a validator. 

These node operators can then deploy delegation contracts to enable ZIL holders to stake ZIL through their node. The Zilliqa team will provide reference contracts and guidance for easy deployment.

Users who have delegated ZIL through SSNs will also need to manually move their stake to the new staking contracts once the mainnet migration is completed. 

The upcoming EVM staking portal will ensure a seamless transition, making it easier for users to delegate and manage their stake within the upgraded ecosystem.

All the systems above will first be available on the Zilliqa 2.0 proto-mainnet, giving ZIL holders and validators the chance to test out the process of migrating their staked ZIL and running a validator node on the new network.

We will shortly be publishing a full guide on how to move your staked ZIL to Zilliqa 2.0, so stay tuned to our blog and socials for the latest updates!

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