Skip to main content

HashKey Exchange - Disclosure for Staking Services

HashKey Team
  • Updated

(a) Staking Service

1. Virtual Assets Eligible for Staking Services
Ether (ETH) on Ethereum blockchain.

2. Third-Party Service Providers
HashKey Exchange currently engages Wancloud Limited, operated as HashKey Cloud, as its third-party node validation service provider. HashKey Cloud operates and maintains the validator nodes on behalf of HashKey Exchange to ensure secure and efficient staking operations. HashKey Cloud is an affiliate of HashKey Exchange.
HashKey Exchange may, in its sole discretion, engage other third-party node validation service providers to facilitate the staking services provided to clients.

3. Clients Eligible for Staking Services
 HashKey Exchange currently provides staking services exclusively to spot Ether ETFs approved by the SFC. HashKey Exchange will extend such services to other clients in the future.
 

(b) Operational Rules

Operational rules:

1. Staking Services
“Staking Services” means any arrangement which involves the process of committing or locking virtual assets to participate in a blockchain protocol’s validation process based on a proof-of-stake consensus mechanism. Returns are generated and distributed for that participation.
A reference to a “validator” means the operator of one or more nodes participating in a blockchain protocol’s validation process based on a proof-of-stake consensus mechanism.

2. Staking/Unstaking Instructions
Clients who wish to participate in the staking services shall submit staking or unstaking instructions to initiate or terminate such services through the designated channels provided by HashKey Exchange, which may include, but are not limited to, the official website, mobile applications, or such other means as may be determined by HashKey Exchange in its sole discretion.
 
3. Staking/Unstaking Procedures

(a) Staking Procedures: Clients must submit a staking instruction specifying essential information, including the virtual asset type and quantity to be staked, etc.. The staking quantity must comply with specific blockchina protocol requirements. Instructions that do not meet these protocol-defined parameters will be rejected. For more details regarding staking limitations and requirements, please refer to Section [d] below. Upon submission, HashKey Exchange securely processes this data while the Third-Party Service Provider prepares all execution requirements. HashKey Exchange then verifies the data through internal protocols to ensure accuracy and regulatory compliance. Once verification is successfully completed, HashKey Exchange executes the staking instruction to finalize the staking process.

(b) Unstaking Procedures: Clients must sumibit an unstaking instruction specifying essential information, including the virtual asset type and quantity to be unstaked, etc.. The unstaking quantity must comply with specific blockchain protocol requirements and cannot exceed the total amount of virtual assets currently staked. Instructions that fail to meet these conditions will be rejected. For more details regarding unstaking limitations, please refer to Section [d] below. Upon submission, HashKey Exchange will pass the unstaking instruction to the Third-Party Servicer Provider for execution to finalize the unstaking process.

4. Arrangements During Outage
In the event of scheduled system maintenance or unexpected service interruptions on HashKey Exchange, as well as disruptions caused by Third-Party Service Provider, the handling protocol outlined in Section 54 of the HashKey Exchange Rules will be followed.
HashKey Exchange will inform clients by system notification, announcement on HashKey Exchange’s official website and/or email/ SMS in case system notification/ HashKey Exchange’s official website is unavailable regarding scheduled system maintenance or unforeseen interruptions to staking services.
In the event that the Third-Party Service Provider experiences loss or damage to the validator key required for unstaking, HashKey Exchange will execute the unstaking request through a pre-signed withdrawal message. This contingency protocol ensures clients are fully protected from any potential losses arising from such circumstances.
 
5. Business Resumption Arrangements
Clients will receive prompt updates regarding the resumption of services after such incidents to ensure transparency and minimize disruptions.
 
6. Custodial Arrangements
The staking services shall involve a deposit address and a withdrawal address. The aforementioned deposit and withdrawal addresses are client cold wallets managed by HashKey Exchange, through its Associated Entity, HashKey Custody Services Limited ("HCSL"), utilizing its wallet and key management system.

Prior to the processing of staking instructions, where the virtual assets are in the deposit address; or upon the completion of unstaking instructions, the virtual assets shall be returned to the designated withdrawal address, at which such virtual assets shall be governed by the custody arrangement set forth in Part H of the HashKey Exchange Rules.
 

(c) Risk Disclosure

Before accessing the Staking Services on our platform, you should carefully read this Risk Disclosure Statement. Engaging in Staking Services entails numerous risks that could potentially result in the loss of your virtual assets. Please fully understand and carefully consider these risks before proceeding.
 

1. Blockchain Protocol Risks

Blockchain protocols are the foundation of Staking Services, but they come with inherent risks. Technical errors or bugs in the protocol can disrupt staking operations. Protocol upgrades, though intended to improve the system, may introduce compatibility issues that could freeze staking processes or misallocate rewards. Additionally, the complex nature of blockchain protocols means that new vulnerabilities can be discovered over time. If exploited by malicious actors, these vulnerabilities could lead to the theft of staked assets or the manipulation of the staking ecosystem. This makes it essential for you to stay informed about protocol developments and potential risks to your staked assets.
 

2. Smart Contract Risks

Staking protocols rely heavily on "smart contracts", which are contracts operating on a blockchain network and execute their terms automatically through technology. However, smart contracts are new and untested technology. Any bugs or coding errors in the smart contract itself or in its underlying blockchain network may result in the loss of your virtual assets. For example, if there are flaws in the smart contract code, it may cause incorrect asset allocation or abnormal transaction execution, thus damaging your assets.
 

3. Liquidity Risks

3.1 Asset Lock-up Restrictions

When your virtual assets are locked in a staking protocol, you will not be able to access, transfer, or sell them during the lock-up period. Even if there are significant market fluctuations, you cannot take any action on these assets. This may cause you to miss the optimal time for asset disposal or prevent you from cutting losses when the market is declining.

3.2 Redemption Restrictions and Penalties

In accordance with the relevant staking protocols, you may not be able to withdraw or redeem your virtual assets immediately. Even if the protocol allows early withdrawal or redemption, you may be subject to certain penalty fees. For instance, some protocols require deducting a certain percentage of the principal or rewards as a penalty for early redemption, which will directly reduce your asset returns.
 

4. Slashing Risks

In some staking protocols, if a validator violates the protocol rules or validates an invalid block on the underlying blockchain as a result of their participation in staking, the validator will face penalties, commonly referred to as "slashing". Common violations committed by a validator include double signing, an extended offline status, and validating conflicting blocks. Once slashing is determined, the validator will lose some or all of the staked virtual assets.
While the likelihood of slashing events is relatively minimal, their occurrence can have a substantial impact on your assets. In extreme instances, where a significant number of validators encounter issues simultaneously, the entire staking ecosystem may be compromised, thereby jeopardizing the assets of all participants.
HashKey Exchange will use commercially reasonable efforts to prevent any staked assets from slashing. In the event that slashing occurs due to acts or omissions of any third party node validation service provider, HashKey Exchange may, at its sole discretion, use commercially reasonable efforts to seek compensation from such service provider and subsequently distribute the received compensation (if any) to the affected clients.
 

5. Unstaking Process Risks

5.1 Uncertain Unstaking Time

Unstaking virtual assets usually take a certain amount of time, ranging from a few days to a few weeks, depending on the type of asset and network conditions. For ethereum, the unstaking time is affected by factors such as network congestion and validator processing speed, and there is no guarantee that it can be completed within a specific time.

5.2 Asset Value Fluctuations

During the unstaking process, due to the high volatility of virtual asset's price, the market price of the assets at the end of the unstaking process may be significantly different from the price at the time of deciding to unstake. If the price drops, you will face asset depreciation losses.
 

6. Uncertainty of Staking Rewards

6.1 No Guarantee of Rewards

Staking rewards come from the underlying blockchain network, not HashKey Exchange. HashKey Exchange cannot guarantee that you will earn any reward and does not have any discretion in the calculation or payment of rewards. The payment and amount of staking rewards are entirely determined by the staking protocol. The protocol provider may change the payment rules at any time without prior notice to HashKey Exchange or to you. This means that the rewards you originally expected may be reduced or even eliminated.

6.2 Past Performance is Not Indicative of Future

The past performance of a staking protocol cannot guarantee or predict the current and future staking rewards. Many factors, such as market conditions and protocol operation status, can affect the reward level. Therefore, you cannot infer future rewards based on past earnings.
 

7. Reliance on Node Validation Service Providers

The Staking Services offered by HashKey Exchange depend heavily on various third-party service providers, particularly third-party node validation service providers, which can pose substantial risks. These providers are indispensable for the smooth operation of the staking process. In the event that a node validation service provider decides to cease operations, HashKey Exchange may struggle to promptly identify a suitable substitute.
Technical issues, outages, or network problems experienced by these providers can have a direct impact on staking operations. Moreover, these providers may harbor security vulnerabilities in their systems, which, if exploited by hackers, could result in the theft of staked assets.
Additionally, if a node validation service provider fails to function correctly due to dishonest behavior such as double-signing or prolonged inactivity, it can lead to slashing penalties (please refer to Slashing Risks above). In such scenarios, you may end up losing a portion or all of your staked assets and rewards.
 

8. Legal and Regulatory Risks

Staking represents a novel and rapidly evolving area within the virtual asset ecosystem with an under-developed legal and regulatory framework. There is a lack of clear case law on staked asset ownership, which makes the nature of your rights to these assets unclear. This ambiguity may undermine the enforceability of your rights in case of legal disputes, leaving your assets at risk.
Moreover, the regulatory environment regarding virtual assets is highly volatile. Sudden regulatory changes, like new restrictions or bans on staking, can disrupt your staking plans and/or the services HashKey Exchange may provide, and can cause asset devaluation or other legal issues. Cross-border staking adds another layer of complexity due to inconsistent international regulations.
Therefore, before engaging in our Staking Services, you must be aware of these legal and regulatory uncertainties. It is your sole obligation to guarantee the legality of your use of our Staking Services from its inception, irrespective of any changes in the applicable laws and regulations, your residential location, or your personal situation. You should conduct thorough research on the applicable laws and regulations and consider seeking professional advice to better understand the potential risks to your staked assets.
 

(d) Participation Procedures

Subject to Ethereum Protocol:
  • Requirements for participation: Clients must hold sufficient ETH and the staking amount should be 32 ETH or the multiples of 32 ETH.
  • Types and source of returns offered：Returns include Consensus Rewards and Execution Rewards sourced from Ethereum’s staking rewards.
    • Consensus Rewards (CL rewards) are paid by the Ethereum protocol to validators for their participation in ensuring the network's security and consensus. Validators earn CL rewards for tasks like proposing blocks, attesting to blocks, and participating in sync committees.
    • Execution Rewards (EL rewards) come from transaction fees (priority fees) paid by clients to incentivize validators to include their transactions in a block sooner, and from Maximum Extractable Value (MEV).
  • Method of calculation of the returns: as mentioned above, returns include Consensus Rewards and Execution Rewards.
  • Factors that impact returns:
    • Network-wide staking levels impacting individual returns, with higher total staked ETH diluting rewards, as noted in the Ethereum Foundation’s staking economics (Ethereum Staking Economics).
    • Execution Layer rewards are influenced by Ethereum transaction activity, including transaction volume, base fee fluctuations, and MEV extraction opportunities.
  • Staking amount limitations: must be 32 ETH or multiples, with no upper limit specified
  • Return limitations:
    • It is subject to the staking rewards generated on-chain from Ethereum, a certain level of APR is not guaranteed.
    • Timing relating to the returns: CL rewards are distributed every 7-9 days, while EL rewards are credited in real-time to the validator’s designated Fee Recipient address when the validator proposes a block.
      • Consensus Layer (CL) rewards:
        • CL rewards will be distributed and withdrawn into the withdrawal address after withdrawal processing
        • CL rewards are automatically processed by the Beacon Chain’s withdrawal queue, typically within 7-9 days, though they may take longer during periods of high demand.
      • Execution Layer (EL) rewards:
        • EL rewards are credited in real-time to the validator’s designated Fee Recipient address when the validator proposes a block.
  • Minimum lock-up periods: No fixed lock-up, but practical delays occur due to activation and unstaking processes.
      • Staking (Becoming an Active Validator)
        • When a user deposits 32 ETH to the staking contract, the validator must pass through an activation queue before it begins earning rewards.
        • The duration of this activation process depends on network demand, as Ethereum only allows a limited number of new validators per epoch (every~6.4 minutes).
        • Typical Timeframe:
          • Low network demand: Immediate to a few hours.
          • High network demand: A few days to a week.
      • Unstaking (Withdrawing ETH from a Validator)
        • Unstaking ETH requires exiting the validator and then waiting for withdrawal processing.
            • Exit Queue:
                Validators must first go through an exit queue, which depends on how many others are exiting at the same time. The network allows a limited number of validators to exit per epoch, which can cause delays if there is a high volume of withdrawal requests.
            • Withdrawal Processing:
                Once a validator exits, the balance is moved to the withdrawal queue. Withdrawals are processed in batches (~16 validators per block, every ~12 seconds). Full withdrawals (validator balance + rewards) are only processed after the validator is fully exited.
          • Typical Timeframe for Full Withdrawal (Exit + Processing):
          • Low exit demand: 1-3 days.
          • High exit demand: 1-2 weeks (or longer in extreme cases).
     

（e）Fees and Charges

Subject to Ethereum Protocol:
For all Staking Rewards, currently for Ethereum, earned through our services, a 20% service charge applies, allocated as follows:
  • 10% to HashKey Cloud (our third-party node validation service provider) for node operation services
  • 10% to HashKey Exchange for staking service administration
The service charge shall be charged in the form of the same virtual assets received as rewards, either upon receipt of such rewards or at such other time as may be mutually agreed between HashKey Exchange and the clients.
HashKey Exchange will provide at least 14 days' advance notice of any service charge adjustments, unless a shorter notification period is mutually agreed upon between HashKey Exchange and the clients.
"Staking Rewards" means all rewards attributed to the client's staking generated by HashKey Exchange via HashKey Cloud operating the staking nodes in accordance with the supported network protocol, including, but not limited to, block rewards, endorser rewards, transaction fees and any other direct payments as a result of operating the staking node(s).
 

（f）Risk Compensation

Subject to Ethereum Protocol:
HashKey Exchange will use commercially reasonable efforts to seek compensation from HashKey Cloud for any losses caused by slashing events. Upon successful recovery of such compensation, HashKey Exchange will reimburse affected clients in full within 3 business days.

Related articles

Comments

0 comments

Article is closed for comments.