Alluvial: The Enterprise-Grade Liquid Staking Standard | Mara Schmiedt

Transcript

liquid staking hadn't really evolved um across the existing solutions to move from a consumer basing sort of Crypton native offering to one that could be offered to platforms and sort of meet them where they're at which means providing great performance security and compliance and then all in one solution that is easy to integrate and so that is really why we built liquid Collective and why L has been supporting the development of the protocol what's up everyone welcome back to another episode of zerx research if you're listening to this podcast there's a good chance that like Dan and I you believe the future of Finance is on the blockchain and we're excited that London is becoming a global hub for blockchain Innovation and institutional adoption of digital assets that's why we're pumped to host the 2024 digital asset Summit in

London this March don't miss your chance to get ahead of the curve later in this episode we'll tell you how you can save 20% off on your ticket all right everyone welcome back to another episode of zerx research we've got an awesome interview lined up for you today with Amar Schmidt the co-founder and CEO of aluvial the software development company supporting the liquid Collective protocol liquid Collective is a new liquid staking protocol on ethereum and they're really focused on bringing and driving institutional adoption we get into conversations around what aluvial is doing to support liquid Collective uh and some of the ins and outs of liquid Collective as a whole but most aboly we have a very exciting news announcement related to the introduction of slas for liquid Collective node operators this is a very needed piece of the puzzle for liquid staking in the industry as a

whole so without further Ado let's jump straight into the episode Mara thanks so much for coming on we appr appreciate it yeah I'm glad to be here so I guess if you could just walk us through your eye Lev overview of the liquid staking Market on ethereum today and aivals role that would be super helpful to paint that color for the listeners for sure maybe we can start just by setting uh the Baseline a little bit so uh give you guys a little bit more context about A's role in supporting liquid Collective and what liquid Collective protocol is so aluvial is the software development company behind the liquid Collective protocol all the liquid Collective has come together as a collection of Industry leaders focused on building Enterprise great liquid stat and standard in the

market so the reason that we started um aluvial and and looking at the liquid staking Market from the perspective that that we did is we had a lot of um members from our team including my co-founder Matt who came over from figment myself coming over from bison trails and coinbase um as well as others in our team would spend a tremendous amount of time over the last couple of years building traditional faking products in the market to support businesses and platforms to provide great access uh to staking um and supporting the security on of the blockchain networks and one of the gaps that we noticed uh in the market was that liquid staking had um you know garnered traction I would say

over the last 24 months particularly today liquid staking makes up almost you know a majority of the staking Market in totality and those numbers have actually been growing on a relative basis uh throughout that time period so there's definitely resonance for liquid staking in the market um as a product that offers distributed access across different operators a receipt token or liquid staking token that provides users a proof of their stake tokens on chain uh and an ability to use those stake tokens for other purposes and so that really reduces the opportunity cost um of of of using staking and locking it in traditional staking solution and so one of the things that we've seen in that

sort of Market trend is that it seems like a lot of the early participants at the market early adopters ring Crypton native users uh folks that are you know both financially and technically literate and really understand how to use crypto and really started migrating from traditional staking Solutions uh to liquid staking options in the market now one of the things that we had seen in the in the staking Market as it has been evolving since you know I want to say 2019 is that a lot of platforms businesses um such as custodians exchanges and others were starting to look at staking at something that they could offer to their customers but the liquid staking Market haven't really evolved to provide a solution that would actually work for those market segments

participants that I would consider entering the early majority of the market if you want to think of it from an adoption perspective so platforms that provide services to users um that are starting to onramp into crypto so participants that are providing support or exchange services to retail users as well as fintex that provide access to you know your a average and everyday user and so liquid staking hadn't really evolved um across the existing solutions to move from a consumer facing sort of Crypton native offering to one that could be offered to platforms and sort of meet them where they're at which means providing great performance security and compliance and an allinone solution that is easy to integrate and so that is really why we built liquid Collective and why has been supporting

the development of the protocol awesome I I love the context there and so if we zoom in a little more onto the the players in the space and kind of the market structure we've seen that liquid staking has been incredibly popular with about 80 or 80% uh of Stak eth is as staked liquidly uh and if you go deeper into that then you see Lido's market dominance has grown to about 78% of liquid stake deth and about 32% of total stake deth and this has been a bit of a of contention across much of the ecosystem you've seen some of the smaller players in the space come together and kind of self-limit themselves uh and you've see like just honestly just a lot of the discourse revolving around this uh as being a lot

of push and pull between you know there should be like more cognizant of the impact this has on the market versus well I think the other side of that is you just need better Solutions in the market that users actually want to use so how do you think about this this Market Dynamic with Lido's dominance in in the the early stages of this liquid staking Market as a whole yeah so it's a super interesting and also very timely conversation given all the discourse in the ecosystem around this um I think circling back on sort of the comments I made earlier um I think liquid staking does fundamentally change the Dynamics of the market in a meaningful way there is um really no reason to you know hold ethereum if you

have the option to hold State ethereum and and Rewards contribute to security while doing so and so the way that we think about this sort of zooming out and looking at the markl level is that liquid staking tokens um sort of change the natural constraint that you would see on the target addressable Market or the total amount of e that we would be Stak in the network because the amount of e that would be Stak in the network through traditional staking is really constrained by the fact that heat is also a consumable asset right so just for gas payments feet payments and other things and the opportunity cost of using e for other things right and you would think that other reward generating activities such as using them in lending

um or other you know participation opportunities could you know create an equilibrium in the market where we could see you know 35 to 40% sort of the being the cap on the total eate and traditional Solutions but liquid Seaking really changes that fundamental Dynamic right um and sort of you know mitigating the the opport cost or the trade-off that you have to make when having the option to hold State teeth and also use it for other things and so we we do fundamentally believe that that just changes and expands significantly how much of ethereum we we're going to be seeing staked in the market to your comments on you know how have you seen the market evolve I've worked in the staking space for a couple of years now

um and pro stake is still really early and it's also still a maturing market and so when you look back about two years ago the the main Trend that we've seen is there were previously actually also providers that sort of hit that 32 33% Mark um and those were mostly traditional staking as a service providers that were really successful at sort of capitalizing on the early Market opportunity of providing staking services to businesses and platforms and other users um and there was sort of the shift of a lot of that market share away from the centralized providers and towards distributed Solutions right like Lio protocols that provide liquid staking Services I think our general view of the market and just having seen

that evolve is that sort of these early you know means of centralization and concentration are somewhat of a sign of sort of a maturing Market a market that is still evolving where you sort of see Solutions transcend one another sort of evolve into something that in the end becomes more comprehensive and more secure and more Diversified offering for users from our point of view I think we do want to see ethereum as a you know an environment where users have many different options of how they want to stake their e whether it's doing it themselves or choosing a traditional staking provider or you know running DVT clusters across um themselves and their friends or choosing to you know um work

with li with staking protocol that sort of meets the needs and requirements that they have and from our perspective building a really healthy competitive market with optionality for different user segments and solutions that are really cater to meeting the needs that those user segments have is the best way to make sure that we end up with a much more Diversified solution landscape and I think you know having sort of seen this Evolution over the last few years my personal perspective is that we're really early still you know there's a lot of Market participants that haven't entered and there's a lot of you know the early majority and late majority Market that is looking to come on board right and that will require very different type of solution scope and expertise uh to bring those types of customers on that's super helpful

context as well thank you thank you um in terms of adoption I mean liquid Collective launched in March and then made its code open source in July and now it kind of has seen recently deposits really pick up and now it's up to around 75 to 80 million of of uh collateral for its LST so how does the the the product offering I guess differ from other things on the market that you know would be enough of a force to bring users over to you guys as opposed to you know uh people in the competition for sure so I would start probably by saying that we have a very differentiated approach to who we service in the market as I mentioned previously having come and helped build

you know businesses like buys and trails and figment um across people on our team we really understand and know what it means to serve Enterprises and platforms that are using products to service their users and our protocol is actually B2B Toc or if you will a protocol to platform to user type of distribution model where we actually buil a protocol that can service businesses and platforms that can integrate our solution through a comprehensive Suite of apis and then actually service that capability to their user segments right whether those are institutional customers or retail users um and so we do have a quite distinct focus on servicing those users we're not directly

to consumer or directly to retail which is what all liquid staking protocols in the market to are really targeting um so that's probably the first thing um today we have multiple different integration venues which means that you can go on coinbase or you can go on bitcoin Swiss or you can you know connect your fire blocks or Bitcoin wallets to figment and you can actually um access the protocol through those different venues in an experience that's natively embedded something that you're used to um and with all the benefits and perks of you know selecting that platform of choice what we had noticed as I mentioned earlier and sort of the part of our origin and why we started building this product was that when you service businesses in platforms there's sort of

an innate Focus that you need to have on security performance compliance um and and security right and so those are the things that we have doubled down on as we have thought about our positioning the things that we prioritize and invest in um and we can go into you know sort of the things that differentiate that feature Set uh in a little bit more detail so I want to dive a little deeper on an exciting announcement that you guys have uh liquid Collective will become the first liquid staking protocol to introduce service level agreements for Baseline validator performance how does this really help to ensure that the liquid Collective users are receiving Superior staking performance and can you just dive in a bit on the importance of this overall uh service level agreements in this

space yeah we're really really excited about this actually um we are really the first protocol to have an embedded SLA um for users and what the reason the the reason why we did this is when you look at traditional task products right slas are really standard you have a set of you know provisions and guarantees that you extend to platforms or to the users that are using the product because those guarantees are really important to them they want to know what they're getting um and they want to know that the things that you're off right and for us you know taking this approach of um you know finding the middle ground between building a decentralized and distri Ed back in but

servicing different platforms that extem this to users you know building this type of performance slle this type of guarantee around relative performance was really important to us and sort of herculian effort overs a number of different partners including uh rated at uh the stake team the FKS over at coinbase um and figment and so it was really exciting to get you know task group together that really looked at this in detail to figure out the right approach um you know what kind of methodologies and objectives we were looking at and so what we ended up deciding on was really in an effort to build a market wide sort of understanding uh for how we can measure performance um sort of requires you know

using a methodology that is replicatable it can be generalized ideally it reduces Randomness as much as possible is taking a more deterministic approach and it's accessible right to everyone else so that you know not just liquid Collective but other participants in the market can use it and we recognize that need because when we asked our note operators how they were measuring performance so that we could you know aggregate that in some way that could be measured to our users we found that everyone had a different way of measuring it and that obviously doesn't really work when you're trying to explain to customers you know what they're getting um if if they're using your product and so we decided to sort of join forces with everyone on this um and Raiden has done really great work putting together what

they call the raver so this is basically a measurement that looks at how validators are performing against the duties that they have the consensus layer duties so proposing and basically ATT testing and how effective they are in doing these things over time what it does look at is some of the elements that are more random right like execution layer fees and other things that introduce Randomness into this measure so we wanted to look at something that is deterministic and that we can really use as a comparative metric and so we went through a benchmarking process we looked at how um you know different node operators that run more than 100 nodes of professional operators that operate at scale need to perform and and we set a benchmark at the 50th percentile um of all e

providers that run more than a 100 nodes as The Benchmark for the SLA uh that we've put in place and so what we do is take a three-month trailing average and then we update that every month to take a look at a snapshot of the overall Network and how everyone is doing and our Benchmark is you know set on a relative basis across our bu operators um what's really great with those methodologies that you can build on it over time so we're going to be looking at things like adding Miss blocks quotas for example and other things that are sort of meaningful um and building out sort of the dashboard capabilities API and monitoring that people can luse for observability as well and so our hope is that you know this is sort of a contribution um to something that the industry can actually use more

holistically um and can be implemented in a way so everyone can really compare what they're looking at when we say you know how performant is a protocol or solution and The Operators within it that's super super exciting to hear and also very very awesome to hear that the folks over at rated were involved as they've been doing such a great job kind of pushing forward the the data side uh of the beacon chain so really appreciate to hear that as well and I find it really interesting that uh all of the node operators that you were using today kind of had different metrics but that makes sense uh but I'm curious when you kind of approach them with this idea of using this unified metric like what was their reaction were they almost like relieved or um did they like help kind of guide and create this as

well they most definitely did um I think everyone had a ton of feedback perspective they spent a lot of time you know sort of across the task group um looking and considering different inputs that ended up you know tweaking the way that we thought about both the methodology The Benchmark and other things that you know sort of folded into that I would say that for us collaboration has sort of been an anchor point of the way that we've built the business um and so we have been running this sort of um task group format with industry experts and subject matter experts on a number of different things like the comine standards that we put in place or the terms of service agreements that we published we partnered with an

industry-leading cward including folks like liido on a set of regulatory white papers so we've generally taken the approach that taking a collaborative measure is the best way to build buin is the best way to accomplish the establishment of of some type of holistic or objective standard setting whether it's in the performance category or in the security category in other areas because we do think that it actually helps everyone in the industry sort of use a Common Language right around things that are important um and we definitely want to you know contribute to that PO force and that foundation and so I think the note operators were excited um to sort of dig into this and again we're um providing a ton of perspective and so it's been really helpful to sort of get those folks

rallied around and hopefully there's more participants and their note operators and the community at large that has feedback um on the methodology and things that can be incorporated um to continuously iter it don't I'm curious when you kind of conducted this I suppose a bit of a study how much variance was there between like the the the big boys and like from like the most performant one let's say absolutely perfect to like let's say like towards the lower bracket like was it that big of a difference because in my head I always kind of just assumed that everyone was more more or less the same which is probably a bad assumption but if you could shed some light on that that'd be awesome totally I mean we did have really uh widespread analysis on a

number of different things we looked at different operator categories so validators that were running a different amount of validator counts looking for anything like at home validators to professional operators that run more than a 100 you know validators for their customers and so the way that we looked at this was you know what is the variance or what is the normal istic distribution um of the operational performance and how many standard deviations if you look at the bell curve right you'll sort of have the median and you'll have sort of the distribution across standard deviations it's actually a pretty narrow range so um the deterministic performance is not extremely variable but that's actually a really important measure because it

tells you how effective validators are at doing their actual job right there's other components like execution layer rewards and fees that may feed into certain certain Randomness depending on the blocks that people are um you know proposing and and sort of getting rewarded for but for us it was really important that we were able to take an objective measure and to also figure out what the density was across the function right how much was the distribution how did that look that makes a lot of sense especially on the side of kind of like reducing that Randomness right if you're proposing a block when it's in the peak of a bare Market gas is at nineu it's going to have a lot different uh activity happening within that block then you know if you're literally the

next block after the FTX collapse right so that makes a lot of sense to kind of take that angle uh but the other thing I think about on the other side of that I guess is me opting into me boost kind of does change uh the how you allocate or how you acrew rewards so how does that kind of factor in as well it it absolutely does um all of the node operators in liquid Collective run me relays um and so it's it's definitely important from a performance distribution standpoint one of the things that we're looking at is what is the um relative performance Delta between different relays and what can we learn about the observability there um in the market we have taken the approach

of letting not operators sort of make their own selection uh based on the research and the Intel um that they've done internally and and not to you know sort of you know provision or or or mandate that the thing that is important to us and it's important to us across sort of all vectors is just the distribution so making sure that we have um distribution variability and diversity across the different relays that are being used but also the region that operators are um uh deploying their nodes in making sure that people have diversification across Cloud providers or on Prem making sure that you know we have resilient infrastructure that prevents correlated failures this is somewhat tangential but like would you say that these service level agreements

kind of open the door a bit more so for some more institutional Capital to partake in uh liquid staking because you'd think they'd want some kind of assurance I suppose so I don't know if that was an angle that went into I guess the rationale behind and motivation behind this absolutely I mean you need to know your customer segment and so from our perspective um there there are um additive things that are I think important for us to introduce into the industry um to ensure that we can actually bring institutional Capital online but also on board a lot of the Enterprises that provide access to just mainstream users um to be able to partake and staking right um and the

things that these platforms look at is in some way you know a guarantee and an understanding in an easy to measure way uh what it means to have a performance solution um or what it looks like to have um you know compliance measures in place that are meaningful to them so from our perspective we've always taken the lens of what do our customers need and what can we build towards to give them the assurances and to build a holistic product offering that can meet them where they're at and where their needs are okay that's super interesting and and I'm sure this metric will play a role in how you gauge whether a new node operator will be able to be on boarded in the future but can you just walk us through what that process looks like I know you have three today between

coinbase Cloud figment and staked uh but you plan to kind of scale that up as tvl increases uh absolutely I think that's one of the sort of um foundational elements of the way that we've been thinking about the way that we've sequence Springs and where we've been spending our time part of the work that we announced with rated um is not just around the focus on performance but also formulating um an objective methodology for risk and security measures and standards um we war on that soon um but we've really wanted to build a foundation that could build for an objective framework um that we could leverage to look at and evaluate and onboard new not operators to set some of these targets to set some

of these threshold or benchmarks that we want to reach um in order to make sure that we have you know a safe and performant offering for users to to tap into and I think one of the things that is really part of that road map is looking at you know what kind of configurations and middleware solutions we can leverage to not just ensure that we have note operator diversity that sort of meets a lot of the requirements um that we've set forth but also ensure that we're continuing to implement um risk mitigating Technologies like DPT right and so those you know things will probably run in parallel as we continue doing discovery on you know the optimized threshold configurations and solutions um that our note operators said will will effectively execute

on that's awesome that's awesome and I want to get a little more into the I don't know if texx is the right word here but I want to talk about lsse so the receipt token of the protocol what does the process look like if uh a user wants to go and say all right I have a bunch I have a thousand yeth I want to go stake them through Li liquid Collective what would that process look like for me so there's two ways to get from eth to Ellis e the first one is to Mint it right and so to take your eth deposit it through the protocol on the beacon chain and then get LS e as a receipt of that state position you can do that across any of the platforms that support the for to call including uh coinbase

Bitcoin Swiss figment who provides custody access to a number of different custodial and non-custodial Solutions including Ledger and bitgo uh twin stake hash node and others um that sort of provide the platform basis for people to to to to deposit E and M LS e and return the other option of course is to swap or or or take eth and uh take it into LS eth which we you know don't necessarily support R specific platforms but is sort of available and accessible in the market that's super interesting to me so I guess I'm just having trouble reconciling why is it so important to have kyc requirements at the minting

level but not so much so at the the swap level so if you think about it it's similar to the model that usdc has and what we really looked at here is what is the major concern um that customers and institutional clients had with using a lot of the existing you know call them fully permissionless protocols and the biggest concern is really that when you're pulling eth into a contract and you receive a receipt token that does not discriminate where that eth came from then chances are when you're pulling out that eth you might get eth back that maybe in sanctions violations or that flags and triggers anti-money laundering

concern and you don't know what e you're getting back but that consideration is really really important for institutions and Enterprises that are looking to adopt this type of solution in the market making sure that the E that they actually retrieve is clean right and so that's why we've taken the position that um you know similar to the way that usdc sort of has uh an implementation to make sure that um all of the US dollars that enter the system that usdc get mitted against is clean we have this same sort of methodology with an insurance and and Global compliance program that includes kyc and AML at the integrator level so the platforms that integrate the protocol um to make sure that we sort of meet meet those obligations and

requirements now what happens after that really the way that we look at it and I don't know if you guys have read through some of the Publications that we've had on this but we really view liquid staking tokens as receipts and receipts in the traditional Commodities world are you know similar to the way that you would think about a warehouse recer bill that you get when you deposit Commodities into a warehouse right and so we've leaned on a lot of these considerations when building out this compliance policy and again actually work collaboratively with compliance officers at a number of different businesses and Industry leading Partners um to put that sort of policy in place I really love the analogy to usdc there I think that's a really helpful way to contextualize it especially for

just crypto natives who are are already comfortable with usdc but then see something like this hear the words kyc AML or Whit list or you know permissioned minting set and kind of like have a have a bit of an aneurysm but at the end of the day you know it it is very uh analogous to usdc so I love the context you put around that when I think about that process I'm just curious if youve like kind of built out your own internal system because coinbase recently announced their verification process which is kind of their their own version of an identity solution I think they're piloting it on bass right now I'm curious if be like do you think about that integration that at all like the potential for that integration with kind of leveraging an existing solution uh that potentially gets widespread adoption and further to

that are you doing your own like internal process for this right now so aluvial and liquid Collective are not directly involved in doing any kyc whatsoever um the way that we built this model is that every platform that integrates the service needs to adhere to the compliance guidelines that we have we have a thirdparty compliance partner exiter that operates under Cap Gemini so large global company that focuses on you know compliance um policies and what they do is actually validate that the platforms that are integrating the service are meeting those requirements right as opposed to having every single user go through uh and that new

application or review process it's actually already embedded in anything that you would do to open a traditional account for any of these venues as it already is right and so there's sort of no net new or burdensome process that users have to go through it's all already embedded in the plum experience and account creation process that you would have with any of these Solutions um in terms of how we think about credentialing I'm really excited about this space um I hope that we can get to a place from a not just technological maturity standpoint where decentralized credentialing and not just centralized credentialing systems um can actually pu referate we would definitely look to integrate those types of Solutions in the long run right um and Foster their development you know the discovery

around them and eventually support the funding of those kinds of initiatives um we see this as sort of instrumental to go from uh a centralized validation landscape where you know centralized providers or platforms are providing the service to eventually having a much more widespread surface area uh where hopefully people can self credential right and have some verification proof um that relates back to that okay so the the actual process then kind of falls on the shoulders of the integrators can you talk to us a bit about who the integrators are today yeah we have a pretty broad uh set of integration Partners so integrators include platforms like coinbase who has direct access Integrations on coinbase Prime uh Bitcoin Swiss uh bigman who

provides custody Integrations with a number of custodians uh twin stake hash node we also have custody support and access across a number of different venues including Anchorage copper bitco fire blocks and so you know we're really the the only and the first liquid staking protocol to have this sort of widespread support um across existing Solutions and remember there's a massive Universe of users that actually require access to those kinds of platforms to be able to interact and use crypto because of internal policies that they may have right and so for us it's actually really important that we build a product that can really help that early majority of users um really on board into staking uh and contribute meaningful to this

phace this one's a bit out of left field but have you thought at all about reaking and how that could like potentially affect like the liquid staking market like is that something you guys are keeping an eye on or is that like all right we we'll kind of get to that when it's actually live uh we we're definitely looking at it um I think it's an incredibly exciting and promising Innovation for the market in a number of different ways the way that we look at this is what are sort of the fundamental things um that we would need to build towards as an industry in order to make restating accessible to your average user um as well as institutions that are starting to build an appetite around this space

and so the way that we think about these things are how do you provide accessibility across for example some of the platforms that we support um how can you provide different strategies that have a very clearly articulated uh risk adjusted lens to them right so people can articulate the risk of interacting with some of these products and solutions and so we are excited to roll up our sleeves um and and support meaningfully in that Innovation and you know bring it to our customers when the time comes all right zerox research listeners we're calling on you to join us for the premier institutional crypto conference in Europe's crypto Capital London this March 2024 you're going to get to hear exclusive insights from industry Trailblazers on things like leveraging defi protocols for

institutional yield tokenizing real world assets with instant settlement navigating the evolving global regulatory landscape integrating digital assets into Banking and payments or crafting institutional investment mandates with digital assets as the key Focus we'll also be featuring some big keynote speakers including Melvin Deng the CEO at qcp Capital Mark yuso the CEO and managing partner of Morgan Creek capital and stonnie kuchin the founder and CEO of a companies this is not an event you're going to want to miss seats are limited so be sure to register today by hitting the link in the description and using promo code 0x20 to save 20% on your tickets see you in London the land of tasty pastries and be sure to hit up Dan and I for a beer I want to talk

about the the users of this protocol right so how would you define the you know maybe what the perfect user looks like or what the target audiences because I it sounds like you have a bit more of that institutional focus and I think that makes sense and it really does feel like a hole in the marketplace today so you can just walk us through your thought process on who the audience is for liquid Collective for sure um since we have a BB C model right our customers are effectively the platforms um that provide access to liquid Collective for their user groups a lot of those platforms as we've gone through before are platforms that are focused on servicing institutional users um and that was quite an intentional sort of goto Market decision on our side which means that a lot of the um end users

today are actually institutional clients uh long Bolding funds Venture funds corporate funds um participants that are really um security conscious and that one to make sure that they can access a solution through the venues that they can use right um and and that have sort of been uh approved on their side but over time we obviously look to expand to other platforms that may serve a very broader set of participant and users more holistically right our hope is really that we can get to a place where a user on Robin Hood or a user on robit um on revolute can can actually use this product easily right can just plug in and and get access to to staking participation in a really seamless and frictionless way right and and on that path what we want to create is a really

great user experience because liquid taking abstracts from a lot of the complexities and the difficulties of using a traditional taking product where you know bonding periods unbonding periods the activation CU these things change and that's really hard to digest for users so we want to abstract away from a lot of that complexity while providing a solution that is you know performant and secure for the customers to actually tether to what are some of the types of users or entities that you've seen in the initial set of depositors and how do you expect it to change in the future who are some of the the entities that you haven't yet seen that you would really love to see come in so I think as I mentioned a lot of the participants today are sort of long holding uh e participants people who are looking to um participate and staking

but are very security conscious um and are looking for solutions that sort of meet them where they're at um I think as we continue expanding support across other platforms we do expect to see sort of a shift in in in some of these groups that you know we're looking and exciting to activate and I think to come to mind specifically the first one is the structured product Market which has been moving pretty swiftly in terms of you know we've had ETP providers um that have launched uh eaking products um over the last two years most recently we had psake 3 IQ get approved for the first state e ETF in Canada and so we do expect that the ETP and ETF Market will continue to to grow and we do see liquid

staking is actually a fundamental and very strong fit for those platforms and participants right because for them having t+1 or t plus2 Redemption requirements the activation withdrawal cues being variable is not a good fit for the product that they're offering right and so we're really looking to support um you know those Solutions in coming live uh with a product that sort of meets the needs that they have um to build a great solution product for their clients um the other thing that I would say and like this is probably in the category of participants that are not meaningful participating in staking but could be using a product like ours to actually start you know participating in the market are is is basically any institutional participant that is looking at this from a trading

perspective right so think about you know hedge funds for example or participants that are trying to figure out how to access uh Market neutral trading positions but who for for whom traditional staking uh periods and Lars are not really compatible with the strategies that they're pursuing and so we do have a lot of you know partners that we work with that are thinking through these things um to figure out how to build uh Market neutral strategies and other things that can help them get access to ethereum space reward rate right which many people have sort of inferred to as the risk free rate equivalent in in the Le free market the ETP space I think is super super interesting and you're right like especially with the US ETF narratives coming through like that does seem like

this super super interesting Vector can you just expand a little bit more on why liquid staking reced tokens make kind of perfect fit for that like is it just the liquidity aspect and you can kind of help meet that t plus2 redemption or is there something a little bit deeper there I think there's a number of things and it's not necessarily exclusive to the structured product space when you look at the benefits of liquid seeking protocols and and and the way that we designed ours right I think the first and foremost thing when we look at most of these platforms is that the offering that they're providing needs to be secure and so they'll not just look at the providers that are offering the service but in most cases are already Distributing stake across a bunch of different operators why because ethereum

has um correlation protections built in or disincentives if you want to call it that right um and so there's there's a motivation to distribute stake across different operators to minimize that risk surface there is sort of a look towards you know getting accessibility through the venues that they need to access these Solutions through in most cases qualified custodians right um and being able to sort of provide the protection through you know crashing insurance and other things that we have Neely built into our product now I think specific to the structured product Market as I mentioned earlier because of the Redemption requirements that a lot of these participants are required to fulfill the variability and the way that it's the arean handles its activation

and withdrawal cues is not really compatible with a format where you have a guaranteed Redemption period that you need to fulfill right and so instead of managing a reserve on the back end where you have to sort of Arbitrage and figure out how how much of your liquidity you need to manage in order to be able to fulfill these redemptions liquid staking actually alleviates a lot of that operational overhead because you can tap into a solution that allows you to fulfill those retions and in sort of an instantaneous basis um and so that's why we do believe that you know there's sort of a strong fit particularly without solution landscape um and given the timing now that we're starting to see a lot of these application sort of move through the process um and some of them you know in different jurisdictions

actually already going through approvals and when I think about the demand for a structured product around the eaking yield I kind of like I'm stuck in the middle here I really do feel like I'm mid curving this one because on one hand 4% on my favorite asset that's a no-brainer of course I'm going to want to try to get exposure to that but on the other I can also see the argument for while like these institutional Capital allocators are you know allocate just a small portion of their portfolio maybe one to two% and even less of that in a specific asset eth uh so the added risk there just maybe isn't worth the return right they're thinking that this is either going to zero or is going to Triple so in your experience I want to just get a little bit of insight around how you think institutional investors

kind of like position the eth yield or the eth staking rate in their minds it's really interesting and potentially counterintuitive um but most of the participants that we talk to don't talk much about their reward rates um or the performance and and the reason for that is the variant is is really not that high the thing that varies a lot is how secure the setup is right what is the risk of principal loss which is so much more important that the couple of bibs that you can squeeze in and out depending on the configuration that you're deploying and so that is really the the the dominant part of the conversation that we have with any type of institutional customer is the security posture right as the market

continues to evolve I think it's particularly this part that changes right we really want to get to towards a risk-free rate it's not a risk-free rate today right the things that we need to do is ensure that infrastructure standards are appropriately configured that the insurance Market not just the decentralized but also the traditional Insurance Market ramps up um so that we have coverage uh support across the different products and solutions that exist and making sure that the trade-off of evaluating participating at a four or 5% reward rate and the the the the risk that is associated with that right is effectively reduced or mitigated so that everyone can participate uh in securing the blockchain right that's ultimately the goal right and US progressing the industry in some ways with the work that

we're doing on you know building a lot of the standards that we're working towards and sort of you know bringing them out in an open source way is really a measure that we're taking in order to get towards that okay yeah no that that makes a ton of sense to me and then just lastly on the ETP stuff so the liquidity aspect of this is of course super important as you mentioned can you just walk us through uh how liquid Collective kind of thinks about the withdrawal Cube because even though withdrawals are live with for through liquid Collective if there was you know a mass exit event for whatever reason um there is the potential for a dpeg for a short period of time so how does the how's the Redemption process designed within the liquid Collective protocol and if you could really just talk about the

measures that the protocol takes uh to help prevent that uh deeg during that that mass Exodus event for sure um I think probably first and foremost we deploy C token model right um and so we don't have a unit bankis equol system that you would see with traditional a tokens instead every LS e basically represents State e plus the rewards and uses a conversion rate um that then actually refers to um the underlying value of e plus ACR warrants minus the fees and the potential penalties that come from the validation service and so in and of itself the value of lses does not have an explicit Peg to the market value of e right um the concept of Ls

pegging from the value of e is is unlikely and just the opportunity I think in the long run for Market Arbitrage between the prices in the secondary market and the conversion rate um and I think we've seen sort of self-stabilizing forces in the market around that when we see you know um liid staking tokens that are priced at a discount or relative premium um comparative to the market rate of um where it's been relevant in terms of fee structure I think you guys have a 15% take rate on the uh the yield so that's lower than coinbase is 25% but higher than Lidos 10% how did you guys arrive at this number um and yeah just any other info you could share on that would be great for sure so we just as I mentioned before are are obviously focused on

Distributing to platforms and so our commercial model is different from what you would see with consumer facing or retail facing products like Lio or rock and pool or Stak wise for us it was really for that one you know the offering for end users would be um you know competitive and also could be flexibly priced and that platforms were able to um generate meaningful revenue streams and actually a real meaningful commercial model um from the integration of the product right and so the way that our business actually works um and and the way that you know the the reward rate is for the critical fee is constructed and platforms actually get to decide how they want to price the product to their end users and so we've built in flexibility for the market to

actually determine you know what end users effectively receive um as as part of the Ping structure um and so the design the reason for that design was in part because different platforms have different value propositions they know their customers and we really wanted to make sure that platforms were empowered and enabled to actually set the pricing fees for their clients the other thing is that we're not a pure just institutional fcal product but we support platforms that may have retail users or institutional customers and those segments have widely different pricing sensitivities um where in general institution CL institutional clients especially large sophisticated CLS have a lot of Price Power um and they tend to be quite price sensitive whereas retail users as you see with a lot of sort of

the exchange rate fees that you see that are significantly higher um than some of the institutional rates you know those those that market segment tends to be a little bit less price sensitive and so we wanted to you know kind of find the middle ground in the way that we set the gross protocol fee and also Empower platforms to ultimately make the decision of how they wanted to price their users um without necessarily being involved in that process or mandating that pricing structure now that's super unique and on the platform side so I know you have a lot of integrators that are like uh exchanges and we've seen a lot of exchanges kind of see that market potential as well and then create their own liquid staking solution coinbase has CBE eth Finance now has be eth why if I was if I was an exchange like why why

would I not want to funnel all of my activity towards my own staking solution and also opt into liquid Collective I think this goes back to sort of our fundamental view on the market um I think when we think about mainstream adoption what does mainstream adoption look like and what does mainstream adoption mean in terms of the things that you know solution needs to provide and so the way that we really have always thought about this is that any Market leading product would be leading on the basis of its liquidity the utility it provides to its users right the opportunity to move um tokens across platforms and having interoperability across them and you know having security and compliance

built in by Design um it's sort of a question of do you build um to holistically service the market or do you sort of Silo your product to the platform um that is providing the service and and our view was always that partnering with different platforms providing access across a really widespread set of Market participants is the best product for users because it gives them optionality right it also means that you can build a much larger addressable Market through that than just servicing your own users on your own exchange or through your own custody platform right and I think because liquid shaking tokens in so many ways behave like money and have the same mechanisms or Dynamics when you think

about sort of the network effects that come with building like let's taking tokens in the market that interoperability that scalability model is so so important to have and built liquidity to get to the point where you know the mainstream market can actually access this product in a meaningful way and I think there's a a couple of other things that we always sort of looked at and we took a lot of inspiration from the way that Visa was built not as a crypto company but as an organization that pioneered this model of taking a lot of Industry competitors and partners together to build a payment system we we kind of view our business as quite similar in the sense that we partner with a lot of different industry leading uh companies and businesses to sort of

build this standard in the market and there there are merits to taking that collaborative approach even though collaboration is costly right it's not an easy thing to do let's say it's probably one of the harder things to do um but the Merit of that is being able to sort of form a collective or shared understanding um and and sort of build the accountability to build something that is great and ever evolving and particularly in our Market I think one of the unique advantages we see with that approach is the fact that you can actually bring all these parties together to think about things that are sort of Beyond just them right building for regulatory advocacy coming together on publishing you know white papers like we did and we spill the poal work screen and and getting those out there so that we could take a more proactive approach

and what policy you know discourse and conversation and I think that is actually really important for a technology and A Primitive that is as impactful as look at they can be on the entire Market we touched on this a bit with the uh reaking aspect and I think we've mentioned DBT earlier in the conversation as well but I'm curious if there's uh any more Innovations in the liquid staking Market that you think about as being super super interesting like maybe the emerging middleware segment in another way um how do you think about these things well we think about them a lot um I think there's sort of the like middleware performance Focus landscape uh of of me that obvious viously we're we're spend a ton of time on you know

taking a look at the way that we can continue you know sort of advocating for for best practices and considerations there um DBT personally I've been very involved with that technology sort of since it's early Innings and then kicking off the bris working group on that with theum Foundation but um I do fundamentally believe that DBT sort of changes the configuration of how we think about risk sharing um across yield operators and and it also becomes an put if you will into the insurance conversations right because you're building an effectively resilient model um that just provides a significantly better posture and security for users right and and anything that can sort of accomplish that is something that you know I personally and I think we as a

business want to support um I think there's a lot of market trends though that are interesting kind of Beyond just like what is happening in the middle War space uh when you look at everything that's happening in in the L2 Stratosphere at the moment um and all the migration that are happening particularly as we think about you know the conversation we just had about um you know we see exchanges building down liquid saing toin well we're also seeing them build their own alos right and and what does that sort of mean for composability in the market it all goes back to the question of how can we build outside of silos how do we create utility for users how do we make it really easy for people to communicate with different platforms because that is actually the fundamental value of this technology right if we bu forade and

Silo everything and different layers of the stack you sort of lose a lot of that value for for for customers and the ability to sort of move around and and and and use the composability that well this technology was designed for so I'm really excited to see how that continues evolving um and and sort of keeping our tabs on it and of course um you know contributing in our own way to support b as part of our expansion footprint that's awesome as well and I getting into some of the closing questions here naturally this conversation centered a lot around ethereum given that's a large the largest staked token by market cap and uh that is force whereare liquid Collective is launched today how do you think about expanding into other Chang just given that there are many priv

stake chains that do have uh similar Market structures and kind of are starting to see liquid state can become more of a factor within those ecosystems as well for sure I think we generally think about the market and and ourselves and the protocol as a multi-chain solution I think for us the question really becomes um sort of what is the escape Velocity on ethereum core development and how do we see that sort of ferate and translate into what we see at the L2 level today um and sort of so supporting that expansion path um as well as L ones that are becoming interesting or reemerging in the market um since you know there's definitely been a lot of changes in the last 18 months at least in terms of how the Market's been configured um but no I

think the short answer is we're really excited to to sort of expand this standard um across you know other networks and other chains whether they're evm compatible supporting them more bridging to l2s um or looking at you know bringing this solution to other l1s in the market and then lastly here I want to talk a bit about the Challen what are the some of the largest challenges that you have faed in uh building a development company that is servicing liquid Collective is it actually on you know solving some of these gigabrain level uh questions around liquid staking or the staking Market as a whole or is it something even more on the other side of things where it's just like running a business that is based around a protocol is extremely hard I'm just curious to hear your story about the challenges

that you faced yes well I think it's probably there's probably a list of things um I think the first one is probably the way that we built the protocol and and our business in that sort of collaborative way I mean we had a very atypical origin to begin with you know as part of our founding we had Kraken and coinbase and figman come together and sort of seed funding for the business which is really atypical if you think about the market just having a bunch of competitors coming around the table and sort of um you know co-developing and supporting you know the design choices of a given solution just because they have a need for it um and sort of overtime scaling from those

three four different participants and businesses to now you know having so many different platforms uh Tech providers partners that we work with that are sort of contributing to that um collaboration is really powerful and I think if it as a low for us and at the same time it's extremely challenging just imagine you know sitting in a task group meeting with a bunch of competing businesses trying to get to an agreement on something and and so there's definitely you know um sting uh the pro pros and cons to that approach from our perspective but um it's really exciting because you just get loads of different frins and ideas around the table and and that ultimately I think you know helps us build for for much better things um I think the other thing and it's not unique to us but um when building a

protocol development company um and at the same time you know sort of supporting the development of the protocol it's almost you have like two children you know that you have to think about and and kind of figuring out how to um effectively support you know the growth and development of these things to eventually become self- sustaining right um and contributed to by many different businesses and in an Ideal World you know we're excited of seeing many different alial uh plugging into liquid Collective and provid a you know accounting services or staking apis or reaking solutions that use the vertical um and we we definitely want to you know see and encourage that market and see florer so it remains exciting and and and a great challenge to

solve well Mara that's all fantastic to hear and we appreciate do with a liquid Collective uh and again congratulations on the the big announcement with the slas I think it's a huge step forward not only for uh liquid Collective but Al for the industry as a whole so thanks again Mara we really appreciate it and we'll have to have you back on sometime in the future sounds great thank you both awesome cheers hey everyone thanks so much for tuning into today's episode we hope you really enjoyed it wanted to take one more moment to remind you guys about our upcoming 2024 digital asset Summit in London this March seats are limited so be sure to hit the link in the description and use promo code 0x20 to save 20% off on your ticket we'll see you in London be sure to hit us up if

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