Alluvial: Institutional Liquid Staking and Spot Ethereum ETF - Mara Schmiedt. Ep. 548

Transcript

a lot of the asset managers that we talked to I think to some degree may be underestimated the impact that the spot Bitcoin ETF would have on the market how can you create some type of standardized architecture infrastructure policies on the compliance on the performance on the security side and how are you going to make these different part platforms and partners custodians and exchanges and asset managers sort of interact interoperate and work together when they're in many ways competitive I think there's a few I guess problems that people are pointing out with this

concept of excessive staking participation we might end up in a position where these players could get too big or the protocols could take over you know decisions on ethereum consensus that are not maybe maximally trustless welcome to epicenter the show which talks about the Technologies projects and people driving decentralization and the blockchain revolution I'm Felix luch and today I'm speaking with marme who is the CEO and co-founder of aluvial the software development company behind liquid Collective liquid Collective is offering staking products for institutions on ethereum before we talk with Mara we'd like to tell you about our sponsors this week this episode is brought to you by gsis gsis builds decentralized

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validator with a single gno token and lowcost Hardware or deploy your product on the evm compatible and highly decentralized nosis chain get started today at nosis doio cars one is one of the biggest node operators globally and has help you stake your tokens on 45 plus networks like ethereum Cosmos the last year and dydx more than 100,000 delegators stake with corus one including institutions like bitgo and Ledger staking with corus one not only gets you the highest years but also the most robust security practices and infrastructure that are usually exclusive for institutions you

can stti directly to cors one's public note from your wallet set up a white TB note or use the recently launched product Opus to stake up to 8,000 eth in a single transaction you can even offer high yield staking to your own customers using their API your assets always remain in your custody so you can have complete piece of Mind start sing today at chorus. one hi Mara welcome to epicenter great to have you on thank you for having me yeah so um we go way back I think and you especially also been part of the staking system like me since probably

more than five years now and um yeah great place to start as always on epicenter would be to like kind of go back to how you how you got into the space uh like sort of like a little bit your path that brought you to to where you are today and then we can roll we can like discuss how how all that impacted what you were working on today that's great um so I've been working in the crypto space for about seven years now been spending most of my time on staking and started working on ethereum staking particularly in 2019 I think that's when you and I met um when we were working on the liquid sing working group which was

really early at the time I was still at consensus um working on product and strategy development and started working pretty closely with the ethereum foundation to support the roll out of then the serenity spec or east 2 as we know it today and just got really enticed by you know focusing my time and energy on thinking about you know Innovations at the staking level how we could continue to improve security so that the protocols and applications building on top of it could really harness you know that sort of of competitive advantage that ethereum and V ways has in in providing that security

budget I later decided to uh join bison Trails after leaving consensus to really double down on staking not just across ethereum but also other networks and supporting the roll out of you know institutional grade and Enterprise grade uh node infrastructure which was a really exciting Journey uh we actually got acquired by coinbase in February 2021 and then really formed the foundation of what became coinbase Cloud so coinbase is developer and Enterprise focused offering that covers a number of different product critical uh where ended up leading the sales team so uh those were some of the focuses that I had in the last couple of years before

starting aluvial and I think in many ways alial and what we are building with liquid Collective is a culmination of many years of work and and research with uh great folks in the industry you know thinking about how we can to innovate and and bring more participants uh into staking yeah definitely it seems like uh what you're working on now kind of combines your like sort of the close relation to ethereum as a protocol and you know how staking works and your experience on the sales side or like working with Enterprises so really Keen to to dive into that maybe to start out I guess we can kind of go back and like uh roll out the timeline you you already

mentioned eth to right maybe you can talk a little bit about how we got to where we are today in in sort of the E timeline and then we can yeah talk a little bit about how the market has changed and how new players are coming in I think one of the core focuses we we were discussing earlier bit also before the episode of of this episode I think is also to like sort of comment a bit on the markets surrounding like the pure Tech so like I think yeah we would be really key to like understand the tech first but then also like see how you seeing like people interact with the tech of course I think that sounds great um so maybe we start with ethereum's sort of

life cycle as a proof of stake Network um yeah obviously a ton of research went into that upgrade for many years before the beacon chain ended up launching uh in December 2020 what's been super interesting since that launch is I think the continuity of participation in staking on ethereum despite of course many interesting fluctuations in the market uh over that period of time staking actually ended up sort of growing consistently with certain influxes that we saw after major upgrades such as chappella that introduced withdrawals

and also reduce some of the risk I think that participants and also institutions saw in participating and staking today we have around 95 billion doar staked on the network 26% of all ethereum is Stak today and that number continues to grow I think there's probably a couple of trends that are contributing to that that that we can like dig into a little bit more but on the technology side I think the barrier to entry risk and capital efficiency of participating in staking has sign significantly improved over the last couple of years today you have access to

innovations that ensure that staking setups are more robust you have better correlation protection and anti-s slashing Technologies there's better Capital efficiency when you think about you know rissy tokens or liquid staking tokens um that have you know penetrated through the market and then there's a lot of other things that are like exciting and happening at the moment that I think are going to continue to drive up the participation and and the appetite for staking in the market so on one hand you have reaking which we can dive into a little bit more but that's obviously I think contributed to a lot of the more recent uptake in staking participation

on ethereum when you look a little bit more out into the future I think coming down from a fairly High interest rate environment obviously can create more macro perspective and interest in participating and staking rewards um that are around 3.8 to 4% today and then I think last but not least of course there's major developments on the institutional side including the current you know pending approvals for us ethereum spot ETFs that could again you know continues they drive more and more appetite and and participation in that market right yeah makes L sense I think yeah it's very interesting to have like

we have this sort of two sides one the very Frontier of innovation let's say and and often kind of like where crypto Twitter is at or like sort of the more Dean side and then on the other side kind of the more institutional slower adoption the tech maturity side let's say that also like you know I guess more risk averse participants kind of waiting to get involved until like there's certain things in place and I think yeah you guys are like at an interesting um Crossroads there by on one hand being you know Prett crypto native product but also trying to kind of bridge the gap there to the the newcomers and the ecosystem so maybe you can talk a little

bit about you know liquid Collective how how you're like yeah trying to do that or how the the whole project is structured to to sort of achieve uh the goals yeah for sure let's dig into that so I think in short we designed this product around unmet needs that we saw in the market or in a maturing Market where you know new segments Enterprises and also regulated institutions are looking to start participating in the space as I mentioned before there's been a few Innovations that have really improved security and capital efficiency in staking on one hand we've started to see

a trend from single operator architectures to multi-operator architectures that can inherently provide better security to participants and and and and to companies and on the other hand we've seen receipt tokens so liquid staking tokens really enable a very fundamental quite primitive mechanism that allows people to prove an onchain position the problem with a lot of this innovation in the early days is that you know when ethereum launched and the first multi-operator and liquid staking token models became

available you know you had incredibly early Market leaders like B and Rocket pool come to Market with their product s but these products were really designed for the early part of the adoption curve Crypt native power users um that you know felt comfortable using you know direct interfaces and maybe didn't have a lot of questions around you know compliance and other considerations but that's not necessarily a model that seemed compatible with the needs that we were hearing from businesses as it related to the way that they View security and the diligence that underlies it you know the capabilities that they need in order to make

Integrations very seamless and accessible and of course also compliance and so we saw this opportunity to really think deeply about what kind of parameters what kind of architecture would be needed in order to help bridge those participants into staking and through that you know continuously support adoption in the market and so one of the things that's unique about what liquid Collective is doing is that our business model is actually quite similar to something like Visa which is a business that we drew a lot of inspiration of for the people that don't know the founding story of Visa I really

recommend you read a few books from De Hawk who who ended up you know really you know being the brainchild behind you know Visa as an organization as we know it today and so very similar to Visa we thought how can you create some type of standardized architecture infrastructure policies on the compliance on the performance on the security side and how are you going to make these different part platforms and partners custodians and exchanges and asset managers sort of interact interoperate and work together when they're in many ways competitive and I think for us the answer was it needs to

be a distributed jointly owned and operated organization that can bring these different counterparties together in order to build something um that is better right and I think that's sort of the approach that we took in the early days we actually uh brought together coinbase Kraken and figment as our early Partners I actually left coinbase and my co-founder bat left figment to start the company and we kind of brought more people around the table to do that and so today what we concretely offer is a product stack that provides orchestration integration and then standardized

receipts on ethereum it's called LS eth and so on the organistation side we support distribution AC cross top operators including coinbase figment and staked we have embedded performance slas is one of the first protocols to offer this kind of thing natively embedded slashing coverage uh a risk auditing standard that was jointly developed by different participants inside of the collective we also have an integration Suite so a suite of Enterprise great apis that really seamlessly integrate into the stacks of different businesses and Institutions and last but not least we obviously have our receipt design so LS which is a c token uh that is standardized and so can be used across

different venues and and different platforms interchangeably and very similar to usdc even though the entry point so minting and burning uh has a natively embedded compliance model the usc2 is actually permissionless exchangeable and tradeable on the secondary market and so you could almost think of liquid Collective as a standards making body that works collectively to sort of Define some of these standards in the market and today I think one of the exciting things that we've seen is that we've actually already been able to build support for LS across nine different platforms and and growing including you know Market leading

businesses like coinbase Bitcoin Swiss figment bitco fire blocks Anchorage and others so yeah yeah super super cool I think yeah very interesting how this model PS over and I think actually also to contrast it or to to see like I guess that these are even like goals in the sense of the underlying blockchain itself right to like sort of be this distributed uh like platform that that has different stakeholders right like eth holders essentially but of course a building a model that's maybe more yeah inspired by like traditional Corporation model like basically bridges that potentially better because I guess

they are many of these are not so comfortable buying eth right away uh either um I I think that's actually like a thing that only now is happening after I guess I don't know when when ether launch probably like almost 10 years now um later we we have like some of the first like bigger institutions that are not like sort of crypto crypto institutions let's say kind of entering the game so yeah interesting interesting to see that maybe they can be more comfortable with like this sort of uh hybrid approach there how do you view like the current yeah ETFs and sort of like some of these uh products that that are poised to bring more in flow and more

institutional Capital into into crypto and and how that like impacts I guess the the um layer below like etherum staking and uh kind of the participation at large yeah it's a it's a very timely topic I think a lot of the asset managers that we talked to I think think to some degree may be underestimated the impact that the spot Bitcoin ETF would have on the market um I was checking this morning I think we're at like almost $60 billion in assets under management and trading volumes are just growing consistently I think I was reading about

110 billion in March that's almost 3x what they were trading out in February so I think there is a signal that there is real appetite between this intersection of you know traditional Financial products and making accessible you know cryptocurrencies as a new solution um to to a more mainstream and institutional audience I think when you look at the spot ETFs on the the ethereum side um obviously there's been a a ton of applications go through submission that are obviously pending in the US I think what when you look at just the the the current numbers on on on the Bitcoin

side like it it is indicative of like a pretty significant Market opportunity that these products can capture if you estimate maybe 30% of of of the market size that we currently see on on the Bitcoin ETF side you know that's still $20 billion in assets under management or you know if those products were to be staked that could almost be 20% of an increase in in the current levels of staking participation so these numbers do start getting pretty big I think there's a few things that have been interesting so I think on one hand uh there's some I think consensus in the market that it's going to be interesting and different with ethereum because these products will be able to offer

some type of Total return because ethereum is stable and there's a reward rate that's associated with that and I think to be competitive you know these funds are going to have to pass some of that back to their customers and on the other hand I think we're starting to see other jurisdictions that I think are more you know sort of friendly to to to providing this types of approvals you know starting to roll out and and enable these products right I think you have mostly Canada and Switzerland today where you have staked etps and ETFs already you know the 21 shares at the 3 IQs of the world that are sort of you know being the first to Market with these kinds of products and

I think that's probably indicative of a trend that we're going to continue to see and hopefully unfold in the US and other markets as well yeah yeah it's super interesting to see and and I guess like then how these e actually will be staked I think one of the core yeah things we wanted to discuss here is actually like probably more as we are epicenter right we wanted to go more a bit on the technical side and and I think I I wanted to talk about the institutional side as well because I think it has like a lot of impact also on like the actual discussions that like ethereum researchers or like the ethereum community at large are having right now like you just mentioned right like if if all this e would be staked it would be like 20% more uh staking uh

ratio so at the same time we have like sort of these conversations going on in the ethereum community right now of like potentially even capping the how much should be staked and um uh you know a few I like I guess concerns about centralization at large of ethereum staking and um I mean yeah curious to to hear how you think I guess would obviously like people might think that if ETF comes and it's all Stak probably with like some big provider that would probably lead to more centralization or um yeah I guess how how are you seeing these discussions um currently and maybe maybe

you can also provide a bit of more background of of like what what is actually being discussed um and I guess yeah the yeah the the Market's impact on that and how how you see that I'm I'm quite curious to hear your take yeah I think probably like two questions in there so I think the first one is like how do I view this like new entrance of markets or Market participants I think we're trying to build a mainstream technology and so getting mainstream participants to be able to access and I think on the topic of staking actually contribute to like a public good of Internet infrastructure is really really

exciting ultimately that's what I feel like we have been building towards for many years and I'm not saying that you know the institutional Market is the one and only Holy Grail but I do think seeing progression in the uptake um of this technology into sort of more mainstream and and also poten incumbent you know Technologies and financial infrastructure is is is exciting um I think the second question was um yes there's a lot of discourse right now in the ethereum community on how much sake is too much sake and what does that mean for ethereum and and and the way that the system is currently designed so I think maybe just to like look at where we're currently at

so the Stak King issuance curve which is basically the amount of rewards that are issued by the system is actually an inverse function so it's sort of pretty high at the beginning and then it slopes down but it doesn't really ever go to zero and there is definitely no mechanism in place that says I will cap where there is a cap to excessive staking participation I think this concept of excessive staking participation is maybe a little bit more novel because it is it it takes an opinion on how much stake is too much stake and I think that opinion was not previously expressed in the way

that the staking issuance curve was originally designed so I think there's a few I guess problems that people are pointing out with this concept of excessive staking participation we spoke a little bit at the beginning about how there's different market trends that are all sort of continuing to indicate that staking participation will just continue to grow and grow and grow um and we've seen the data over the last you know call it three or so years that that has actually been consistent with what we've observed so I think on one hand there's this concept of you know what's the impact to real yields so as taking approaches

100% the real yields actually end up going down to zero because once you adjust for inflation you know no one's effectively better off participating in the staking Market that also does have some other consequences including the fact that if there's a lot of participation and a lot of issuance in the system then actually holding eth and not staking eth becomes really expensive it's a little bit like holding your dollars in your back account when the inflation rate is really high your nominal value might not go down but your purchasing power does and so that kind of inter like counteracts the idea that eth in and of itself without being State

can really be useful as money because if inflation is really high then people are going to try to figure out how to protect that purchase power and so as a result I think there's this underlying question about you know what does that mean in terms of what will become sort of the deao network currency and is there maybe substitutive currencies that can go in place of that and I think people often quote stake eth or St eth in particular as a potential consideration or also concern that may eventually supersede the use of e side of the network for both consumable and and and transaction purposes and of course then that can present other challenges it's less

competitive for solo stakers to participate in that environment we might end up in a position where these players could get too big or the protocols could take over for you know decisions on ethereum consensus that are not maybe maximally trustless so I think there's a lot of different considerations and and topics that you know are being unpacked at the moment maybe you want to talk a little bit about like what the proposal is and like what what people are discussing at the moment I'm happy for us to dig into that as well yeah I mean I think yeah that was a really good breakdown of like sort of why it is is happening I guess also like i e as money and sort of e being staked

not being able to be used as money anymore and then like sort of liquid staking tokens and potentially taking taking that spot I think we as you mentioned the liquid work group we were I guess like pretty early to discuss things like this and I think also in a way this is down to ethereum's design right I mean especially in the beginning it was even more uh predominant because yeah there weren't withdrawals yet so the the like liquidity premium extremely high so like liquid sing tokens actually got way more adoption than like on other networks as we can see like for example on Solana or other networks that are now live five years plus the liquid staking

penetration is actually much lower so I'm wondering how much it is also down to that and another thing that we were like sort of wanting to talk about here uh in in that discussion is also that was like another side effect of like trying to control it in that way that you lower the issuance I think yeah this is kind of the core argument right now that okay we lower the issurance we make it less attractive to participate in staking I think you have like also other side effects there that especially probably impact um solo stakers actually that that want to participate but also other Trends um or like innovations that that maybe try to

bring the yield elsewhere so I think yeah would be curious to hear your like sort of impression of how how this discussion like you know what what are these counter points that are maybe like underd discussed actually in the public discourse to some degree from what I see I think maybe you are even more deeper in there than than I am uh being like so etherum focused could you like kind of elaborate on your side or your view of this yeah for sure so I think I mean in principle like what's being proposed at the moment is something called stake ratio

targeting and so basically having an opinion about what stake participation is sufficient from a security standpoint and adjusting the way that the reward curve or the issuance curve works so we were talking about you know how today it's inverse well I guess the proposal is to turn it more into an S curve where with very little participation the incentive and the staking issuance is really high but then after a certain point would again as an opinionated point about what ratio of stake is enough or sufficient or too much that yield or that reward rate eventually goes to zero or it even goes negative right it's not too dissimilar I think from sort of policies that you

would see in broader like economic structures today I think the problem that people are raising with the concerns they have at the moment is one like interventionism obviously is a question and and and the question is also how does that impact crtical neutrality of a system if you're adjusting the system to prevent a predicted outcome because there's an opinion about whether it is or isn't desirable there's also I think a confidence question like what what is the impact of changing these monetary policies on the developer Community like even businesses like us like in the midst of building you know it's already hard enough to build in such an incredibly fast-paced

and volatile Market but if the rules keep changing while you're building that's quite costly and and that can sort of erode confidence with also Emerging Market participants like institutions who you know may require adjustment to that kind of Swift shift and and and and change of something that is as fundamental to the system as this and then some people of course are also raising concerns around just the timing you know is this the right time to have this conversation while you know there is sort of outstanding reviews by major jurisdictional and Regulatory bodies on the classification of a theory and and things like that so it's a really nuanced argument there is different perspective different sides it's an

incred ibly dynamic system so I tried to take a a sort of more holistic perspective I think observing the market the way that we do practically speaking it's going to be extremely difficult to create one liquid staking token or one liquid reaking token that fits all customer cases I think there is definitely Network effects that underly these systems but at the same time we're already seeing univ is develop where the market share and and structure is is changing right you're seeing very dominant liquid state tokens like s come down significantly as new Solutions like

liquid restating tokens emerge and as new customers enter the market new Solutions emerge that are fitted to suit their needs and so I think there's a question of you know are are the assumptions correct about what the end game could potentially look like and if those are some changed but that Chang the way that we would view this potential proposal or change in the policy right so I think there's a lot of different you know opinions and perspectives but but that's sort of one that that we currently observe and and sort of anchor to right yeah thanks a lot for that I think yeah yeah were interesting times and like we mentioned it a few times already right the emergence of reaking also playing a big role and I guess

generally the market cycle right now as we record this being pretty bullish and uh a lot of like sort of the trends that we saw in previous Cycles kind of reemerging in like a new form I guess nothing ever really changes too much but uh I mean now we have through um like points and reaking like sort of the second or like maybe it's already a third iteration of like kind of yield farming that we saw in defi summer and that obviously also changing the market in in some ways actually I guess maybe like like you were saying that like Lio lost some market share in in ways that might make it more decentralized on the

outside but I think it also interestingly I guess is is mostly driven by speculation and not really like people reviewing the underlying uh Tech too much but more like trying to farm the new shiny thing so yeah yeah I think very dynamic system and yeah interesting I guess you always need to look at it in in this holistic way like you already said right but um how how do you see it in that discussion or like what what do you want to comment on on that I mean you also being a Founder I think that was like something we wanted to discuss earlier how do you navigate this space as a project yourself maybe that's that could be an interesting

question I think it's a great question I mean we've we've both been in the space for a while I think we've seen the wo markets and bare markets and all the things that sort of emerge in them um I think like in the current market there's like two I think interesting observations I think the first one is with new technology and with new customers a Market's given the opportunity to mature and de centralize and diversify and I think maybe we're starting to see a little bit of that with reaking and institutions entering the market sort of

changing a little bit the configuration that almost felt like steady in state for a while where you know you had projects like lid out sitting up at about 30% market share and and sort of things seemed to be getting a little bit more static but I think that's changed a lot I mean in the last like month or so you've had you know project like Lio who was like 3 4% market share there's some liquid sing tokens that lost like 40% I mean we thankfully grew a lot this quarter but on the flip side you have liquid reaking tokens like booming like crazy and so you see a lot of these like very Crypton native users move swiftly from one opportunity to the next and I

think when you think about reaking in many ways the underlying is the promise of maybe points or air drops and people farming that in the cycle and so when you think about the fact that you know with Aon layer you don't actually have asps enabled yet and abs has Happ deployed and you know we kind of really think through that then I think you start realizing that I think the very early adopter Market is very Swift to move on new Innovations and opportunities there is definitely Financial motivation underlying that um and you know not to say that's necessarily good or bad but it's definitely something to to to consider so I think one of the things that is interesting as

a project in this space is sort of having to make that decision or the trade-off to decide how to counteract maybe some of the more short-term focus and incentive mechanisms that are active in the space today and I think for us the decision I mean we're kind of very long-term thinkers you kind of have to be if you're going to go after a market that's like going to take years to mature and you know fully grow into its existence and so as a very long-term thinking team I think for us it's very important not to take shortcuts or you know compromise on you know things that that could

potentially stand in our way of achieving the goals that we have or partnering with the types of businesses that we want to partner with and so while that pragmatic approach maybe sounds like taking a high road it is also challenging right you're sort of confronted with that in many conversations whether you're talking to investors or other Founders or Partners where you know I think there's sort of a more open I think conversation about how we as a space build and how we can build with an incentive to build for things that can last so but I would love to hear your perspective on it I mean you've seen loads of this too so not just in this cycle yeah yeah yeah

it's very interesting because I think it's almost like table Stakes to you have to somewhat participate in it to even be able to compete in some way and sometimes like maybe something good comes out of it I also think in general like incentivizing the right stakeholders and some of the core ideas of what what are sort of behind the the distribution mechanisms or like these these sort of programs are are good because it's pretty hard to like get the right stakeholders aligned right like I mean maybe with proof of work you had a little bit of like a moment where people could like mine on their computers and no one knew about it but that's not really the reality anymore now so you

need to like find some other ways to find the right people so I think yes it makes sense it should probably be there but at the same time it's a lot it has a lot of noise it doesn't really incentivize maybe building the the right the products that actually solve problems but more like just create more problems potentially even or um at least create more uh infra that maybe maybe is or like it's very hard then also to tell if you're if you even have product Market fit or if you just have like mercenary Capital that will like move on to the next thing or once they get the chance so yeah definitely

like a thin line to balance and um the more it's almost like yeah I guess it's like kind of Leverage almost like it's the more you go into the shortterm thinking and the more success maybe have then like the harder it will almost be to to like make make that last right like because I guess you attract even more short-term thinkers so trying to find some balance and be somewhere in the middle or maybe even on the right side of the Spectrum which will be probably the hardest to say like hey okay we're not doing it at all um then then I I think you might find it pretty hard to compete at all so I think yeah some some balance in between there and that's a

very yeah hard hard space to navigate like you said right you will have like different parties trying to talk you into stuff and I guess also like the the the market always no one is like immune to it I guess so in a W Market everyone gets like sort of into it I mean there's like the good side to it and maybe also not so good side to it I think on the good side I think these incentive systems the bootstrapping and user ownership perspective that underlies you know protocols does create an environment where I think it's harder to like deeply en you know andrine a a product as the de facto sort of Monopoly in a market

and I think we're seeing that happen right now and I think that is good because it gives it sort of erods this like dominant I think like Market tendency or centralization tendency and it gives way in space to different Innovations with different differentiators and I think maybe in part like a maturing Tech Market or or technology landscape I guess the flip side to that is that demand those customers those users might just not be that sticky and so that I think can create challenges for protocols that have to sort of play inside of that real because that demand can very quickly move on to the next thing and

the next thing and the thing after that right um but I think there's sort of a balanced perspective to it I think we are continuing to do a lot of innovation in the space around what user ownership looks like what distribution should entail and I think you know what are sort of the functionalities the governance participation other things that we want to see and so I'm generally excited that we get to really continue experimenting and and and sort of finding the right strategies to do that um but yeah I think it's it's definitely an interesting conversation yeah yeah surely I mean maybe one thing that I also was interested in yeah we talked a lot about the liquid staking to or like sort of

that market structure but I I guess on the other hand we have the sort of more centralized players also participating I think yeah like like we mentioned in the beginning right like the ETF also probably custody with um you know like uh Renown custodians and uh real businesses um how has that actually developed or is that like how is the market share of those changing have you followed that and um maybe do you have like sort of your take on on why which directions these are moving is it going to be like more more staking through like coinbase and institutions like that in the future or do you see like yeah

what what's your take on on how that will play out I think that was like the big concert I guess initially how lier was created is kind of like counter the trend of having the staking in inside the centralized places now then ligher sort of becomes almost a problem itself I guess it's like sort of the Natural Evolution but um how do you yeah how do you think about that or how have have you observed that well I think that's like exact right like if you think back to like 2021 I think like four players or even three players made up like 60 or 70% of all the staking Market centralization was pretty high and of course there was sort of an impetus to like you know bring more participants in and I think more Innovations like you

know Lio and others taking protocols ended up sort of breaking that up reconfiguring it and now I think in themselves ended up becoming a little bit of a problem um as a result of it I do think all of these things are healthy for what it's worth like you kind of as Technologies evolve and mature it's it's good to see these types of shifts in the market it keeps everyone competitive and inovative and I think that's important I think as you said in the beginning we we kind of are operating on this adoption curve where the most crypto native early adopters are going to and are moving away from traditional staking they're

moving into liquid staking and from liquid staking into liquid reaking and they're going to really be on the I think Forefront on the edge of all the Innovation that is taking place and then as you like move along the adoption curve I think it follows a trend that sort of continuously more conscious more risk averse more security aware um until you sort of end up with the institutional Market where I think conversations about restating are incredibly early you know I I don't I don't really see people like materially moving to approve or or being able to integrate these in products at this point in time but I think um sophisticated operators you know

continue playing a significant role in the market because at the end of the day they're the lowest common denominator that guarantees a really robust you know security architecture and and and and design and so the way that we for example have thought about this is we think multi-operator diversification is critical ethereum punishes correlation so ideally you don't want to have a single operator underlying your infrastructure and so by partnering with some of the most sophisticated operators in the market like figment or coinbase or stake that have been running and building for a while we can sort of create that risk optimized allocation or design that can be distributed through a single API

right so it's really incredibly userfriendly to support that kind of deployment I think that consideration at this multi-operator design continues to be more and more important when you think about some of the more recent conversations that are happening I think you know just a week ago vitalic put out a post that proposes increasing correlated penalties today those only applied to slashing but I think there's a material discourse emerging now to potentially extend these correlated penalties to other things including liveliness failures so that's a little bit of how we think about the market and leveraging great operators on the back end of of

our products um and continuing to ensure that we sort of raise the bar on what it means to provide really great security and correlation protection yeah that that's a really interesting point there I think because a lot of people also mostly look at the entities or like like some kind of the wrong layer almost in in terms of like when they think about centralization like for example often you would see Lio okay 30% but in many ways Lio is actually like 40 operators and like pretty decentralized and like kind of very transparent um structure like also Force maybe through like sort of the the market but yeah I guess the same as goes for for big

entities like coinbase or or even or you guys of course where often they might have operators underlying them that are actually not just coinbase cloud in in when they get big right uh although in in some cases that is like a little bit less transparent of course than because it's like these decisions are more or like the the distribution is like more private given the nature of the Enterprise but yeah I think that's a really interesting topic to really see you know what underly this and there's also a lot of fluff about it or talk like many people like say hey we have decentralization or we help decentralization but then you look under the hood and then at some point maybe you find okay it's actually like this

the guy in the basement like one employee running everything or something so I think also building up that like sort of capability to have multiple operators and just that just takes time I feel like that's also like a struggle for the new projects coming along that have probably more focused on their initial like goto market and have like sort of not built out that side as strongly as maybe like someone like you or Lido or even the centralized exchanges have so yeah kind of interesting to see see that how that impacts the the the ethereum like underlying like s of taking infrastructure at large and like these proposals are probably yeah I I

wonder you know like we we haven't seen much I guess in slashing right we haven't like seen that many slashings but maybe with May correlated penalties on the rewards maybe that would be a bigger thing because I guess that's something that happens much more often and then we could actually see changes emerging from like sort of direct impact on the rewards um yeah super super interesting yeah I I agree and I think there's almost sort of this underly consideration which is not only does it encourage more operators to be more broadly distributed like different servers different locations different physical machines but there's also like another

thing that becomes quite interesting in this conversation which is you know can we Implement mechanisms that are maybe more effective at creating distribution and decentralization in certain parts of the technology stack I think execution client distribution has been like a really much discussed topic and the market and I think maybe as we see potential liveliness failures in execution layer clients like this is actually maybe an interesting way to to think about how you know that could be extended or a forcing function um for client distribution more generally right right right we kind of like didn't even look at that that that's a big part that was like a huge

discussion it's already like feels like ages ago but it was just really like three weeks ago yeah so I guess overall yeah lots of moving Parts super interesting it remains interesting so yeah um I think I mean I sort of covered everything I want to talk about so thank you so much for coming on if you yeah I don't know if you have any last things you want to share about the liquid Collective or about you or um or to our listeners please feel free to do so but yeah thanks so much for coming on in your time thank you so much Felix yeah for sure I mean if folks have any question questions uh feel free to check out our website liquid collective. or head over to our Twitter

liquid down- call um and give us a shout so thank you guys