DAPPCON 2024: The Future of Liquid Staking on Gnosis Chain - Jordan Sutcliffe

Transcript

thanks for uh joining me today and congratulations on making it up the stairs that was the first challenge um so today I'm going to look at uh and discuss liquid staking on nosis I'll first touch upon what the landscape has looked like for the past couple of years uh and then specifically looking uh what you can do when we launch statewise V3 uh and it's going live imminently it's currently uh in the final stages of audits uh so hoping to go live uh early June um so first off what is stake wise so Stak wise um has been live on nosis since uh early 2022 um it was the first non-custodial liquid staking Solution on ethereum it launched in 21 and so we deployed it also on nois uh in 22 and the goal of

stake wise um as it currently stands on on nosis is to completely reduce the barriers to entry for anyone to to earn uh a yield or effectively stake their gno um so we have a large staking pool anyone can stake their assets into that pool there's no minimum staking um amount and so you know it reduces the economic barriers to staking will beit on nois that's not a massive um massive thing but it also reduces the technical barriers to to staking we have uh three commercial node operators uh crypto manufacturer ourselves stake wise Labs uh and phoa who then stake the capital on our users behalfs um but it's not just that it's also a liquid staking solution um I'm

sure everyone's familiar with liquid staking right now but there's a bit of a Nuance with with stake wise as it currently exists on nosis and that is uh the jeel token model which we have in place uh so effectively when you stake into the pool you receive SG that is the main liquid staking token um and that represents the the state principal and then all the rewards acre in RG both these tokens are effectively soft pegged oneto one with gno uh and obviously as a liquid staking protocol you can then uh this this has been super valuable before withdrawals were enabled on nosis to allow people to exit uh liquidity um obviously withdrawals are now enabled but it still allows people to go and access defi with their state capital so

um having these liquid staking tokens are still incredibly valuable um and so this solution has been Al now for two years and it was incredibly successful it was actually arguably too successful we had about 40% of the state gno delegated to State gu at one point which as we all know is can be problematic and so we actually decided alongside the nosis foundation to stop spinning up validators uh and so uh today uh we we haven't spun up a validator in my that I'm aware of for over a year now um we still have about 75,000 gno staked with us and thankfully that is no longer 40% it is around 33% it's still very close to um certainly uh the maximum we want

it to be at this point um but of that 75,000 only about half of it is staked and so actually one of the consequences of um you know not spinning up these validators is that the staking yield is currently about half of what it should be on stake wise uh and the trade-off there is that the users get the lsts now it's not a perfect fit right now we need to fix things and so this is where stake was V3 comes in so a quick introduction to to statewise V3 so where is uh the current version of statewise arguably V2 is a single staking pool with a permissioned node operator set the best way to think about statewise V3 is that we've completely white labeled all of our

smart contract infrastructure to allow any entity to offer their own staking as a service so we currently have our staking pool but when V3 goes live we'll allow anybody to uh set up their own staking pool in a fully permissionless fashion and this is the layer we call volts each staking pool is a volt and these volts these smart contracts essentially allow anyone to offer non-custodial trustless uh gno staking um and they also automate pretty much everything to do with uh gno staking other than actually running the validators themselves so these vaults can accept gno in any size they pull the capital they automatically register validators they automatically exit validators they handle the feed

distribution from the staking rewards to the node operators it's a very complete uh package solution it also has other features like tokenization um so you can launch your own LST if you really wanted to go down that route um it has Auto compounding uh you can make them public or private they're very flexible um tools and that that is exactly the the phrase we use actually internally is they're a toolkit um we and we have node operators on on the ethereum side who have been offering you know staking for years but when V3 went live they have moved completely over to running their staking operations within the vaults architecture because it just helps streamline their processes um and the best part about it actually is that we

don't charge for this part of the protocol the vaults architecture is completely free to use uh we see it as a public good and actually a good analogy is we see vaults almost as like the uh the nosis safe for staking which is very relevant here today um so that's that's vaults and what's important to to mention is that each vault is fully isolated they're unique smart contracts they're completely unique staking pools and under the hood uh we are very flexible on what the node configuration looks like and we can I'll go into that in a little bit further shortly um but we're still a liquid staking protocol when V3 goes live and we'll be launching a new LST called OSG over collateralized State gno a bit of a mouthful but it is

what it is but it's the same um liquid staking token which sits on top of the entire volts ecosystem um and what it means is that anybody who Stakes into a pool that's deployed on stake wise can make their stake liquid now there's going to be a subset of node operators that we have effectively permissioned as stake wise Dow um and whenever they are running in a vault they will allow users to Mint the token one to one uh 100% Capital efficiency there will be then another subset of of vaults which are the fully permissionless vaults where um we are implementing a a maximum minting cap of on on OSG at 90% so what does that mean in practice it means that

any node operator can come to statewise deploy a vault offer staking as a service to their their friends their clients whatever you want to call them um and those users will be able to access OSG if I stake let's say 10 g into one of these staking pools I will then be able to Mint nine OSG to make it liquid um we don't require any bonding or collateral from node operators and so in order to protect against malicious actors slashing Etc it is that 10% Capital buffer in the OSG overcollateralization that provides that protection um and the most important thing about this token is that we as statewise in partnership with Kaki and the other key uh like uh Partners in the

nosis uh uh network will be helping provide the liquidity and provide the integration for this token so in short stake wise V3 provides the toolkit for anyone to offer trustless non-custodial staking and we also have a readymade liquid staking ecosystem through OSG for their users to access it's a really powerful uh protocol um it's been live on on eth now for several months and yeah there's some really interesting use cases for this uh which I'll also come on to um so just quickly looking at what um the transition from statewise as it currently stands on nosis to V3 and it's actually very simple um it is purely an accounting transition a swap from the

existing tokens to the new token there is nothing going on under the herd in terms of all the validators will remain staked um in the current and they will essentially migrate over to the the the staking pool or vault um which will then be on statewise V3 so the current staking pool will become the first volt on statewise V3 again there's no actually unstaking and staking going on here it is purely uh an accounting transition and during the migration users will be able to swap their OSG and R um sorry SG and R gno uh for their true value I.E 1: one with gno into OSG and during that process the S andr tokens will be burned um and they will

ultimately be uh made redundant eventually when everyone has migrated it will be a manual migration process we can't just take take people's tokens and do it for them um but if users don't migrate straight away it's not the end of the world um your SG no if you hold SG no you'll continue earning staking rewards just like you are today um but if you want to either withdraw or access the B3 ecosystem then you'll need to go through this transition step but it yeah the the transition on ethereum went uh through very smoothly it shouldn't be a problem um so yeah Famous Last Words um so what does stake wise be actually bring to nosis now firstly withdrawals we are very conscious that nosis Network

enabled withdrawals several months ago now um and our users have had to put up with secondary Market liquidity for exiting this is not ideal and we are very appreciative of our community standing Byers whilst we um you know get the development done for enabling true withdrawals um and so just after after migrating users will have the chance to submit OSG uh for unstaking natively there will be obviously be a short Quee based on the um the withdrawal Quee from the network but fundamentally it's a fully it would now be a fully functioning uh staking solution including withdrawals there will also uh you know

the oneclick simple oneclick staking solution will remain in place um so as I mentioned the current stake Wise Pool will become Genesis Vault effectively one of the vaults and that will remain place um and it allows that simple oneclick staking from gno into OSG where users you know don't want to have to run their own infrastructure Etc so that is going to remain in place um but the next two slides are really where the V3 kind of comes alive and the next one is we're going to enable a whole new ecosystem of staking businesses we have uh on ethereum you know loads of different entities that have now launched staking Solutions through stake wise node operators are the obvious choice here but it is much

more than just node operators it can be wallets custodians exchanges Etc as mentioned on the on the slide that any entity that wants to offer staking as a service can now do it can now do it if you're a wallet for example so on on on eth we have a wallet that's launching their own LST they've partnered with a commercial operator you you still need to have a node operator um staking the capital on your behalf um but you know this wallet is able to launch their own staking pool uh connect their node operator and have the whole solution pretty much run automatically for their wallet and so it's going to enable wallets to offer true native pulled and or liquid staking to their users on on nosis chain and the same goes for custodians and exchanges these Solutions

tend to be a little bit more well they are more regulated um and this is where the private volt functionality really comes in handy so for example on on mainnet we have exchanges that are launching a private Vault where only their hot wallets are um are whitelisted are allowed to stake this makes sure they can um keep all the capital uh in the staking solution completely ring fenced it's only their users Capital that that that is staked um and and that still allows them to offer this this staking solution in like a reg regulatory compliant manner uh and on the custodian side we have custodians who are doing the similar thing but we also can go one step further and offer you know private pools on a per client

basis and so if you really need to cater towards very strict institutions who cannot be comingling assets then again you can still use a vault architecture um uh but just do it on a per client basis and even though there might be just one client stake in NE pool they can still access the LST if they want to um the other one on that list is defire projects we've got a protocol on um on ethereum who's launching a solution and it's going hoping to go live in next couple of weeks and it will have about 200 node operators from day one this is a really cool solution and the majority of those node operators are Solo stakers as well they're actually rocket B node operators that have created their own little staking Syndicate so to speak uh and they'll be

launching um a defi one one of these D5 protocols own LST in a few weeks time I mentioned this because it really shows how flexible the volts can be with the node configuration under the hood as I mentioned that one has hundreds of node operators we have other solutions that have SSV DVT SSV and obal the DVT Technologies work out of the box with stake wise we are then the smart contracts are completely flexible on the Node configuration under the hood and so it can lead to some really interesting um uh staking configurations and as I said open up a whole new ecosystem of businesses offering staking as a service on nosis the last use case um is I would

argue the best um um and this is liquid solo staking it's a narrative that really hasn't caught on yet on on ethereum um but I think nosis stands to be uh a really strong Network to Pioneer this uh this idea and it's quite simple you have solo stakers who make up a significant portion of the nosis network um but because they decide to um stake on their own nodes and not use a liquid staking solution they miss out on all the benefits of liquid staking that's not right like they are the gold standard for decentralization they should get all the benefits that you know that anyone uses anyone using a liquid Stak in solution gets and this is

what statewise V3 provides so what does it look like uh I'm a solo ster what I will do is I will create a private Vault um and connect my node to this private Vault so it's my pool it's my node and I will stake my gno onto my node just like I do currently I will deposit it into the Vault and behind the scenes I'll be running the statewise operator service and that will automatically register the validators uh I remain in full control of my state capital but because I have done it through a statewise vault I will then be able to Mint OSG it would be at 90% but what it does mean is that you know I could be leverage taking I can go

from uh e to OSG sorry from goo to Osgo on take that onto a borrow more G and leverage stake if I really wanted to go down that route or I could just use my state capital to borrow against to borrow Stables or what have you it really opens up this entire defi ecosystem for uh solo stakers and we have a package that's going live on dap node um imminently so again trying to reduce the barriers to entry uh but also on the the node operator side as well so that's essentially everything as I mentioned the audits are very very nearly complete we've already done audit we're just finalizing one more to make sure it is um absolutely airtight um but

yeah we are and in the process we're already lining up liquidity for OSG Integrations for OSG um like a spark the main uh protocols that are on uh notice at the moment we'll have this token onboarded in a fingers crossed a pretty timely manner um and so yeah we're going to have this pretty pretty cool ecosystem uh already built out and as I mentioned that liquid solo staking part whil we have a lot of business partners that want to be launching their own uh businesses through um through statewise V3 I think you know we are going to make a very concerted effort to push and encourage um obviously more solo Staker participation but also uh liquid solo staking as well couple of links there to stay up to date but yeah we should be

going live pretty damn soon um and yeah if you don't hear about it then we're not doing our job properly we should be shouting about it so yeah thank you very much thank you Jordan to very detailed presentation we have a time for the a couple of questions uh yeah please so there is a maximum of 90% that you can make liquid of um that that 90% 10% seems arbitrary to me so what is it based on and could it be customized in the future depending on the risk of the type of STI and then who would need to

customize it who would need to decide on it sure yeah so uh it's not arbitrary so the 10% originally comes from ethereum um and the slashing risks so the average slashing loss in ethereum right now is about 1.1 ether um obviously you can have correlated slashings Etc but they are rare slash have never happened in in scale uh and so that 10% Capital buffer is enough to protect against those slashing losses um when V3 originally went live on on ethereum it was just 90% LTV on every single volt we are going to tweak that though so there's there is some uh volts that have 100% just to kind of make the whole uh user experience for retail stake because you want to oneclick stake make it much more

efficient um but because we have done effectively the development work to make um some volts 100% and others 90% it does allow us in the future to be much more flexible in what um effectively what LTV different volts can have the problem is that it's very hard to um in a way that doesn't that we don't kyc users to keep a system that is fully permissionless whilst actually being able to um say okay this node is not malicious or this node is running XY Z clients maybe DVT technology their chances of slashing are reduced it's very it's actually impossible to do that technically right now and so we have the

framework in place that we can become much more um I would like to say inclusive to permissionless node operators um and allowing them to increase their ability to use and like borrow Osgo effectively but as it currently stands it's a technical limitation that's kind of stopping us from allowing us to do that basically yeah will there be some interest you have to pay if you Min or um no yes there will be and that's the one bit I forgot to mention so as I mentioned on the volt side that's we we don't charge a stake wise um it is purely the node operators or whoever um launches that solution that decides the staking fee and ultimately how it's split so for

example let's say you're a wallet you can say I want to charge my stakers 10% half of that goes to the wallet half of that goes to the node operators you can split the fee on that volts level however you please um but ultimately stake wise doesn't take any cut from that where we do charge is on the liquid staking layer only um and the way it works is we basic charge a five well on ethereum it's 5% on nosis it's TBD but it's probably going to be the same uh 5% of the staking rewards of the OSG token so it's basically like an interest rate um on how much G OSG a user has minted um depending on how you you stake in this platform like the the liquid token is actually a completely optional layer

um and so a node operator could offer staking as a service to users who don't want liquid staking but they can do it in vaults for free and run that uh completely uh without without charge and their stakers would just pay the fees that the node operator set it's only when they decide to Mint OSG um that they would then start paying those OSG fees and you know we on on ethereum I keep using ethereum as an example because it's been live for some time now we have about 100,000 ether staked overall but there's only about 35k ether worth of os e minted and so you know 60 odd percent of our uh our users are you know just natively staking

and they're happy to do that and this is a theme we've seen across defi like the most of the lsts in the space like are not used in the majority they are just a form of you know they're just a an accounting method in in in a user's wallet and so we made a deliberate um effort to make sure that users can abstract that layer away and not pay those fees unless they actually want to liquid stake thank you Jordan um we are going to okay uh we are going to next talk good thank you for the participation all right thank you guys okay