DeFi By Design EP#126: Restaking and Liquid Staking in the Cosmos Ecosystem Unpacked

Transcript

welcome back to the rollup High Roller Community as always nothing on the rollup is to be construed as Financial advice we are just an Educators in the defi space toss us a quick like give us a share a repost send it to a friend who may want to watch this and finally give us a sub or a follow it means the world to help support credibly neutral educational content in def5 we're here to educate Empower and enrich you and let's jump in welcome to D5 by Design we talk all things blockchain and cryptocurrency while striving to educate Empower and enrich what's going on guys welcome back to the D5 by Design podcast here today with BR Al as well as

mckel and T shaer the team behind persistance and Dex Zone bringing Osmos to the Forefront here today I'm the roll up excited to talk more learn about liquid sticking it's been a Hot Topic see we had a space with mckel and tar as well we were talking about airdrops I'm sure we'll touch on that but like dive into some of the technical stuff the IBC stuff and really try to bring our community on board so GM Rob and um welcome to Cosmos brother GM brother it feels good to be here um to sh uh maybe we'll we'll kind of like start by like giving an overview of

like kind of your perspective on on Cosmos and you know why it has taken the Forefront of modularity um and we can get into uh kind of the architectural design choices um and why you chose to build a liquid staking protocol yeah um so I think you know before talking about Cosmos I think uh you know it warrants a discussion on um I guess my introduction and background as well and I think that'll help answer the question about about uh you know why we chose to build uh in Cosmos uh so I think similar to you guys I got into the industry during the 2017 mainia uh I am

and was based in Singapore at the time and Singapore was a great place to be um as far as crypto was cons concerned in 2017 know there were some big projects kyber Network icon Sil Republic protocol um those were some really you know really large uh projects uh back in the day um I had the chance to be uh part of the Journey of some of those projects uh as an investor did well enough uh on my portfolio to leave my management consulting uh day job I was Consulting for the private banking industry uh to get into crypto full-time started a podcast called decrypt Asia the thought process was in 2017 there were two seats

of power in crypto um so he Asia was a seat of power especially China and Korea um and then you had Silicon Valley as a big seat of power um and Asian crypto and Western crypto looked very different um but they both had kind of self- sustaining ecosystems so there were you know fund managers market makers exchanges uh secure cyber security service providers um and the like um you know both in Asia as well as you know in the west and my thought process was to bridge you know Asian and Western crypto um high level you know fast forward to 2024 I think the seat of power is you

know purely in Silicon Valley today uh if you you know look at some of the biggest projects that are coming out this year whether that's you know ion Lair Celestia monad um Babylon you know they all are being driven out from Silicon Valley of course we're building from Asia with our teams uh you know being based across Singapore and the buai primarily um so high level speaking you know um after the uh podcast I got an opportunity to be the first employee at the crypto arm of a traditional Venture Capital fund uh in Singapore called Golden Gate Ventures um in 2018 built out the fund in terms of working

with you know cyber security service providers one three authority of Singapore lawyers tax advisors to set up this dedicated f you know raise capital from a publicly listed company in Japan uh multiple family offices in Southeast Asia and and Western Europe um and also the BC arm of a sovereign wealth fund deployed that capital Did fairly well U got in uh to a sub1 entry into e sub $5,000 entry into Bitcoin sub $10 into BNB and a whole bunch of uh um you know Investments that that did quite well and we had a long-term view so we let a lot of those Investments ride uh for a very long time but I wanted to be on the Builder side

uh as opposed to purely being a capital allocator um and so in late 2019 uh what we wanted to do was bring real world assets on chain especially debt products um and to be even more precise trade financing products um high level through 2020 we realized that it's very difficult to bring real world assets on change people still talk about it and it's good from a narrative perspective but I think it's really difficult to bring real world assets on chain you know you want to borrow against a real world assets that is on chain how do you implement the liquidation of a loan for example it's very difficult to implement those things on chain and connect that to the real world um so because we were trying to

bring real world assets on chain is why we chose you know Cosmos and because of cosmos's app chain philos phos ophy where what you can do is you can customize things at the chain level to suit your needs um you can choose the number of validators that you would like to have at that point what we were also you know because what we were trying to do was Pitch our product to traditional financial institutions um they don't want an anonymous or a sidony validator validating transactions and potentially getting uh to know about the transactions that they're doing so in situations like that what

Cosmos allows you to do is figure out how many validators do you want and do you want to know their identity so you know KY seeing validators and I do think that on a long enough time Horizon that is going to happen um you know and you know with the ETFs and things like that you know getting approved um and with the proof of stake market cap increasing you know exponentially over the last four or five years um I do think that it wouldn't be outside the realm of possibility to have large entities like you know Black Rock Running validator nodes at some point um you know uh so um that was kind of our thought process with Cosmos uh basically

the ability to uh customize things uh of course we didn't go down the real world asset pop for a very long time but in Q4 2020 uh we did a stake drop campaign which uh I believe was one of the first stake drops to happen uh in cosos we created a very nice mechanism um to do that stake drop where stakers of atom Cava and Luna which were the three biggest Cosmos coins at that point would receive a very targeted airdrop uh of the xprt coin or the persistence coin um and within a 3 month we had done this just as a way to distribute the token it had not been done before in Cosmos um we were doing it as a marketing thing uh

but within 3 months within one quarter of Q4 2020 we had at in 2020 prices more than a billion dollars worth of stake assets that were participating in the stake drop so that kind of gave us an insight into the huge amount of demand that there is from the end users to drive additional returns from assets that are already staked and I know Andy talks about that quite a bit but that's basically what we see with TR today as well um and so that was kind of our high level you know um thesis but also Serendipity along the way um you know which kind of drove us deeper and deeper into Cosmos uh also I would like to point out that in 2019 when we started to build uh there were only two proof of state blockchains that

were on mean net and that was tesos and Cosmos uh so it was basically an evaluation of the technical due diligence done by a tech team in terms of choosing between tesos and Cosmos we bet on Cosmos um and of course it's been a frustrating bet at times uh especially through 2021 where you know there were a lot of other projects and chains you know Solana Avalanche uh Tera that did phenomenally well um but I think Cosmos has you know a tendency to kind of you know gradually improve across all the metrics that matter um and that aligns very well with art philosophy of how we want to

build and how we build at the system so that's kind of you know our journey within you know Cosmos why we chose to build in it um you know and uh and you know kind of covering you know I guess some of the you know things that we've done for sure um so a lot to unpacked there but I just want to just dive right into the kind of infrastructure of Cosmos it's kind of interesting how Cosmos took this this app chain route scaled kind of horizont um and now is trying to like bring them all together and then for our our listeners obviously they're aware of like ethereum scaling vertically with

all these different rollups and now trying to figure now going like more like these different apic chain routes like the and so these two designs started off in different ways but are now kind of trying to converge and solve the opposite problem or the opposite situation that the chain is in or that that that that that the state of the network is in I'm curious with regards to the network effects of Cosmos um kind of how how how you see um the evolution of all these different app chains on Cosmos and the the further growth of more kind of what you see kind of bringing them together um and just generally with the kind

know broader um I andc connectivity how the network affects Cosmos and these app chains are are playing out what you see happening kind of what what is the vision to to bring these together to make things more interoperable to make this ecosyst have a uh easier ux and kind of a better experience overall yeah maybe I can jump in unless the sh you have okay yeah so I think it's an interesting question I I've been talking about this idea of Cosmos and ethereum converging to the same point for the last like couple of years I could literally see that happening and you know it's it's very beautiful to see

it actually play out like that because I think Cosmos was very ahead of its time right you see some of the things that have been done like the thought process behind doing IBC like there were no bridges that were getting hacked in 2019 2020 but the cosmos white paper talked about IBC back in like 2017 2018 right so that's very unique to see uh the reason for that was trustless bridging and trustless interaction between chains now what was also very unique and and it's very easy to forget this part is the fact that there were people who could see that there would be multiple blockchains who would talk to each other uh because if you look at ethereum world back in the day like you know everybody cared about just one chain and and they

thought there will be one chain and there will be thousands of applications on that one chain only so uh Cosmos has has been ahead of its time uh the problem with Cosmos like you rightly highlighted is the fact that there's no network effects that have played out you know for it yet right so with ethereum while the stack may not be the best there's always opportunities for you to like correct the stack as long as there's users but obviously the users are not going to stick around forever either you have a window of of opportunity until which you have to fix your otherwise it's not going to work I I think obviously theum will fix it it should and it's not like it's in a very bad place with things like Celestia now offering you know data availability and and consensus you just have to worry

about you know execution I think it already solves a lot of problems and one would say Celestia is a cosmos based chain it's solving a problem for rollups in the ethereum it's it's quite interesting to see that as well but from my perspective I think uh Cosmos has struggled a lot because there's multiple chains and each chain is figuring out how to build an ecosystem for themselves right like for us persistence is is a chain that is looking to build an ecosystem system for liquid taking to but on the persistence chain similarly you have osmosis looking osmosis started out as just a DEX it had a few applications launch on its chain after that but now they're vertically inte integrating and building all the applications themselves and and that's

the beauty of like Cosmos the cosmos SDK because it really allows you to build control the entire stack from I don't know if you guys saw this but there was a recent announcement from the skip protocol team about Slinky which allows you know like like on chain you have oracles built into the the the chain itself you don't have to rely on you know external Oracle providers which is crazy like you couldn't imagine something like this in any other on any other chain at least for now or I cannot there may be some technical people who could quote me on that but based on the knowledge I have it's almost like next to impossible to build something like that on on either chain for now so Cosmos really allows you that that that customizability and

the problem with Cosmos like I said is every chain trying to build their own ecosystem and then you know there's no one economy that is being built out with ethereum every rollup that does well kind of adds value to the ethereum E ecosystem the E the asset as well which is not the case in CPUs although I think now we have this huge narrative about chain abstraction you know uh chain aggregation which is exactly what I think Cosmos uh is has been moving towards which is you can utilize you know you can talk to another blockchain from your blockchain without the user having to interact with the other blockchain a very simple example of this would be interchain accounts on on the cosmos uh in the cosmos SDK IBC version 3 the released interchain accounts which

is essentially you can control an account on another chain from an account on on this one chain so from the persistence chain if you have an interchain account that can control an account in the cosmos Hub you can like you know for for the end user it doesn't matter anymore right where they interact or who they interact with so these things I think will really make a difference and and we'll see a lot of super apps in the future where like one chain will just have all the applications or if they do not have all the applications they will rely on applications on another chain but the end user only cares about interacting with this application on this one chain so I think chain abstraction has been in the works for a very long time now within Cosmos it's just not you know I

think Cosmos people are just not good at creating these fancy terms and uh and you know marketing names for things that and to jump in I think Al you know Mikel talks about you know that you know the long-term um you know his long-term thesis of kind of ethereum and Cosmos converging um and also the you know super app concept um that's something I've been super bullish on as well right and now you know you see of course you know every cycle you have all sorts of players come in right like it's you know probably your third bull market you know you know third bull market you know for me as well and I've kind of stuck through um you know the ups and downs in

the industry my general thought process is that uh of course even today a lot of things are happening at the infrastructure level you know but ultimately uh you know things have to happen at the application Level and that's where things get very interesting right where you have a lot of you know B Toc Founders Founders who are consumer and user oriented jump in um you know and kind of bring you know uh a whole set of new folks you know into the industry um and high level speaking I think what will also happen you know Mel talks about chain abstraction um I think

going One Step Above uh you know people could you know abstract away complexities you know for the user um what they will also be forced to do is comply with local regulations so you'll have nice looking interfaces um that have dedicated Pages for certain geographies that matter um and certain geographies that are forward-looking you know such as Dubai such or UAE such as you know Singapore of course us will have its own framework you know other you know other geography will come up with their Frameworks but you know you have these satellite cities that are forward-looking

um where you would have dedicated applications uh or dedicated defi applications in compliance with local rules and regulations and things like that of course you know that may not happen you know this year or next year so we're kind of talking you know two three years away uh but I do think that what's going to happen this year or within this cycle um is um you know know people not caring about which chain they're on just having a really smooth uh interface and being able to you know do away with all of the complexities of you know operating on multiple chains and things like that otherwise it's a mess right like other the alternative is that like liquidity fragments the alternative is

that users fragment um there's a lot of cannibalization and uh and and you know it just dies a slow down dep so I think that's kind of what it looks like so there will be these kind of super apps of sorts that attract a lot of people of course in the background they rely on these base layer protocols that have built robust infrastructure so that's kind of what we believe the future looks like and of course something that we want to work towards yeah exactly that's the cool part everybody gets to build towards it yeah a bunch of good points there I think um on the on the uh virgin thesis is quite interesting to understand uh from the perspective of

kind of deep OG builders in IBC um not it's not something that we hear all the time you know but there's a there's a whole another conversation going on right now with regards to um and this like modularity thing infra and you bring up a good point with kind of uh daps and I don't want to beat this one too hard but it seems like each of the cycles we've had some like the L1 INF forets um and and it's it almost feels like it's time for some of these like consumer facing apps but it's just so hard to actually build an app that is like consumer friendly with the state infro right now um I'm purus what your

personal um vision is for persistence as well as generally Cosmos when it comes to things like um you know account abstraction is what we call in ethereum land you know different types of like like email signning and um just onboarding friction and the reduction of that I'm just here's how you see persistence tackling this as well as broader Cosmos ecosystem um yeah actually at some level I think we did have a little bit of that uh in the last cycle it's just that everything blew up so you know you did have borrowing lending platforms like Celsius like involed um you know you did

have um you know a whole bunch of other centralized players that uh actually you know did abstract away the complexities of dealing with multiple blockchains um it's just that they you know didn't do a very good job of managing their risk um you know including you know uh having like an email sign on and and and things like that so uh um I think we you know and and this is a DM that's been used in the past you know cd5 um and I I do think that um you know I don't know who will do that or or build um you know in a in a

nice way um and of course we want to do that as well so you know we have you know things in the pipeline and and things in the works to actually make that happen and and make it happen in a way where we're not try to maximize usage of any particular chain including persistence right so it just becomes like an end user facing application which just sources the best yields uh you know for the end users based on their risk appetites uh of course that comes up you know with a lot of complexity and and and things like that right including on the regulatory side so I think it's it's obviously um you know that battle is a ux battle and a regulatory battle

uh it it no longer remains a technology battle um whereas right now a lot of the things are technology battles right so you know I I do think that at some level that is the answer um and those applications in the 2021 cycle were the ones that had you know massive usage and adoption and things like that um but we've seen the industry mature and and we're seeing you know better and better actors come into the industry we're seeing the you know in 2020 if you wanted to build a team you actually had to like you know like ask your friends to like send in referrals or like tap

into your personal networks to build a team today you actually have recruiters you know to build teams you actually have uh a whole bunch of Suits enter the industry um which is again I think healthy for the for the industry as a whole um but again I you know again I'm not sure if it answers your question but from our for sure yeah uh what we want to do is definitely abstract away the complexities and but our focus is the cosmos ecosystem because that's what we know right um and so I don't think we're going to say that you know look we're going to abstract away complexities you know across the industry as a whole but what we can do is abstract away

complexities across Cosmos and we like okay you know if you want yields across Cosmos um you know uh app. persistence do1 is the place to come uh to obviously that's not live yet uh but that is something that is in the works um where you know app. persistence do1 uh we envision that as uh being sort of a One-Stop shop to um you know to stake to liquid stake to LP to put collateral and borrow to lend uh you know to uh you know to put collateral mid stable coins

and basically do a whole bunch of things um that uh you know you know that takes place within def you know high level we're very P passionate about Finance we're very passionate about fixed income within finance and hence we work on liquid staking we're very passionate about defi as a whole whole and I think I mentioned it in the space yesterday as well uh you know for personally it's a privilege to like build out an asset class right like I'm not sure how many people can say that um that you know they were involved at the ground levels of the building out of an asset class so I think that is is quite interesting as well yeah you you know I I find it I

find it ironic how like see D5 broke and like the C part of cd5 was the reason that it broke like there was plenty of like like broken assets that were involved in defi right like us and the whole te taluna thing like that there was a lot of defi applications that also had that but it didn't break defi it broke C defi because it was inherently centralized and now and you mentioned like liquid staking is what you guys are really passionate about it's what you guys are building out um like there's a relatively significant like centralization risk of liquid staking happening over on ethereum it's called Lio and like there's some real risk there so I

I'd really love to understand like kind of what your perspective is on Lio and the centralization risk it poses to ethereum and then like what your perspective is contributing to the liquid staking space on on Cosmos is there like like how how have you been able to navigate that that centralization decentralization back balance to make sure that you don't face the same risks that Lio and ethereum are facing now I think I I would just say it's an interesting question because it's also very controversial when a lot of people feel like oh this is not something we have to worry about a lot of people feel it's something to be worried about I have a very like I find some sort of a middle ground between both those views

but I believe sure there's risks for sure 100% I I think the reality of the situation is a slightly different though because while Lio as a protocol May own a lot of these like may you know be a very large contributor to block blocks that are proposed on the ethereum Chain I I think there's a bunch of variators underneath and and those variators have some social standing and it's not just limited to the ethereum ecosystem if you look at validators back in 2019 2020 it was all within like two EOS systems Cosmos and tasos that's it that that that's where valat existed today the same valat exist on every single ecosystem that you see

whether it's salana Cosmos ethereum you know you go to any other ecosystem it's the same vators everywhere now if there is truly an event where you know these variators cute to do something malicious I think it just doesn't just affect ethereum as as a chain it affects the entire industry because where are people going to stake the their tokens on any of these chains right so I think it's fairly like I would be fairly comfortable saying it's not going to really blow up but if I I think the only way we see decentralization of stake is when it blows up uh Until then people are going to be okay with with things right but the moment it blows up that's

when we realize okay now is the time to actually use different products that's what we did with USD there were so many people shouting you know at the top of their lungs and like yeah it's it's a Ponzi it's a Ponzi nobody cares about it until USD blew up and then nobody's touching algorithmic stable coins anymore and and you're probably not seeing them so liquid staking generally has risks and and I think people have talked about it for the last two three years now so I don't need to go into those but the fact that one liquid staking provider controls a lot of stake on on a chain is definitely a big risk but we have to be realistic about the the probability of something malicious happening which I don't believe is is that high in this moment yeah but is different right because the COS was SDK and tender would

love to kind of understand that um and at a deeper level kind of how how um how the tender validator Network translates into liquid staking on persistence and yeah how you guys are able to keep that all kind of tight and neat yeah so from our perspective obviously like maybe taking a step back as well the biggest difference between ethereum and and Cosmos is the fact that people in Cosmos they learned about staking before they learned about liquid staking long before they learned about liquid staking uh we actually were the first ones to introduce people to liquid sticking in Cosmos back in 2021 with SDK atom as the first liquid sticking

solution in Cosmos but in ethereum most people have only learned about liquid saking they probably till date have no idea about Native saking right uh and that's a design Choice that's that's caused by a design choice that that some researchers made right which was we don't have delegated proof of stake we'll have like every single Bator you know every single person who wants to stake run a Val a node with 32 e that's just that is what created this situation to begin with that's my personal View and I think now there are efforts to move in in another Direction on on ethereum within Cosmos the most important thing is uh people are still like mostly fa favoring towards natively

staking their assets over liquid sticking and there are various reasons for that right uh one is the airdrop season that we are seeing in Cosmos where Native stickers just get a lot of these air drops but there are certain very interesting mechanisms built into into the cosmos SDK that would prevent a situation like like what we see on Lio for example so uh or on ethereum precisely one such example is the liquidity stake stti module so liquidity staking module so called the LSM which is built by inclusion Z team uh and and we played a big part in taking that live as well so we supported the testing and and you know putting that in fact that module went live on the persistence

chain before it went live on the cosmos Hub so what what that module allows you to do as as a Staker is if Andy you have some atoms that you've staged with a valuator today if you want to liquid stake those assets you'll have to before the existence of this liquidity staking module you would have to unstake your atom speed for 21 days and then stake it with another you know validator or liid stake it uh now after the LSM came out Rob if for example you were already staking your atoms you don't have to unstake them to move it to another variator note like you can immediately do it uh by just you know like tokenizing your share your with every delegation you make you get a tokenized share now and you can just transfer that tokenized share into another wallet or

you could just you know blck it on another valat use a liquid staking protocol that accepts these shares now with a situation where there is maybe a situation where you feel like okay one liquid staking provider is too big now all of a sudden within hours and days you could have people just convert their you know Stak assets or swap them out or natively staged assets they could be converted into LSM shares of of any other protocol right so there are methods to how you could mitigate risks and then the most important thing I think for us is making sure we delegate to like as a liquid saking provider the job for us is not to gatekeep validator delegations I think that's where like Glo decided to create their own set for

example and it worked out for them uh for various reasons mostly the network effect reasons and and the fact that they were early to the game but as as a liquid saking provider your job is a very big way to ensure you don't create unnecessary risks for the host chain or the chain that you're building liquid sing for and at the same time you're doing right by like you know you're not gatekeeping delegations you're not saying oh you're a bad variator you're a good variator no you're the best variator what you do is you stick to facts so that's what we do at at at persistence uh with the Pake module that we've built the job for us is to make sure we look at all the onchain parameters that exist if there are like parameters like okay what's the time of a validator was this valuator ever

slashed in the last six months uh has this valat how much commission does it have this variator has like can this variator change its commission from 10% to 100% in a day we look at all those things and it's all transparent onchain and that based on those parameters there are various scores that are generated for each valuator and you know top X validators right now on the on osmosis for example we select about 70 75 vators dydx we're launching liquid taking for next week and that will have about I think 30 vators that will be selected so this parameter transparency based model allows you to keep rotating delegations also we have this automated rebalancing model model where on a daily basis these scores are again calculated and if a

variator is not performing the to the best these delegations move from one valuator to another so it's always about selecting honest valuators at every given point in ethereum you can't do that like you know stake doesn't change hand you have new delegations that come in and new validators that are on boarded that receive these delegations but not rebalance delegations right rebalancing you could also call that rebalancing ethereum but that takes a much longer time than than what you see in Cosmos so yeah Cosmos has some interesting you know functionality especially because of the deboss nature of of the chain now by the time this this goes a lot State Dux will be online so with that understanding I'd love to

like understand a little bit more and I I I love your answer because like Lio has all of its stake and it's all in ethereum where you guys are more like an aggreg for like a bunch of different chains that are on Cosmos so it's less likely that you develop a centralization like a a stake that is so significant that it poses a centralization risk because your stake in P stake is made up of several Chains It's not all committing to one chain so that being said like you also mentioned that it's almost like this like validator aggregator Network where Pake has like its it's conglomeration of deposits that go into it and then kind

of like make the decision about what validators it is then going to delegate its stake too so I'm curious like when you're when you're looking at a new application or a new a new app chain in the cosmos sense like dydx right what are the decisions that go into integrating stake dydx like how do you analyze their validator set and then ultimately like choose okay we're going to integrate dydx and we're going to integrate these specific validators of dydx yeah yeah that's a that's a very good question actually so uh maybe to answer this specific question about dydx right let's say dydx is is probably one

of the most exciting applications you see in Cosmos today it it is one of the only applications I would say that has real traction and AD option obviously there's there's other Platforms in Cosmos like osis that have done that has done really well you have lot of upand cominging chains you know you have Neutron persistence has been around for a while uh you have some you know good chains now you have Celestia that has recently launched I'm sure there'll be like so many more app chains that come about for us the decision when it comes to first of all selecting which chain to support or Bild liquids taking for uh you know tashar talks about this very well I may not do justice to it uh to this but it talks about you know building this portfolio of sorts where you have

like similar to how you if you're you're an investor how you build a portfolio where you choose which token you want in your in your portfolio right uh based on certain things that you you want to bet on that coin you you want to know that T I don't know if you want to jump in but it's basically where you know you know like okay this stoker is going to do well this product is going to do well so you want to you know support that or B on that similarly with liquid staking Pake any token that it supports whatever Revenue Pake gener generates is denominated in that token and that's how P stes Revenue grows uh now when we select a chain like dyx it's so obvious that you want to bet on a chain that that has you know product Market fit to

begin with and the most important like thing that you look at like dydx is a very good example why because there's like 80 90 million uh tokens that have been staked out of a billion tokens so that's like less than 10% of all the token Supply being staged today which creates a very interesting you know dynamic why because what first of all a lot of people are still not stay now we have to understand why they may not have stake I think the most important one is the fact that dydx was an erc20 token that was migrated from the ethereum chain to to their own dyd exchain and a lot of people may not have done that yet but when they do it they won't know how to delegate because they have never been a part of a depost system all they've

learned is like oh I deposit into a liquid sticking protocol and that's it now that's something that excites us that makes a big difference if you look at dydx the chain you know there's like two validators the top actually the first three validators control 45% of the voting power of the chain which is crazy like you won't see that anywhere in in Cosmos I think at least at this stage uh but dydx is is still a very you know largely new chain so it makes sense but with P what we can actually do is distribute that Stak to a lot more variators and reduce the risk that are associated with these top three top four valuators so for us it's about selecting variators who may not be centralizing the network more but rather decentralizing it more and more and like

I said our job is not to select the right variators we just say which are probably the the variators who don't meet the criterias that you need to be a really worldclass variator and only those would be like not in the set DX has I think 60 variators out of that 30 are going to be selected by the time this video is out you know you'll see 30 variators getting delegations which is 50% of the network and that is going to be based on certain parameters like I mention why why don't you guys run your own validators like maybe maybe this is this answer lies in the fact like the difference between proof of stake and delegated proof of stake so it' be great to kind of like Get get like a comprehensive understanding of what the difference is and then yeah I'd love to

understand like why you guys don't run your own validators we do the answer is we do uh we have validators um under the monik or under the brand audit. one um but again I think what happens is that you know it's it's a at some level it's a conflict of interest as well right like we don't like what mikl said we don't want the underlying chain to be centralized um or centralized because of us um you know we can of course you know from a business perspective it would make a lot of sense or from a commercial perspective it would make a lot of sense you know we can say okay you know anyone that liquid Stakes via P stake why

should we delegate to any other validator but our own validator right we can of course say that you know that would obviously help us make more money but that's fundamentally net negative for the for the protocol that we're building liquid staking for and the community is going to be against us so at some point they're going to stop liquid staking with us um you know because the liquid staking business and the staking business to some extent is that odds with each other um so of course why do we run validator nodes uh it helps us understand newer networks so if we start validating as a validator um building capabilities on the technical side on the liquid staking

side becomes easier so it's a way for us to train our team um it's a way for us to understand networks it's a way for us to enter the community um of you know different networks so there are networks where we may not do liquid staking for but we definitely run validator nodes uh actually at the peak um of you know 2021 um we had about uh $600 million in total delegations on our validator um uh we just chose to not push on the uh you know I think 100 plus million out of that was on Terra uh but we just chose not to push you know too heavily

on the validator business but that's something that actually we're we are reconsidering so high level if you think about it uh you know we vertically integrated so we run validator nodes we have a pro stake chain we do liquid staking we build liquidity for liquid Stak assets so it's essentially vertical integration of staking plus liquid staking and that's I think one of the differences between us and other liquid staking providers right that uh we provide that full stack um again like I said ultimately for us you know uh like we're commercial you know people um you know we we want to run profitable businesses um and you know and from that

perspective uh you know for for us what we believe is that AIT one as a validator you know the chain itself be stake ET can all get to a point where you know they're doing like million to million 3 million in Revenue annually at which point they become self- sustaining right because you need small teams to run these businesses um and um and so that's kind of you know our highlevel uh you know thought process and uh and again I think it goes back to the initial thing that I mentioned about our overall thesis of loving fixed income of loving cash flows um of course over a period of time we'll figure out how to

you know do right by the and and those kinds of things and where those cash cash flows should go you know should that go to the protocol so that the protocol can make decisions about what to do with that cash flow should that be distributed back to the community and what is the best way to do that what is the most compliant way to do that and so those are things that we're kind of figuring out uh but we do run validat nodes and uh we used to do that a lot more seriously um right now uh I would say not that seriously but you know we still got to do it to understand it works any may have another perspective to add here but I'm still curious about like one one thing that you mentioned which is that like the staking industry and the liquid staking industry are at

odds with each other to me like and this is just me thinking through it in real time those would be like very friendly because if I have a lot of Stak I I want liquidity I'm gonna want to liquid stake that and then and then use all of my stake not like unlock all of the stake that I have in validators and and in a Define and use it so that it's liquid so why why are these two industries inherently at at odds with each other I think it depends on which ecosystem you look at right uh within ethereum it's actually I think liquid staking and validator businesses are actually they they go hand in hand if because as a

valuator there's not enough demand for Native staking uh but within Cosmos there's more demand for native staking today than liquid staking the moment liquid staking starts to do well validators start losing certain dedications because people who are liquid staking are actually stakers to begin with they are staking with the variator for years now and when like if if I had you know a million atoms I wish I had a million atoms but if I had a million atoms dedicated to to Andy's variator note and I decide to liquid stake it with B stake that 1 million atom is going to get delegated like 65 70 validators on on the cosmos Hub so I'm essentially cutting off Andy's you know cash flow to to a big by a big

margin right but as more and more people start sticking who are not sticking as more and more people start liquid sticking who are in saking and he starts seeing the benefit of liquid saking now uh but until that happens and and in Cosmos we haven't reached that point yet so in reality like within Cosmos uh yeah those businesses are at odds with each other yeah so again it's you know also ecosystem specific I think people in Cosmos are a little bit more sensitive as well right so you know suddenly audit one becomes a big validator and you know we're a liquid staking provider um I think people will have problems with that um or potentially you may have you know problems with that so you know we

actively you know but but in ethereum it it may not be an issue so I I think it also depends on what you want or what you know what is your core business you know is your core business staking or is your core business liquid staking and if you want to uh push The Narrative of being decentralized or leading the underlying chain to be decentralized then you can't take the same stance as I want to be a validator and I want as much stake as possible to my validator node which actually leads to centralization so um of course there's some Middle Ground there um so yeah but you know wouldn't say it's completely at odds but you know to some extent and you know if you're a validator but not a

liquid sing service provider it's fine but when you're both that becomes you know somewhat of a small issue it's not a big issue yeah yeah th this this is fascinating because it it dates back all the way to to bitcoin and we're talking briefly about Bitcoin before we hit record and uh like M mining pools and Cloud mining were like a pretty big thing in Bitcoin and it was always like you had it was there was some some different trust uh principles that you had to factor in because you were essentially trusting this like Cloud Server that was like running its own mining pool and you were just kind of like putting your Bitcoin at stake in this in this mining pool um and you had

to trust them and then you also had to consider like the monopolization like the Monopoly risk right because if um if it's profitable and I can only and and and I only have let's say I only have a little bit of Bitcoin and I want to earn some mining rewards then I could contribute like my little bit of Bitcoin to this mining pool and then let's say the entire mining pool hits a block reward right it's more likely to hit that if it has a lot of if it has a lot of Bitcoin delegated to it then the block reward is split amongst all of the people who are contributing to this mining pool so it makes sense to like like for everyone to go contribute to this mining pool because like they have a better chance of earning more Bitcoin but as you guys are saying it's a very

slippery slope because it leads to uh monopolization and uh large pools of Bitcoin or generally stake concentrated into a very small uh area and that centralization risk poses like a a real threat uh to the decentralization of the network so the evolution of this of this concept has has you know taken many many twists and turns but I think we're still like very early when it comes to to uh liquid staking and uh considering the centralization risks of of uh pulling together funds yeah I mean and I guess you know since you brought up Bitcoin mining I think if you you know you

talked about Lio and you know how Lio has you know led to centralization within within ethereum I think people forget that like for the longest time and I actually haven't followed this now but you know there was a time where bit M and F2 pool and a couple of other people uh who all the way like by the way were all friends and like all lived near each other uh could just collude right I I mean you know it was like two mining firms um and they had joining over 50% of the Bitcoin Network exactly exactly so bitman and and have to pool combin at both per right so you but you know so

you you had two minors just contributing uh but but again I think you know and that's the thing right like once you have a network Baken out you know you know there's um you know there's consensus on chain there's social consensus as well and and I think you know there are certain things that do get implemented you know socially of course you can never trust that fully um you know as much as you would you know trust you know consensus on chain um the other you know conversation or debate is centralization versus decentralization right like is 50 validators decentralized enough 100 500,000 you know beyond the point it's just wasteful

it's like you know you're wasting resources you know you don't I don't like what the answer is on that spectrum is it two or 20 is it you know know 20 or 200 or is it 200 or 2,000 you know it's it's an open debate and we'll kind of you know figure out but that's what I also think is the beauty of crypto right you can run these experiments very quickly you know um see what the end result would be very rapidly of course sometimes to the detriment of the people you know starting those companies uh or you know starting those projects uh but high level I think the you know the debate between centralization versus decentralization the world always you know follows power laws right the whole

8020 you know value 80% of value goinging to 20% of the stakeholders so I think we see that in crypto as well across the board even with validators we're going to see that with liquid staing providers we're going to see that you know with miners we see that with centralized exchanges we see that you know uh you know play out everywhere we see that with fund managers we see that with f plus listeners or audiences uh and that's just the you know the rules of you know of the universe but of course um you know if we again on a philosophical level if we talk um you know you guys have this show uh you know if you were in the 70s ' 80s

you would have to you know convince some you know dude in a suit to let you have a radio show right but now you can be sitting in you know Puerto Rico and and Thailand for example and you know us you know sitting in Singapore Dubai you know doing this you know show which you know thousands of people or hundreds of people might you know tune into so is that marginally better than what the systems were before yes you know the experiments that we're running in crypto uh do they lead to marginally better results um and can the quote unquote real world learn from these lessons 100% right and and I think that's where the real world quote unquote should pay attention to some of these um social

experiments economic experiments uh sociological experiments um you know uh Concepts around Game Theory people should study these things from crypto because I I feel it's like a trillion trillion and a half dollar experiment which in the grander scheme of the world is very small um but you get very valuable lessons about how you know incentivization Works dis incentivization Works how a whole lot of other things right which is why again and you know choose to work in crypto because there's just so many aspects uh to think about and learn about it's very intellectually um you know stimulating and challenging yeah I I tend to agree with you um like my perspective on the on the

on the decentralization convo is like basically like it's more about distribution of stake where like as long as you don't have over like maybe one if it's 100 validators there's not there's not a whole you know much of advantage of having a thousand validators over 100 as long as like that stake isn't concentrated in one or two people like you just want to make sure that there's not like maybe over one% or two% stake in any one given party in that in that sphere um and yeah like I I I I do think that the uh the experiments that we're taking now are uh creating better systems and like modularity was

inevitable like if you look at if you look at TD Bank and you look at like all these all the banking Industries like they're all they're all inherently monolithic all of those things are concentrated into like one stack now there's opportunities to to blow those out and get involved at each part part of the stack so yeah I I I tend to agree that these experiments that we're doing on distributed systems as well as modular systems are incrementally better and will continue to get better with time yeah I agreed for sure so when stake TI I think we'll we'll wait for Celestia

to launch into chain accounts yeah we we talked about chain abstraction I don't want to do something that that's the exact opposite of that yeah that's good idea how can our community get involved as we kind of wrap up here where can we get some good yields on on chain and um you know what are some opportunities that our community can take advantage of yeah I think uh there's enough you know end up happening in the persistence ecosystem as of today we have a liquid staged atom we have liquid staged osmo we have liquid stake dydx going live uh and and by the time this episode is out

will be live uh we start off by building liquidity for these liquid stake tokens on Dexter so app. Dexter dozone uh is where you you can provide liquidity for these assets and and obviously there are incentives to towards these pools which are variable and keep moving uh so I can't point to a number at this stage Because by the time uh this goes out it might be something very different so yeah you could look into Dexter and and obviously SDK ATM SDK DX SDK osmo these assets will be available on other Cosmos based chains as well where you could use them as collateral like you know you could use a atom as collateral on Mars to to Loop your uh you know Loop play a looping strategy where you generate more

staking rewards than you would if you just held atam St St atom vanilla positions if you want to do something more exciting you could use SDK atom as collateral on on inter protocol to Mint IST uh there's there's a proposal ongoing for using SDK atom as collateral do us on kujira uh there you know STK atom is available as a collateral asset on II all these Integrations will will also be available for all the other SDK assets that go live uh on the persistence chain so yeah exciting times ahead lots of these Integrations happening I think Mel is building the case for app. persistence do1 as we speak already better

I will in I I will also get confused where to farm that yield um it it has to be uh I don't think there is any other way super app thank you guys for coming on and shedding some insights about Cosmos liquid staking validating Enderman SDK all this stuff is much appreciate you're appreciate your time thank you Andy thank you Andy thank deis take care