ETH Staking Panel | Coinbase, Lido, Rocket Pool

Transcript

hey hey bankless nation it is time for another bankless panel this one i am super excited about couldn't be more excited about this is the eath staking services panel david the fact that we can even do this is so massive after all the time we've been waiting for eath staking i came in december of 2020 and i just looked at the stats over six million east states 6.3 million we were just talking about this on the roll up david about like how at the very beginning when uh e2 went live and staking went live we were worried that we wouldn't get enough steak it took like half a million to launch the chain and there was some concern that we wouldn't

get enough here we are with 6.3 million and we've got an expert panel why don't you tell us about the panel david yeah we have uh the three staking as a service uh products companies teams projects out there we have uh coinbase we have elita lido finance and then we also have rocket pool and these are three different approaches to staking as a service or eath staking and so we are bringing in the people that are building out different projects approaching each staking differently to ask them about their product and ask them about like the trade-offs that each product has made and hopefully the the listeners and the viewers come away with a little bit more information as to the world of staking from the these taking as a service perspective and maybe seeking as

a service is the right product for them maybe they want to stake themselves but we are going to find out all the different um you know variables and nuances and trade-offs that go into the decision-making behind e-staking guys this is all about options optionality of course if you can stake at home like stake at home stake yourself but this is another option for you and as david said it's kind of the spectrum of like um custodied to to more decentralized and less custody we're covering it all today and these are really the experts in the field of course these are not all of the staking service providers out there but we picked these three because we feel like they they represent um different points on uh on the spectrum of

self-custody versus and more decentralized versus more custodial and a bit more centralized and kind of the full trade-off mix so strap in guys this is going to be a super exciting panel before we begin we want to thank the sponsors that made this bankless episode possible balancer is a powerful platform for flexible automated market makers typical amms just have two tokens inside of one liquidity pool which can lead to fractured liquidity across the many pairs in d5 with balancer you can access the full power of multiple tokens inside of one single amm which unlocks an entirely new playing field of possibility this makes balancer an awesome building block for so many

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business we've got coinbase we've got lido we've got rocket pool um ejazz is the product manager at coinbase we've got vasily he is the co-founder of lido and we've got darren who is the general manager of rocket pool we are going to get into staking services first everyone welcome how's it going going well thanks for having me great to be here yeah great to be here it is so cool to have you guys uh i think um it was such a bear to schedule this actually because all of us reside in different time zones in different corners of the of the world this is maybe one of the most difficult uh bankless panels that we've ever

scheduled so like the timing is inconvenient for just about everybody on this panel except maybe david he's smiling i'm in the middle here he's doing okay uh so i appreciate you guys great for me well i pr well it's good for australia too so it's good for darren but we appreciate you guys making time for this um it's uh we've never done a a kind of a staking episode that's dedicated to it so i think there's a lot to unpack for the bankless nation i guess maybe i'll just i'll just throw an overview out here both lido rocket pool and coinbase all three of them they're all staking as a service products each of them have sticky as a service products each approaches eat staking a little bit differently

and as with everything in this world and crypto there are trade-offs when it comes to eat staking of the various approaches we want to dive into some of those trade-offs and actually understand um the the points on the spectrum where you guys are coming at uh it from from a staking solution perspective so that we can give bankless listeners some information uh when they're deciding who to stick with um let's start with some high-level introductions from from each of you and your overall approaches i want to start with lido vasily with you how does lido approach eat staking the sealy so what things are you guys prioritizing

over other things what trade-offs have you made in your staking services designed vasily why don't you kick things off so lidar is a dow that builds liquid staking on different blockchains including and starting with ethereum we have headquarters on the room that's our like homeland heartland so um liquid state means that people stick with lidar and get a talk on the drone and that token can be traded or used as collateral or used in other ways it's liquid and transferable so we think that

for liquids taken uh there is a some kind of uh witness tech small situation like with stable coins or robocoins like wbtc or uh stablecoin there will be one one big provider of the thing and other smaller so what we think we're doing is the best possible solution for liquid staking that can win that is actually can be uh at uh uh at the same time a winning solution and also decentralized safe for ethereum and uh easy to use so that's what we built in here

that that requires uh i'm sorry one i mean that requires like a number of to make like to launch uh earlier we had to use a threshold signature for withdrawal that means that currently lido uh deposits are uh like under a risk of collusion for three signature cosinus and uh we we've got the permission as uh permissioned uh validator set uh not operator set for for lido uh to make it safe through the initial period of uh if when uh ethereum's taken when uh the protocol is developed yet yeah so and we definitely want to go

more into details on on lido specifically because i think it's got some of the most nuanced position on the various spectrum but vasily you emphasize liquid staking and importantly lido is the only product that has a staking derivative token yet out onto the market would you say the main focus or main priority of the lido ecosystem is really to produce that secondary staking token the tokenized deposits of eth would you guys say that that is your main priority or main focus um so we we want to make a liquid statement that is uh easy use stay safe and decentralized so that's that's uh that's our mission that's all yeah we we focus on liquid

staking yes cool all right guys let's go ahead and move on to uh rocket pool rocketpool so darren tell us a little bit about rocketpool how rocketpool works and the trade-offs that it has made in order to produce this taking as a service uh system so our approach aligns with the principles of ethereum so we are fully decentralized non-custodial and open source so essentially rocketpool aligns the interests of people who have ether but don't want to run a node we call them stakers and people who have 16 eth but have the technical capability to operate a node so we call them node operators so our smart contracts match a

node operator with 16 eth from stakers to make up the 32 eth needed for ethereum staking as a node operator they only need 16 eth which is great uh they earn commission on the matched eth which is even better um and they also get rpl rewards which rpo is our token um but they get that those rewards for providing rpl as collateral as a staker uh it'll be super simple so uh you essentially just swap eath for our liquid staking token which is our wreath and you can participate in all the d5 glory and then anytime you can swap it back for ethereum plus the rewards

and that's essentially how that that kind of works very good we'll get into all of this some more with rocketpool uh what want to throw it over to uh jazz with coinbase what is coinbase's approach to staking what have you guys really optimized for ejaz yeah so i think there's really two core principles we consider when we approach our our staking products and one of them is ease of use so a simple ux minimum barrier to adoption and i think the second one is security or safety and from there we do our best to optimize between the two for example how do we achieve minimum risk exposure without compromising the product

experience for a user um so if we take examples of previous staking products that we already have launched for example tasers and cosmos taking for our retail users the user experience is pretty intuitive so you deposit into your account and you can start earning apy periodically you don't have to worry about running the infrastructure or delegating or anything for eth2 as as you all know there are some very unique challenges that differentiates this from any typical uh staking product for example there's a minimum 32 week that you need to deposit typically if you're running this on your own um you need to manage hundreds potentially thousands of validators instead of just a few and there's a lock up for stakers until

phase 1.5 there's massive risk of slashing correlated slashing and not to forget like the centralization risks so we need to take all of this into account when designing these products and i'd say that the kind of core problem that we've looked to prioritize above others in our staking solution for eth2 is de-risking the staking implementation as much as we can and i think that means decentralizing different layers of the infrastack as much as we can and we can get into this later um if that works um but ether is one of our largest assets held in the custody so we need to make sure that user funds are safe there are a few trade-offs that this creates largely a lot of them happen under the

hood so it's not actually exposed to the user but one public example is we've launched a wait list and we've been gradually rolling people off of it as we scale up our service we we really want to make sure that our implementation can handle the volumes we're putting it through and that our quality of services is maintained jazz just a quick follow-up on this i i'm curious since coinbase has been staking with other proof-of-stake networks in the past what what would you say is are sort of the main distinctions between other proof-of-stake networks versus uh eth2 right now what what are some of the differences the contrast points yeah i i'd say it's uh it's the two points that i i i mentioned earlier

um let's take tasers for example right um the way that it generally works is it's simple enough to delegate uh taser's tokens to a baker which is like a stake right and you typically only need to operate one or two of these things to accommodate quite a large amount of principle um and the slashing risk is is much lower than eath right you can't get 100 slashing with tasers now when you compare this to eth2 you have a minimum deposit of 32 per validator so now if you want to scale this up massively you now have to run thousands of these things right and um it's a non-trivial task to kind of

maintain all of these validators to make sure that they're up kept at the same kind of quality and security bars that you have for like some of these other staking chains right um and i think just like in general like the principle is so much more higher the staking and slashing risk is so much more higher so uh there's a lot more if you follow the pun at stake uh with eth2 versus some of these other chains all right very cool so i i i think um i'm starting to hear some of the priorities you guys are making uh you know coinbase talking about user experience ease of use ux um lido talking about uh liquidity making sure there's liquid um rocketpool talking about decentralization making sure this is open permissionless um some of these

things are starting to come through let's turn to business model for for a second i want to stay with ejazz on this um because coinbase of course just went public um obviously uh you've got shareholders uh they're looking they're looking for profits this sort of thing um what is coinbase's business model when it comes to eath staking how is coinbase expecting to make money off this and give us some guidance on the fee structure that prospective stakers can expect yeah absolutely um so put quite simply for our retail consumers staking through our main app we take a percentage of the rewards that they earn from their principle that staked

currently that fee is set at 25 we follow a similar model with institutional clients but it varies depending on client and chain and through the path that they might stick with us but for retail customers it's 25 of rewards very good and quick pull here because i'm curious off top of my head um ejazz is is a coinbase staking available to everyone or is it kind of a select group right now it's not is it generally available so kind of weightless beta-ish yeah so yeah so for um our existing assets that we have right now um cosmos tasers and eth2 for our

retail consumers um cosmos and uh tasers are rolling out to the majority of the geographies that we support there are obviously some geographies that we can't always support jurisdictions within the u.s that we can't support but we're working very adamantly to be able to provide support to the users there for eth2 we've taken a more gradual approach so we're currently serving um users within the us off of our waitlist and we're very soon hoping to expand into international geographies as well so as we get into the world of uh things on chain with the world of lido and rocket pool we still have business models in the world of on-chain

economics but they're a little bit different and so i want to throw this question to uh vasily how does le what's lido's uh business model where does it capture value who who gets to earn rewards uh and and what is overall the the business model for it for for lido oh facility you are muted yeah so lida is uh pretty straightforward in that regard uh we've got um the people uh stake either with us they receive stake data tokens and they receive rewards and the lido takes 10 percent that 10 percent fee is getting cut into uh three direction basically one is

paying out the node operators because they do all the work uh here in validating the the network et cetera et cetera and they have to be paid uh and uh currently it's uh half of that ten percent fee so five percent goes to not operators and the rest goes to uh to light a treasury that can be used for different things for uh for example buying cover for stakers uh like we we do it at this point and uh the the um maybe the development uh the personal costs uh et cetera et cetera so uh it's uh spending is uh voted on by the uh ldl token holders

very cool wait so you said they were split off into three directions one direction goes to the node operator operators one goes into the community treasury what was the third um the um one goes to the treasury straight and one goes to the to buy the cover ah okay so there's like a little bit of a an insurance fund kind of like baked into the lido uh lido system yeah it's been discussed right now because it's been very expensive to buy cover lately and we might to uh switch to uh uh some kind of uh self cover like or something uh does but uh that's currently under discussion right now and vasily when you when you say node

operators validators is also another term for that one the same yes or no um so when talking about the vm uh we use node operators because validator is like one private key that is uh you know well validating the uh one one basically stream on signatures uh so ethereum has um uh what i don't know two to two hundred uh thousand quality datas right now uh but uh only maybe like a thousand not operators uh so to be completely clear here we use not operators as entities that manage while data's indeed validators right right so there are a handful of

node operators in the lido system i like i think 10 or 11 but there are thousands of potential validators because that's the number of the deposits the ether deposits into the lido contracts yeah we've got nine right now but we uh are playing an expansion okay cool all right let's turn the conversation to rocket pool and darren darren can you kind of give us the abroad like overarching what is the business model or the crypto economic structure of the rocket pool system where does the value transfer what's the fee structure tell us about these details so within rocket pool value is captured in two ways so we have ethereum fees from stakers which i'll kind of touch on in a minute

and then rpl rewards so rpl is our token and it has a kind of inflation rate of five percent and we use that to incentivize actors within the protocol to work in its best interest so to break that down to the specific actors so we've got stakers who received ethereum staking rewards from the beacon chain as you'd expect then we have node operators who are really the hero of our story they provide the hardware and skill to operate a node so they receive the majority of the value created by the protocol they receive they earn beacon chain rewards commission from stakers and then they get this share of the rpo

inflation as well before providing rpl collateral we also have two dowels we have an oracle dao which is a kind of a broad group of high profile ethereum stakeholders from kind of three target areas so community ecosystem and industry they play a supporting role so essentially they oracle information from the beacon chain into our smart contracts and for that they get a share of the kind of rpl inflation the protocol dell which is the other dell uh is basically to fund open source development of rocketpool going forward so it gets a small kind of share of the rocketport inflation to kind of drive that forward

um in actual fact we've actually got a really great explainer series uh on our medium about everything about how rocketpool works specifically our tokenomics and our fantastic community have actually put together some videos so it's made it really easy to digest in terms of the fees so node operators don't pay any fees but they earn a dynamic kind of commission structure so it's based on supply and demand because we're a decentralized protocol we have to kind of uh promote participation when we need it so we have a commission structure that um varies between five percent and twenty

but we target 10 essentially so stakers um or rf holders they actually get um or they actually pay an average across the whole protocol so um which should be around 10 okay so uh with you you have the rpl token inflation to pay out certain parts of the rocket pool ecosystem but the only people that are actually capturing eth fees fees denominated in ether are the node operators so the rocketpool dao doesn't charge any any ether fees it's just the node operators right that's exactly right and we found that that's the kind of you know least rent seeking sort of uh option um so we

we kind of stay out of it and uh we the money goes to the node operators because essentially they are doing all the work to to to put this together you said there's a supply demand balance equilibrium that needs to be struck and i'm kind of reminded of the issue and schedule of ether of the asset as a function of whether there are a lot of nodes on the system if there's a lot of validators on ethereum ethereum will actually issue more ether but rates will be more competitive and therefore be lower and then vice versa if there's not a lot of validators in the available in the system ethereum will issue less ether but it will be more rewards per validator and that's how kind of ethereum finds balance equilibrium between the supply and

demand of security rocket pool kind of follows that same sort of structure right exactly yeah so um if the demand strips capacity um for uh so basically if there's more in our rh deposit pool then we have capacity uh on the the operator node operator side then the commission rates um kind of go up and so that it kind of incentivizes people to participate within the protocol and so um level it out so essentially we get this equilibrium exactly as you said so darren because i asked ejaz uh the the this question i'm gonna ask you the same question i know i know lido is is live and rolling right now accepting um

uh stakers uh i and um sounds like coinbase is in kind of a limited rollout right now rolling out fast what is the status of of rocket pool when can folks start staking with rocket pool yeah that's a great question um so we're not on main net yet as you as you've said but we are one step away so will be releasing our release candidate to the prater test net on the second of august and then following on from then we'll go to mainnet so this is a massive milestone for us uh and we're really excited to be able to finally share the kind of the work that we've been doing with the broader community are you sharing that right now so is that is

that sort of an august date that you're sharing now i wish i wish i could give that to you but we actually announced it uh earlier on in the week just like that's good i'm sorry we do we do love you guys but [Laughter] breaking news for some but maybe some already saw that um all right you know i think this next question is is uh really important i'm gonna i'm gonna keep with uh you darren and rocket pool because there is um sort of with staking there is i guess incentive alignment and um you know a selfish profit motive for the individual staker right but then there's also this public good that all stakers in aggregate are

providing to ethereum the network let's not forget why we stake let's not forget why we are validating it is for the continued decentralization of this ethereum ecosystem this ethereum economy is super important so i'm going to ask you this question if rocketpool is successful how does your project impact the centralization or decentralization of ethereum that that public good that i was just talking about yeah so obviously we spent a considerable amount of time building this decentralized taking protocol because we strongly believe that centralization is a huge risk and you can

that problem you can see in the beacon chain deposit address graphs with rocketpool anyone can operate a node so essentially we're going to be mobilizing a decentralized army of individual node operators to perform validation so rocketpool is permissionless so anyone with 168 and 1.68 worth of rpl can operate a node and be in the rocket pool protocol so from an ethereum perspective we are no different than solo staking we provide the same level of decentralization the aim is to have thousands of individual node operators kind of operating within the rocketpool protocol

and why is that important just refresh everyone on why decentralization of ethereum is important so there's a there's a few and benefits to that so first of all there is no um centralized control so um in it in proof of stake it's very important particularly with mev we're going to talk about uh maybe mev but um uh so with mev if you have centralized operators uh the problem gets worse much much worse um so there's a few things like that there's also uh just a resistance a kind of um it's more robust the network is more robust because you have

different setups different machines um and so you can't have like a whole part of the network that gets destroyed and and uh ethereum goes down it'll just keep running because uh you're so decentralized we will indeed talk a bit more about mev that is maximum extractable value you've also heard of minor extractable value we'll talk about that a little bit later but i want to throw the same question to you uh vasily so what's lydo's take on this how does lido's project impact the the centralization or decentralization of ethereum what's your philosophy here vasily uh so um uh i firmly believe that with lido uh the decentralization of ethereum is

better than without it so uh we we are building like not the best solution we build the best possible solution the best solution that can actually win and that's like a big difference there are a lot of staking models that uh give bit but the sterilization an ideal work where people use them but uh we uh that's taking the product product that can be better and worse and there is a baseline liquid staking uh product that is already pretty good its liquids taken offered by exchanges and we've seen it in in the wild in the other stake in economies of to exchanges to take uh a big share just because it's convenient and

while it's custodial it's uh it's convenient to use and uh easier and uh that's like pretty pretty good baseline so uh decentralized protocols should be uh competitive uh and preferably better they have they means to be better by being vertically integrated into defy and neutral and decentralizedly uh governable and uh well they they can be better for for both takers and for the protocols but there has to be fredo made to make them competitive and i think that

without without lido ethereum would be in a worse place than it is for example we've got like uh about 10 percent share right now of other that is deceived between nine node operators uh the uh kraken exchange has got like 12 12 percent or 40 percent of all each take right now uh by by themselves um so uh that's yeah that's uh that's what i think about it silly let me run this by you and make sure that you agree with with my take on on lido um uh lido is a it's a dow model right and so there's community governments

community treasury community ownership and so your take is that there's certain amount of trade-offs that need to be made as a staking as a service you said that seeking as a service is a product a product that needs to be provided uh and so the the trade-off with the uh currently nine uh validators that are operating in lido in in the future a few more that is uh democratizing more access to more people who are able to stake more eth because of lido and that community-owned community operated kind of lido dao is is how we uh manage that those trade-offs between um fewer fewer uh validators but more access to staking services would you agree with that characterization um

i i'd say that the the dow is more is more like guiding force here so it's it's not like a final arbiter here it's it's guiding the uh the light through the initial period where the beacon chain is about as as useful as a potato where you can stake and you cannot stake and that's like what you can do and the spec is changing uh that that that the like the construction side uh you'll be a hot head going through a construction site and likely that governance is that hard hat for now so uh but the like the final form of liquid staking that can actually uh win is uh first ossified uh not not upgradable not

governable well slightly governable maybe but uh not not not not very and it has to be permissionless uh with uh not operators it should be shouldn't be a white list it shouldn't be like a limited amount of not operators but that can only happen when when we the the the play and field uh is not like changing under you right uh so our trade-off is not that we have a white list forever of small number or no operators in that we have to uh to launch uh on a minimal amount of future that can actually make a good stake in product that is sufficiently centralized for now and

uh have changed chances to become better in that in the future and lido dao is the guiding for that will guide lida from like a good product uh on the start to the best possible product uh and best for ethereum not only for stakers at the end the beacon chain on its own is about as useful as a potato that that's a quote i'm going to highlight take away for this conversation for sure um ejaz how about you so uh get the case for why an exchange makes for a good staking services provider and specifically on this topic of centralization versus decentralization of ethereum as a public good

yeah um plus i think it's a great question and i actually echo a lot of what darren and vasily uh has said so far like listen ethereum is at its best the most decentralized the more decentralized that it is right um and i think there's often this notion or perception of exchanges that uh you know we're kind of trying to be the big bad wolfs that that try and centralize everything and uh i'm here to say that that's not most definitely not always the case when we approach our products uh particularly with ethereum um and i just think that like incentives are just different um for exchanges in the way but it's definitely aligned with the uh the kind of principles of the theorem in

general so in terms of you know whether we're towards a centralized and decentralized philosophy we want to make sure we just decentralize the theorem as much as we can right but if i go back to one of the original core principles um to one of the earlier prints the earlier questions that um you asked in terms of like what we consider when we design these taking products it's ease of use and so we want to make sure that we balance this decentralization for users with easy accessibility to be able to stake um my kind of thinking and my coinbase is thinking as well is yes one could go out and set up the infrastructure themselves at home

and they're encouraged to do so but often it's quite tough to do so uh for anyone that holds 32 weeks or more and so we want to be able to balance and create a solution that that enables that and there's ways that we push forward that decentralized ethos i mentioned it earlier and we can dig into it now or later if you like but um we look at like our infrastructure stack when we do that um i don't think just because coinbase is um the company that offers eth2 staking for our users that means that we are we should be considered a single uh infrastructure entity right i think there's ways that you can decentralize that whether it's using multiple clients whether it's using multiple staking

providers um and i think there's a path forward there so definitely pro decentralization yeah i think i definitely want to echo the fact that i think centralized exchanges get a bad rap when it comes to staking that's a little bit unfair and i want to make the case for staking inside of coinbase or staking inside of a centralized exchange at all um in the world where we uh say in like 20 30 40 or whatever the future and that coinbase has never ever or any centralized exchange has never ever maliciously gone after ethereum well in this world which i think is actually the most likely world then all of these centralized exchanges and coinbase what they have done is they have made the ease of ether distribution as maximally accessible as possible and

so uh you know i don't really think there's no reason for in any uh any centralized exchange of self-interest to harm the network that is that is the staking network therefore if that version of the future plays out then all coinbase would have done is they've been able to democratize more and more of the ether staking and ether issuance to a broader and broader set of people because that's really what coinbase's core competency is it's user aggregation and ease of use and so you know so long as the incentives of coinbase plays out then they will actually be one of the most democratizing forces of ether staking rewards of all time uh and so i think that's that's a a decent perspective about centralized staking that i don't see or hear echoed

all that much yeah i mean you listen you honestly hit that right on the head right like the ethos of foundational ethos for blockchains are decentralization right we've seen that with bitcoin we're seeing it with ethereum and like our mission at coinbase is to create an open financial ecosystem right to enable paths and funnels for users to be able to access all of this right and you know there's brand and reputational risk that is tied to all of this right um and i think like when we build these products it's definitely with the mindset of enabling this wider decentralization um and it's through the aggregation effort it's through ease of use it's through a safe and simple means

for the majority of users that may not want to you know set up and run their own infrastructure and and that's really what we we want to help pitch and create for i want to turn the panel to this question we'll we'll continue with you ejazz for for the moment this is around like validating an architecture like specifically who is doing the validating and uh that's a question for coinbase so it seems like the model for coinbase versus both rocket pool and lido here is is that coinbase is sort of running the the validating infrastructure i want to ask about that but then i want to ask like more broadly if i'm staking my eat with coinbase what

what trust assumptions in what ways do i have to trust coinbase i have to give up my private keys right and we we've heard you know not your keys not your crypto sort of thing what are the other trust assumptions here yeah so um let me take the first part of your question and then um can touch on the last um yeah so you know as you're all aware eth2 staking was designed in such a way that encourages the decentralization of its inherent staking infrastructure like uh rightly so like the 32 eth minimum multiple staking clients and so we really wanted to build our solution in a way that upheld this uh

whilst also making it easier for our users to stake and so one of the core focuses uh was to decentralize the validating part of our solution and we can do this through a few few ways one of which is to use multiple staking providers that meet our levels of security and quality this is safer it minimizes centralized risk exposure so we reduce the chances of triggering slashable offenses uh bison trails who we acquired earlier in the year is one key uh example of a partner but we also focus on using multiple providers and then in terms of i guess how our validators are incentivized for maybe things like maximum uptime and stuff like that like we have a high bar

for quality and security requirements in general for each provider that you know needs to be met before we integrate them but we also have things like uh slas in place of service level agreements that ensure that our providers meet at least a minimum level of service and these can account for things like maximized uptime using multiple staking clients minimum overlap between providers infrastructure etc and like another way i like to think about incentives for for these providers uh because i think it's it's actually quite an interesting topic is you know if a provider integrates with coinbase that's almost guaranteed e flow for them to stake right and there's also reputational risk for providers itself that we use if they

don't maintain a quality of service um so so that's kind of like the outlook there and then in terms of i can go on about the infrastructure but um i want to answer your your second question which is around like what are some of the trust assumptions yeah inherently um you know columbus is a a custodial solution and users that um you know place their wreath um with coinbase in our accounts uh place it within coinbase's trust risk and safety parameters and usability so you know uh they don't have their private keys but we kind of like maintain and manage your private keys uh we manage the kind of like staking process and there's like a specific way that we do that to make sure that you know um coinbase does this in a very careful and managed method

um so that's largely the the main trust assumption that's made that silly i want to turn the same question to you and with with uh lido because lido's like you said has nine validators and it looks uh looks looking to add a few more in the future how does lido go through the selection process of who gets to validate for for lido and how does lydo also incentivize uptime because uptime is really really important when it comes to uh in staking as a service so who are the validators how is that process decided and how is uptime uh incentivized so with uh with lido we've got uh uh currently nine node operators and uh the process we have been used uh uh we we've been used

to two different processes uh two to select them uh one was when we before launch we we talked to uh every basically would not operators operator out there uh i'm coming from a validated background so i'm cto of p2p a pretty prominent uh staking provider so we we talked with just about everyone good and found five very good ones who wanted to be part of lido and start with with us it's uh steak fish certain chorus and staking facilities

uh all very good [Music] so some people had legal concerns some people had uh uh like uh some some other concerns didn't want to be part of liquid staking or something uh so uh we we've got five very best apprentices at start the second lag was when we had a um a process to select additional uh a few additional ones we launched a google form where people could make an admission and uh not the existing node operators had like some uh a kind of uh council vote on who's uh going to be in leiden um

the next lack is probably be the same one but that's like a stopgack solution we use a community of note operators to select other node operators for now uh that's working out pretty pretty good for us but that's not a permanent solution um why we do that right now uh that way is uh that heather is basically hostage who is not apprehension right now there are no withdrawals they are not coming for half a year at least and uh the their their staking is locked their rewards are locked uh there is no way to uh

to do anything is not operators go stroke or out of business or something so uh until that hostage period is over uh the white list is very important to light up the incentive here to be a good not operator comes from uh like the fact that all of them are very respected and uh uh very uh very experienced not apparatus and they have uh in in total i think a few about short of 10 billion since taken in all the networks they operating so they are very experienced they are very good they are aligned with the

ethos of blockchain and ethereum in particular and uh they want uh to maintain reputation for uh for a long time so uh that's how it works for now and i want to ask what's the long-term plan for staking or being a validator or node operator with with lido are you guys looking to open that up to just a broader broader set of participants over the long term like what how many uh how many node operators do you think lido will have in like you know one year or five year ten years uh so it's a hard problem to get iron around we we need to balance the the quality of not operational is a

permissionless nature of the protocol uh we uh we are making drafts right now drafts uh many of them and i think it will take like a bit at least half a year to have something actionable here the building blocks we have for for this process is mostly like the the history uh of how people operate uh in leiden that's one big brick the other is the stakers opinion on operators so stakers has have to have a say here as well the people where the the operator that

idioms takers considers to be good ones should be uh like put uh more francis center than one they they don't and uh uh something like safety model where people can stake their funds uh with and not operators and say that if if they screw up uh that's my money on the line but i won't share three what's here very cool very cool okay all right let's go on to uh to rocket pool as well um so so darren i i know the rocket pool's go goal is to open up staking to as many uh people as possible um so i want to ask you a slightly different question who

does rocket pool really go after or who do you guys find in your community that is part of your validator set and how do you how does the rocket pool system incentivize uptime so yeah we're permissionless so anyone can can be a node operator um but we have kind of rational incentives so our node operators have skin in the game they have 16 of their own funds uh earning rewards so they want to maximize their return and so consequently they are maximizing staker returns as well um that it's an equal amount essentially um between state the the amount that they are only

the amount that they have with their own funds and the amount they get from the pool so what we get is a natural alignment of incentives so they essentially ensures that they perform well so i want to turn this uh to kind of the the staked eath token right it's like the idea of tokenizing steak teeth tokenizing departments this uh tokenizing deposits this is a superpower of ethereum right um uh you know we're all familiar with the article superfluid collateral and all collateral has c become on ethereum somewhat super fluid in that it can be used in all sorts of defy applications um so

the token it seems the staked eth token starts to become much more important and darren you mentioned that rocket pool has something called art eath i'm curious how our eth might differentiate itself from other um steak teeth tokens if at all and just in general your thoughts on how this landscape will will play out will there just be a ton of different um versions of of staked eath tokens in the wild or with this consolidate to you um a few or will we have like wrapped versions that contain multiple how wild and crazy is this going to get and how is it going to evolve

yeah so eventually you'll be able to use re across the entire kind of d5 landscape so liquidity pools lending protocols yield farming strategies uh raf derivatives and all of all that crazy stuff that we haven't invented yet uh that's that's that's all out there um but a big difference i guess like the big differentiator i guess with re physics design so it doesn't rely on balance rebasing to deliver rewards so the amount of our is actually static but um we have this ever increasing exchange rate which accomplishes essentially the same thing but has some significant benefits so first of all it is much more

compatible with exchanges and other protocols who are not really expecting balance rebating and that's basically updating the the token balance automatically on like a daily or a daily basis essentially ample fourth or yam followed this model as well yeah yeah yeah yeah so and second of all um there's a concern in our community around the tax implications of owning these tokens and the rf design is much easier to track um from a tax perspective because rewards are not continuously being pushed and creating these taxable events so obviously every tax jurisdiction is different so

get some professional advice um but in general if people want to have questions about our wreath and how it works uh we're happy to answer them in our discord uh that's essentially the difference basically i want to give credit to toledo as they actually the only project that actually has a staked east token out there in the wild so i want to get to you but but first uh ryan already brought up uh dan uh elitzer's uh super fluid collateral article another article that dan ellison wrote was the death of ethereum and death was actually d-e-t-h and he stand he stood at d for delegated eth and this was actually a possible scenario that dan illustrated in this article that well if there is a state staked eath tokens

out in the wild like uh lydo has staked eath rocket pool has r eth and then in theory any centralized exchange like coinbase or kraken could issue their own like delegated eth except there's this concept of liquidity begetting liquidity uh and so while there might be many many staked east token you know staked derivative tokens out there it's likely that uh you know only a handful or maybe just one really just becomes the dominant form of state teeth collateral in d5 largely kind of how we see usdc is the the dominant you know stable coin in d5 uh and so ejaz my question to you is that why will the death of aetherium not happen uh if coinbase does actually

absorb a lot of eth and i'm assuming and also baked into this question is is coinbase going to issue a staked east token and then also if they do why would it be not the death of aetherium okay so that's a that's a good question um so let's touch on um wrapped east 2 first right so i think firstly i'll say i got to be got to be careful um but i think firstly i'll say we definitely intend on offering liquidity for our users right i think it's a core component for our staking experience that users are able to withdraw send or trade their assets and

e2 of course is unique in that the transition to proof of stake is phased right so there's a lock-up period as it were right now in terms of how we've been and still exploring a number of options for enabling liquidity and the raf d2 token is one of them another option that you could consider as well is uh something along the lines of like a internal order book right of sorts where users that have a staked e3 position could potentially trade out of that position with someone who wants to enter that position right and to be honest there's pros and cons between all of these options right for example an internal order book might be simpler to implement um and use but it makes it so that

stakers can't move their stake off platform right because there's no token uh a wrapped eth2 asset on the other hand is as you said and has done alexa says in his article much better capital efficiency as you can hold it take it off platform use it in d5 protocols but i would say trickier to implement technically and compliantly with a holistic uh product experience so so that's the way we kind of like thinking about liquidity very important and and focusing down onto a solution now as as we've been kind of looking into that and then in terms of like was your question david around why it wouldn't be the the death of ethereum do you mind helping me understand that that last part

right so uh the concept of the idea the thought pro thought process is that all of these liquidity staked ether uh tokens will compete for liquidity there will be one dominant winner if that one dominant winner is a centralized exchange then we have one centralized exchange growing and why would you come and stake your ether in any other platform if you know you you want to get liquidity on that so you choose the platform that has the best liquidity on that state teeth if that's coinbase then that's a centralization factor onto one centralized exchange yeah um the good point i guess the way that i'm viewing it is i i honestly and this is my own opinion i i honestly don't think there is a world where

it's necessarily just to be one stake to eat derivative that kind of rules all and the reason for that is i think optionality is important right like if you ask yourself why do people use usdc uh over die or which is like you know theoretically a more decentralized stable coin right there are different use uses and purposes for that right whether that token is used as collateral to back a certain thing uh whether you use it as collateral and rv to kind of like pull out credit on that or whether they use it for something else um you know it depends on the user and the use case in particular and then in terms of liquidity uh i think it'll you know there's a high chance that it plays out

quite similarly to stable coins from wanna stated right so uh you could have a dominant centralized exchange that has a rapt 2 token but you could also have a decentralized version you know whether that's the likes of what rocketpool are doing or what lido is doing as well so i think that optionality is important i don't think liquidity uh would primarily be an issue though in my opinion obviously as the representative of the team with the only actual staked eath token out in the wild tell us about that what's that like is the lido state eat token is that collateral in any application what's the the strategy behind growing liquidity overall what is the approach towards you know growing the the market cap of lydo's state teeth

token uh uh one correction that we are not the only uh liquid sticker statistic token there are uh like i think four more uh we are dominant like 75 percent of them of the liquid taking market but not uh not the only one and the the rest has a lot of within total as well so um there is stake wise and sdk air and the credits where has created you we are not the only one so um we are honestly in the bucket of uh there there will be like a dominant uh liquid staking token here and

their runners up and that the dominant token can change but the equilibrium here if there is there is a domination on the market because that's how the uh these things work when when the products are not very differentiated and liquid staking tokens are not very differentiated to most users uh they they they want uh an adder with with some sticky words on top and every every liquid staking token provides more or less that when they are not sufficiently differentiated the the one that has a slight edge will get used more and slight edge might be liquidity might be like better

rewards or something but uh there is a place for for domination here i think so and then the liquidity uh improves uh that we will have a positive feedback loop here so i i'm pretty sure that the um that the mini there that this will be a market where they've been attacked most and the winner can change at times uh but uh the the equilibrium is uh one dominant coin and other uh less prominent right guys what uh what what a fascinating panel so far diversity of approaches also diversity of perspectives on some of these issues

guys we have a few more things to cover that you are not going to want to miss we're going to talk about mev we're going to talk about insurance we're going to talk about what keeps these panelists up at night when it comes to staking so a lot more to unpack here if you are enjoying this conversation if you want more bankless panels and you want reminder sent notifications sent make sure you like and subscribe to this channel right now just hit that like button subscribe we are going to get to the sponsors and then be back with these panelists in just a moment but thanks to the sponsors that made this episode possible bankless is proud to be supported by uniswap uniswap is a new paradigm in asset exchange infrastructure instead of a

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gas costs check out the power of ave ave dot com that's aave.com all right guys we are back with this excellent panelists eat staking providers we've got coinbase we've got lido we've got rocket pool these guys are the best in the biz we've covered so much so far one topic we haven't addressed and we absolutely need to is this topic of mev in an e-staking world this is no longer minor extractable value this is maximal extractable value this is basically the idea of being able to front run transactions because validators have the god mode superpower of transaction ordering

they can order transactions and benefit certain parties over another maybe receive a fee for for providing that transaction ordering uh benefit this is almost like a um we've talked about this so much on on bank list we've talked about this as sort of a a mo lock problem we we've talked about this as as kind of a human like a coordination problem it's something that's very permissious pernicious on ethereum i want to start maybe with uh with ejazz um tell me about mev thus the structural issue that that you think um staking service providers are going to have around this and how coinbase plans to approach it and the

last thing i'll say about this is this could really impact the yields that stakers get if if one of you guys one of your service providers are able to extract more mev and give that back to stakers you're going to be able to offer much more competitive yields and rates so what's coinbase's approach to meve jazz yeah um really really interesting question so i think right firstly i think mev could be a huge opportunity for us and for coinbase um but it also comes with many interesting challenges that we need to consider right so

um given coinbase's position um you know running you know loads of validators for a number of proof-of-stake networks coinbase now has the opportunity to capture mev like you said right and this revenue stream could potentially be substantial um as an example i think some experts have predicted that mev after ethereum proof of stake uh merge just happened could enable e3 validators to increase their earnings by as much as like 60 to 300 right and those all sound like kind of like uh d5 summer type apys right and i'm pretty sure it would consolidate it would consolidate down um pretty succinctly but you know um you know there's definitely a marginal opportunity to increase to apys so

that's one core incentive right and to your point ryan like uh if one provider does this right now there becomes a competitive disparity between other providers and so they might want to do it right and and so there's a number of options to consider uh for how we proceed with mev everything from you know creating proprietary strategies to maybe even purposefully opting out of mev and maintaining a neutral stance at present the full scope and implications in our opinion are unclear but we're working towards we're working pretty hard to come towards a conclusion here that being said what i can say is our intention is to pass these mev rewards through to our customers

um another interesting thought that i had is like um there's also just some really interesting concepts and paths that you can consider for like different products that we have right uh so let's say we could use mev let's say hypothetically um for coinbase wallet users right so coinbase wallet is like a non-custodial option where users can kind of like hold assets there and interact with with different apps um we could theoretically have like something like front running protection right so let's say for example a user wants to send a uniswap transaction instead of going to a public mempool you know you could go via coinbase in the block that we propose and a private memphis so some really interesting thoughts there um we are still trying to nail down what our proposed kind of like

solution strategy might be but it's just a fascinating topic to learn about to be honest i want to throw that same question to vasily and lido vasily can you kind of speak to the validators that lito currently has and works with and how does uh how does the the validators there uh are they equipped to be able to capture as much mev as possible and what are the intentions uh can you speak to the intention of the validators and how it relates to the state eath token um so you you can uh in that regard you can think of light either like more or less the not operators union uh so organized not not operators uh i think it's pretty likely that uh

lidar will approach will adopt a unified approach to mev and enforce it across all the validators because that's uh like in in the best interest of both note operators and users uh and status so um um i think that uh mvv extraction actually extraction is something that not operators are not equipped to to make themselves because it's something that that's basically a a field a job where you like walk without sleep for three months straight and then you burn out uh and not operators are like the the the long game players they they they

play the game for for years and decades like so it will be probably uh looking like right now with uh mining tools and and flashbots so there will be a service providers that handles the the extraction the the the greeky uh parts of it and not operators will be uh like doing the high level things like setting it up and maintaining and monitoring and maybe uh uh like doing the selection of the uh service providers but the the service itself should be uh provided by the very competent and uh people who who don't need to sleep

ever like uh there is not no not a lot of them right now i think that's uh that's where it end up for for most of the um [Music] of the not operators and it uh it's more or less what we see with mining and mev uh same thing i think we'll have it was taken with the one important uh difference uh well maybe two import two important things that will change from uh on transition from mining to to stake in enemy one is that staking is much more aligned uh makes the uh alignment between ethereum holders and uh

extractable value extractors much more strong so it's essentially the stakers who decide how amyv will be extracted right now and stakers are its holders and unlike hash power uh owners currently who are uh well they mostly are easy room holders too either holders too but uh in much less amounts and quantities so uh the value line was much stronger here after after after the stake er status is taken uh after the merge basically and that will change the landscape because uh

that changes the quotient and that means that um over extraction of mov will be no longer the best interested of the of the validators so that's that's one thing and the other that's taken will provide uh multi-block uh reorganizations and multi-block uh mvv extraction right now that the only feasible way to do it is within within the block with one block as an atomic thing but after the merge is in uh we will know the schedule for four block producers and the block producers will we will know that oh okay i've got

three blocks in a row i can like reorganize organize the transaction for three blocks in a row straight and that changes the opportunities very significantly does that make them the opportunities more like does that increase the opportunities for node providers like in which way does it change it significantly um so right now a lot of protocols are designed with the with a certain mind that the only atomic thing uh there there is neither is a block and between blocks you uh uh there there is no sure way to ensure that uh you've got three blocks in a row for example uh uni swap or based oracles tops that

they take the last price of asset in a block as a data point if you've got only one block to produce and you don't know who who has to produce the the next block you can't manipulate that because the next block can be your adversary and uh uh if you like for example unbalanced price uh like put either to uh to like two hundred dollars to to first accreditation the next block uh producer can uh like buy it out and uh have you uh like uh take take all your money here but uh if you have two blocks in a row you can in one block unbalance price get

at what point uh on chain and then use at what point to force liquidation uh so when you can reliably string two blocks in a row the units of two particles are no longer as secure as they used to be and yeah so many protocols are bit on assumption that one block is an atomic thing that can happen and that will be no longer true and that makes uh that mvv more uh more dangerous so what's interesting is on the one hand like the mev becomes more dangerous in a fully merged eth2 and some d5 protocols are going to have to redesign around these new parameters but on the other hand some of what you said made me actually

optimistic vaseli right you said that basically you think that node operators won't try to extract mev themselves but this will be somewhat commoditized and you know they might plug into solutions like like flashbots which is actually i think a um a a good setup for minimizing the the damaging impacts of mev and you also noted that hey validators aren't like miners they are long-term incented toward the health and decentralization of ethereum so both of those things uh made me optimistic you know darren what's what's your take on all of this uh mev what's rocket pool's design parameters and what's rocket

pool's take so we we've taken a look at this we we've done considerable amount of research into this recently and it spurred a conversation within our community and and also some of the ethereum core devs as well so we've recently posted a medium article about opposition but um actually first of all i just want to touch on something that facility said so uh he was kind of saying about the the blocks how their blocks are produced so decentralization is especially important uh when you um have mev because with centralization you the chances of collusion between validators within an epoch this is ethereum based uh kind of

proof of proof of stake um actually intensifies kind of the potential for evil so having a large centralized provider having lots of validators means they're more likely to have multiple blocks within a epoch which means that they can actually do more damage than uh either kind of um on purpose or or by accident um so our position is basically that we wish me didn't exist but if it's going to be part of proof of stake then we can't really ignore it we it we'd prefer it to be democratized

transparent and ideally somewhat responsible collaborating with flashbots to see what that looks like and we've got kind of some ideas around some mechanisms to incentivize the fair sharing of mev rewards with our stakers so our reth holders essentially mev post merge is a very emerging space at the moment so it's certainly something that's going to kind of develop over time hey david you're muted there we go sorry about that uh importantly with mev and rocketpool mev goes to the actual person that is

running the node right not the actual validators or not not the eth stakers but the people actually taking in the eth and actually running the node uh can you go into a little bit more detail with how rocketpool plans to incentivize the rocketpool node operators to put the earned eth back into the overall pool of of rocket pool earnings which ultimately goes into the r eth token yeah so it's kind of broken down into two parts there's like a detection mechanism and uh the actual incentive um so i mean and we've got both incentives and the incentives i guess so the detection mechanism is essentially this collaboration with the flashbots in the

sense that uh you'll only kind of be able to do mev through them with the incentivization and decentralization essentially if you do mev outside of that and which means that you haven't shared with the with the re holders then we have a slashing mechanism that enables us to kind of slash them based on based on that activity we're also looking at other we're also looking at the carrot as well as the stick so we're also looking at ways to incentivize the sharing as well as this this kind of slashing does does the misalignment between rocket pool eth stakers and rocket pool node operators that misalignment with

mev there's a little bit of you know the the node operators want to capture more of the mev and kind of want to hide hide the mev that they capture under the table while the east acres are like hey we want all the mev as possible does that misalignment uh concern you at all uh not on the surface like a lot of the people that we've spoken to uh would actually do the right thing um it's just the fact that because we're a decentralized protocol we have to design for uh that for people defecting essentially for people not doing not doing um not doing what the protocol requires of them so we have to design that in into place but speaking to a lot of people um if

they're operating within the rocketball protocol they're willing to do the right thing they're willing to share it with the um the iris takers because they know they're going to get significant benefits from operating within the rocketbook protocol one of the incentives actually that we're looking at doing is essentially like a staking or a smoothing pool so very similar so mev is very similar to [Music] proof of work in the sense that you can you can get these big payouts every now and again um but you can also get kind of small payouts so it's very inconsistent and so what we do is we put this smoothing pool together so that we can

actually even that out so instead of having like a getting a lower um kind of return they actually get a higher return because they're um it's a it's a kind of a flat return rather than this kind of go for gold and sort of scenario so from a long-term perspective that's much better guys this has been a just a a fantastic panel um mind blowing on a on a number of levels uh shout out to the youtube chat playing the drinking game while we well we have this panel yeah as we're saying keywords i think people are are drinking i don't know what the keywords are david what are they whoever i think the words are private keys trustlessness and decentralization which

are really aggressive words to play a drinking game with well uh you know we'll try to avoid those words in the last question so that so that people aren't too intoxicated while they absorb this information um last question to the panelists and i want to pack two questions in one because i i think this is important um the the first is tell us what keeps you up at night with respect to ease taking so that's kind of the negative worried side of your brain and then secondly what's the thing that makes you most optimistic about eat staking so that's kind of the the bright side we'll we'll start with

you darren what keeps you up at night what makes you most optimistic uh so living in australia means like kept awake at night a lot talking to the us and europe but so thank you thank you for uh doing this daytime daytime call um i i guess getting rocketpool to mainnet um safely and securely that's the that's the thing that i am very passionate about um and very um that's the thing that's that's kind of driving me at the moment uh in the in terms of the optimistic side for ethereum i think ethereum proof of stake is a fantastic uh invention and uh has a uh

in the broader kind of finance uh sort of spectrum has a lot going for it so um i think that datum is something that drives me as well the the potential i guess vasily uh same question for you what keeps you up at night and what makes you most optimistic about youth staking so about what what i i've got like this existential that of as a technique on the protocol that has uh about uh like nine percent of stake teeth in it um i i when when launched slider i we did a lot of planning for uh for for failure for bad thing what what we will do if there is a disaster what the

recovery et cetera et cetera but it turns out we didn't plan for success right and when in march it hit me that we we we just very very big already we've got a lot of stake how do you keep it safe how do i keep it aligned with the room that's uh that's what [Music] what drives me currently so uh we've got at the point where we we are impactful and we we should uh light i should wield this power well so that's uh that's what i'm uh working for right now where's the optimism coming from are you optimistic about that on the other side too one thing that is actually um

i think uh underappreciated on the plate right now about uh the merge and it's taken uh taken off is that ethereum holders will have a much higher uh political weight right now in the uh in the ethereum governance they are now not just holders they uh the stakers are are making ethereum secure and they are taking the the role that uh that miners uh used to have here and still have and that makes uh well that's a technical shift that is not uh um still uh processed i think by the community

but it will change how ethereum operates uh and i think it will change that how the number is for good ejazz take us home with this question what keeps you up at night what makes you most optimistic well yeah i mean aside from this uh amazing podcast that's keeping both you and i out ryan um on the on the east coast um listen there's a few things like um one of them is a topic we've already covered which is mev like i just think it's it's such a fascinating development that's playing out and you know probably has the potential to be one of the most controversial for ethereum uh depending on how we all approach this as a community and i think like that being said it's such an interesting challenge with so many

different possible outcomes so you know i've been trying my best to wrap my head around uh the latest developments uh around that and i think like secondly is um probably echoing the service point um i sometimes like before i'm going to bed literally i'm thinking about you know how much we have uh you know staked and you know i can't be mentioning figures and stuff but it it's just you know it's a significant amount it's a non-trivial amount and you it just can't help but keep you awake and thinking about how we can maintain that infrastructure about how we make sure that this is done in the most optimized and best way for our users um now if i were to flip that over and

look at like the optimistic side i mean guys like similar to you guys i've i've been in an ethereum fanboy for years now um in my prior role at consensus i used to be on the ground like working alongside a lot of these different um gaps and protocols and that actually one of the main reasons why i moved to coinbase is okay i've seen all the awesome innovation that's been built out how do i enable it in such a way that like my mom who thinks i work on magical internet money and she's you know she's kind of not wrong uh can access and use all of this right and i think like you know eth2 staking in general is just one major way to be able

to do that right we're seeing ethereum's decentralized ethos and vision come to life right now and being able to empower that is definitely motivation enough i think he jazz facility darren thanks for so much for joining us this has been a fantastic panel we appreciate it thanks for having us thank you for having us bankless nation eth the internet bond eth the triple point asset eth becoming a capital asset these are regular themes staking enables all of that such an exciting topic we hope you got a lot out of this panel i certainly did i know david did of course risks and disclaimers eath is volatile eath is

risky so is staking all of crypto is risky uh you could lose what you put in but we are headed west this is the frontier it's not for everyone but we're glad you're with us on the bankless journey thanks a lot also like and subscribe if you enjoyed this channel make sure you do that take care guys hey we hope you enjoyed the video if you did head over to bankless hq right now to develop your crypto investing skills and learn how to free yourself from banks and gain your financial independence we recommend joining our daily newsletter podcast and community as a bankless premium subscriber to get the most out of your bankless experience you'll get access to our market analysis

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