Inside the Evolution of Liquid Staking & Modular Money | Jon Charbonneau & Aidan Salzmann

Transcript

the core idea and that some others are like leaning into now is like yeah if I'm holding eth on a rollup I should just be holding the liquid staking token like like why wouldn't I um and so I think that trend is going to very much play out in celesti in a way that we just don't see um in these other Cosmos chains with this one asset like proliferating his money across these many different chains like once you're in that scenario you're going to want the liquid saen token and you're going to want the one that's the most neutral the safest the most reliable the closest to the base layer um and that's what let us to strive because like they were clearly the best team we're doing this we're very impressed what's up everyone we are now almost 1 month out from Das London the largest institutional

conference in all of crypto that's happening March 18th through the 20th obviously in London this one's going to be a blast we are almost 10 times over subscribed for tickets which is pretty nuts so again we've had to lower the discount to Bell 10 and better yet make sure you bring your friends we sell a four pack of tickets find people in your company bring your boss bring your family bring your girlfriend or boyfriend whatever it is is just go you're going to get a discount if you use that team pack run don't walk make sure you go get those tickets today and cheers and see you in Sunny London Town all right everyone welcome back to another episode of bell curve before we jump in quick disclaimer the views expressed by my co-host today are their personal views and they do not represent

the views of any organization with which the co-hosts are associated with uh nothing in the episode is construed or relied upon as Financial technical tax legal or other advice you know the deal now let's jump into the episode all right everyone welcome back to another episode of bell curve today I'm joined by Aiden salsman of stride and John charbono of DBA guys welcome how's it going good to be on thanks for having us on yeah guys this is going to be a blast this was um coming off the week of a a massive uh or coming off the back of a massive week for stride by the time this is live we're GNA have uh sta live and John I think is going to take the cake for the most thorough uh piece

of content ever produced about a single protocol and uh for those of you who haven't read this piece this uh little Masterpiece we're going to link it in the show notes but I highly recommend that you read it because that was kind of the inspiration for a lot of what we're going to discuss today so overall guys um this is going to be really fun uh Deep dive into stride the protocol but we're going to use stride as a jumping off point to cover some of the hottest topics um just within the the broader space of liquid staking protocols in general and I think we're going to get into a lot of fun stuff that's not only going to be relevant for stride the cosmos and Celestia but also for ethereum as well so maybe before we get into some of those broader themes Aiden can you just give us an overview

of the architecture of stride um and if you could touch on maybe some of the the stuff that listen listeners who spend most of their time in the ethereum ecosystem and kind of have this workflow of sort of Lio and ethereum their protocol won't be as familiar with things like interner chain accounts the liquid Stak module stuff like that definitely um so stride is a liquid staking protocol in Cosmos like Lio on ethereum stride takes in token deposits and issues St tokens against them uh so for example stride will take in a TIA deposit and issue sta against that it auto compounds rewards um and uh unlike Ste on ethereum SC

tokens do not rebase so the exchange rate between tokens and tokens it's not one to one it actually changes through time uh so if you hold um you know onea at the beginning of the year at the end of the year you might have 1.1 um Tia against that one SD uh architecturally stride is an OP chain so most uh liquid staking protocols in other ecosystems they're built as uh smart contracts and for end users this doesn't make a huge difference um but Cosmos the uh sort of architecture of most Cosmos protocols is as app chains and um one thing that this allows tried to do is it

can support lots of different SD tokens in parallel uh the way that this works is all of the core protocol business logic lives on the stri blockchain and it can open IBC connections to other blockchains and uh it's the liquid staking logic flows through those IBC connections so one reason this is helpful in Cosmos is you have these very minimal blockchains for example Cosmos Hub uh doesn't support smart contracts Celestia doesn't support smart contracts uh some blockchains do have virtual machines like osmosis they have cosm um but many do not and the way that stride supports liquid staking is through something

called an interchain account um all this is is it's an account on another blockchain controlled by stride and the reason you need something like this is uh with liquid saking users deposit tokens they're all pulled and then stride will stake and unstake those tokens on behalf of users the logic to stake and unstake that's the part that you need the interin account for so uh every day or every Epoch stri will send a message which batches stakes and batches un Stakes aggregating deposits across the epoch period um and that's sort of the high level idea of an interchain account um there's some other differences you know stride has its own validator set so stride uses interchange

security um which has sort of some other interesting implications um LSM is another sort of interesting topic that I'm sure we'll get into but at a very high level that's that's how stride Works awesome now um I actually want to want to double click there Aiden as well on the relationship with um the cosmos Hub and what interchange security is so can can you give us an overview of what uh basically like the Hub is uh again for listeners who might not be as familiar and what this concept of interchange security is and why stride opted into that yeah definitely um so one way to think about Cosmos is it's sort of like a neighborhood and the cosmos Hub is like the model house um so

if you want to move to this neighborhood and build a house typically what chains do is they'll Fork the cosmos Hub it's like the minimal simple version of a blockchain built with the cosmos SDK um in terms of what the cosmos Hub does I mean it issues the atom token so that's it's its main purpose I would say uh or has historically been its main purpose it also has still working on that main purpose um the the main product offering that the cosmos sub has is uh a form of reaking called um replicated security there are uh I guess replicated security is also just one form of um of reaking offered by the cosmos Hub or in Cosmos

so soon Cosmos Hub will have partial set security but currently the service that the cosmos sub provides is called interchain or sorry replicated security and this means uh a different blockchain can inherit the validator set of the cosmos sub the reason a blockchain might want this is the validator set of the cosmos Hub is extremely decentralized and economically very secure um you know like the Val leers have uh strong reputations Cosmos sub was one of the earliest proof of stake chains I think it launched back in 2019 and um they also have economic stake so with stride for example as a liquid staking provider it's really critical that the underlying validator set that runs the stride protocol is

secure because liquid staking providers can have huge tbls so stride could you know theoretically one day have billions or tens of billions in tvl like Lio on ethereum and uh the way that IBC works the validator set technically custodies those tokens uh so you want validators that are very reputable and that won't you know rug the protocol and take those tokens from users um so stride was the second blockchain to use interchange security after Neutron and uh you can kind of think of this like the cosmos Hub Outsourcing its functionality to other blockchains and its ecosystem Neutron does Smart contracts stride does liquid staking um

and yeah that's that's a bit abouts awesome and um I I'd be curious as well in from your perspective just because you know when you look at from the almost from like a a business perspective with stride I think one of the unique things about stride as opposed to something like Lio on ethereum or jto over on salana is that you're you know you're trying to be kind of this solution for multiple different app chains right and uh obviously there's a there's a power law in terms of ass asss that are actually widely adopted and have liquidity within Cosmos so uh let's let's just take the approach of adom in general like obviously that was a massive early first win for stride I would say so can you talk about some of the other almost like softer benefits

as well like kind of this this is going to foreshadow a topic that we're going to discuss quite a bit later but kind of this idea of alignment being important from who you sourcing security from and then if you could actually touch as well on the idea of protocol own liquidity um and and how that was actually benefit I for the St St atom atom pair yeah yeah it's a great question actually I'd love to hear John's take on alignment as well um I don't really know how to define it uh one thing I would say is stride so for stride I would say alignment means getting out of the way of other protocols letting them do their jobs um with liquid saking The Leverage that a liquid saking protocol has over a base layer or the effect that it has is

the decentralization of the Val set and this is really critical for any blockchain you know like decentralization is the only thing that separates blockchains from the traditional tech industry so when stride is aligned we don't want to like you know help the cosmos Hub do uh interchange security better we just want to get out of the cosmos hub's way and make sure that it's uh as decentralized as possible um so I think what you're alluding to might be uh protocol and liquidity and the way that this works is when stride into interchange security um there's an exchange of payment for a service so stride pays 15% of its inflation and revenues that it has from liquid staking to Cosmos Hub in

exchange for this Security Service um this is a great deal for stride so strides Economic Security went up 10x after it opted into IC and its uh cost basis for security went down 10x so like the security per unit of spend went up like 100x which is a huge wi um but in in addition to this stride also got uh what's called protocol own liquidity and this was 450,000 Atom from the cosmos Hub so the cosmos Hub community pool took um I think about $4.5 million and it deployed it in an st atom atom pool on Neutron uh the reason this makes sense for the cosmos Hub is uh typically bootstrapping and sustaining these pools

requires liquidity mining incentives on behalf of the LSP but for Cosmos Hub there's all this it liquidity just sitting in the community pool so why not uh assuming the protocol is sound and won't get hacked why not take that liquidity and deploy it throughout defi um and this has a it's a way to get over this bootstrapping problem of uh bootstrapping adom defi throughout different chains um there was an additional ask so I think this worked really well for Cosmos sub and they ended up deploying more protocol in liquidity so Sunny from osmosis asked for an additional 900k atom um about $10 million and that is now deployed on osmosis I think it's earning something like 100k annually um and the Hub can

always take it back so that the ownership resides with the Hub uh Str is a similar deal with osmosis so 20 million osmo have been deployed to the SC osmo osmo pool um and hopefully more protocol and liquidity will will be deployed in the future so it's it's this sort of nice symbiosis between other chains and stride where stride gets some tvl and starts to bootstrap uh Buy around the S token and the community pool with very little uh Financial Risk there's no real risk of impermanent loss they can help boost drop some of this toine so that's how protocol and liquidity works yeah for the alignment stuff worth double clicking on that um you're say a chime in a bit there yeah just for like

the like the word gets like butchered all the time now just because of the whole like ethereum alignment meeme blah blah blah um with I mean like what we're concretely talking about here is like incentive alignment um and with lsts uh like we have a very concrete that thing that we're talking about um so it's a PR it's a very clear principal agent problem um yeah principal agent problem um between two different parties here uh like we're always talking about whether it's stride or Lio um you have this issue between the liquid saking protocol itself um and then the users of that protocol so steth holders or stea holders or sdom users um and also similar one between um that liquid taking protocol so stri Lio and the underlying like chain itself um and

those actually are two different problems to solve which is something that like sometimes gets overlooked is like there is a different uh principal agent problem between like the holders of the asset which are like your direct customers and the chain itself um and like that that is what is often like a very very difficult problem to kind of solve in these um and like what you see in um ethereum world is like Li is the main one who's pushing this forward is this idea of like dual governance um so concretely the idea is like hey Lio uh token holders like they have all the governance rights so we can alleviate this by giving like veto rights to steth Holders so now like all of our customers can you know like feto anything if we try to do something crazy that's like against their interest of like hey we

want to make like 100% fees tomorrow or like go nuke the validator set or something like that um and that is supposed to kind of like act as a proxy for also alignment with the host chain itself to solving both principal agent problems um but it is like a kind of fundamentally difficult and possibly impossible POS thing to solve there of like what like what is the host chain of like like how do you define that here um and that's what like someone like Danny Ryan has like criticized like the Dual governance thing on light of for like oh steth holders like don't represent all of the ethereum community um and so the the kind of fundament fundamental question is like okay but like what like what is the right thing to be aligned with like what what is the right representation of uh you know the

Celestia community that we should be giving uh governance rights to should it be that stea holders are allowed to veto uh stride decisions that that affect them or should it be like a full Celestia governance Vote or should it be some sort of social consensus among Celestia that's able to like veto things against them um so that is like just like a very difficult problem to solve um and so like that that is like a number of the things that stride has done with their existing um products already has like also kind of worked in this direction of like okay what are some ways you could alleviate that um and one of the things that they've added for example like with uh St adom and St osmo is okay we can have a council from the host chains like from osmosis um or the cosmos Hub that is ratified by their

own governance that like understands the cosmos Hub really well and they can propose to stride like hey like these are the validators we want as opposed to like stride handpicking them themselves um and similarly um for Celestia is a slightly different round of saying like hey we we're going to try not to be super opinionated we're just going to take what you guys say of a more like copy staking approach of like whatever validator set you guys have already picked like we're just going to honor that and try to like distribute like relatively accordingly to that um but you do still have like a little bit of this fundamental problem at the end of the day of like okay but what if Lio or stride wants to deviate from that you know at the end of the day their governance does have power to do that um

and so a re a really good post um it was in the ethereum context but it's fully applicable here too is Mike Neer had a post um probably a couple months back on like Li to attack vectors talking about exactly this of like and this is what I I think like alleviates a lot of it it's just like the natural incentives are there for like stride or Li others to behave like most of the attack vectors in practice are like if these LSPs try to go off the rails they mostly just nuke their own protocol as opposed to like actually harming the underlying protocol you can mess with the validator said a little bit and then you just like kind of get cut out and you destroy your own product um but it also is a particularly fun problem to solve in the context of shribe when they're doing

many different solutions um and different chains may have a different answer to like what is the right answer to host chain alignment with Celestia may look different than the answer to what it what it should look like with the cosmos Hub um so it's fun to keep playing around with those completely I mean such an interesting question to delve into because one of the other differences in between these different ecosystems is that they've started they had very different origin sort of points which led to different path dependency issues so we're going to talk about this quite a bit but you know if you look at one of the um the dichotomies of ethereum compared to other proof of stake systems is ethereum started as proof of work and there was this period during the merge where staking had this horrible ux and that led to this

Divergence in the adoption of staking versus liquid staking that you see in for instance Cosmos or salana where there's a low overall lower stake rate extremely high penetration of liquid staking and it's the exact opposite in Cosmos very high native stake rate very low liquid staking same with salana so we can get into that but I I want to double click on this this issue of alignment and just underscore some of what John said there and maybe to add these these sorts of categories of alignment here you know liquid staking is something that is extremely close to the metal you can see this probably most clearly in a eum today where there's a lot of uh vigorous discussion around salana or around Lio rather and I think there's a couple of different reasons for that which is one in some sense staking pool

operators you know they're very close to the metal in the sense that you could actually if you were to basically control a certain amount of Stak you could mess with the operations of the chain uh then there's this other issue of kind of giving up control right of the uh you know maybe your maybe it's your values or how how your validator set set is selected that type of thing and then there's also this this other component which is many chains like ethereum are starting to view their export and primary product as money and you could view the liquid steak derivative as a competitor to that form of money and that forms its own sort of tension as well so I want to get into that uh but Le let's talk a little bit about uh some of the solutions that have been proposed in Cosmos land and how

they rhyme a little bit with some new suggested approaches towards staking in ethereum so so why don't we start Eden could you give us an overview of what the liquid staking module the LSM is and how that alleviates uh some of these concerns yeah um so the liquid staking module in Cosmos or LSM is primarily two things first it is a regulatory framework around liquid saking and second it's a big ux Improvement for the existing way to liquid staking Cosmos um I'll touch on both of those so on the on the regulation side uh Cosmos Hub has been around for a long time and um Jay and Ethan the founders you know they've thought a lot about uh

about liquid staking and staking and some of the incentive potential incentive misalignment um that could arise from that so I think there's a lot of uncertainty to John's points like there's all these open questions around like what actually are the incentives what a liquid saking protocol ever actually attack the Bas layer probably not but there are some unknowns uh so on on Cosmos Hub one solution [Music] to allow the safe growth of liquid sing uh in the view of the cosmos Hub was to add two safety features the first is uh a global cap so it's just like it limits liquid stake to 25% of overall Network stake and this gets rid of a lot of uh

potential attacks so for example the liquid saking liquid staking protocols even if they all come together they can't halt the chain because you need 33% of stake to do that um so that's that's sort of like this idea of the global cap it's it's sort of a a sledgehammer I would say it's like a it's a big blunt tool it's not very fine grin but it sort of works for what the cosmos subub wanted the second is the validator bonds the idea behind the validator bond is um it forces validators that want to participate in liquid staking to put up additional Capital um and it helps mitigate some of these worries around the principal agent problem uh so if a validator participating in liquid staking actually ended up going rogue

and uh attacking the the base layer in favor of the liquid staking protocal um its validator Bond would be slash and the validator bond is there's all kinds of things you can do to play around with this you could increase the slashing rate on validator bonds you could increase the yield or decrease it on validator bonds um but currently on Cosmos the validator bond is just sort of normal stake that's put up solely by the validator um so it gets the validators to have some skin in the game so that's the regulation side um on the ux side Mike you actually I that was a great point you brought up which is on ethereum there's this transition from proof of work to proof of stake so um when users were initially staking they could choose between a liquid staking protocol or natively saking um and

especially early on I mean I think both of you know more about this than I do but my impression was especially early on it was pretty hard to natively stake so liquid staking was very attractive uh on Cosmos it's very different so staking has been around for a long time it's super easy you just go on Kepler you stake so most tokens in Cosmos are states and there's this unbonding period and because of the unbonding period which is 21 days on Cosmos subub it takes a while to get your stake out and then put it in a liquid saking protocol um and this has been a big hurdle to to user adoption so the idea behind LSM is well what if you could uh get an nft that represents your stake instantly so you don't have any of these problems instant unbonding and like

short and long range attack factors um you just get an nft that represents your stake and you can deposit that into liquid staking protocols in exchange for lsds so the onboarding flow to go from natively staking to liquid staking is like a matter of minutes whereas previously it was weeks all right that was a that was a really good point let let's take those in reverse order there and actually so that was a really good explanation of kind of the value proposition of again this's a funny path dependence thing where the really horrible ux for ethereum state Akers of the beginning led to high adoption of liquid staking low native Cosmos has the opposite problem where it was super easy to stake in the beginning very high percentage of native stakers as opposed to liquid stakers and now we're trying to move those native stakers over into liquid

staking by making the the flow a lot easier so can you Aid one one thing that um I would just find particularly interesting is there's a fungibility uh constraint on LSM shares right so that nft that you were talking about those aren't perfectly native one to one it's specific to the validator that you're staking to and then your own uh sort of Delegation record I believe is the term um so these are not very native or these are not very fungible uh but sorry give no if you guys could hear that um but uh so what and fungibility uh for those of you who listen to the the liquid staking session on bell curve we know it's very very important um so how

does on the back end stride manage these different non-f fungible positions and produce something that is maximally fungible as the LST yeah um so it's kind of an interesting implementation detail of LSM that you get something that looks like an nft uh the reason it looks like an nft is when you get a plot of these tokens uh there's an address stored on chain that gets all the staking rewards for that nft um I think there's different ways that the LSM possibly could have been built where actually don't have LS uh where you don't have nfts and instead you have a liquid saking token per validator um but uh this is sort of the way that the the

development shook out so these nfts are very hard to use in defi like really they're just infastructure for liquid staking protocols if you went to a lending protocol for example with this nft like it's an nft with like a certain staking reward address and it's like there's a certain number of tokens and it's just really hard for for something like that to be integrated in D5 protocols which are already so complex um so like you said uh what users typically do is they'll take this nft and they'll deposit in a liquid saking protocol like stride um if you deposit your nft into stride you get sadom in return instantly so your user Journey ends there you take your sadom you can go you know trade it sell it use it as

collateral whatever you want um on the back end what stride is doing is it takes the nft it transfers it back to the cosmos Hub it turns it back into native stake and then once every 3 weeks or so stride rebalances delegations across the entire set um there's some technical reasons for why it has to happen once every three weeks it's not not super important um but one interesting thing here is unlike uh I think uh Lio on ethereum uh or ethereum in general Cosmos is delegated proof of stake so for stride to at to a node operator there's no hurdle of onboarding the node operator or having them spin up additional Hardware um stride can just

like have a rebalancing algorithm on chain and delegate to whoever it wants super interesting yeah what one important thing that like this probably is kind of the point to touch on it um that I think this design touches on is kind of like what is the fundamental goal of what you're trying to do with this kind of protocol level like regulation uh for liquid staking are you trying to just create like some Min minimal form of infrastructure which is what the LSM is doing to make these out of protocol lsts better or the other direction is to say like hey us as the protocol should just enshrine all this LST stuff and like we issue lsts as the protocol itself um and and that is kind of like the clear delineation um and so

as you can tell from talk like hearing about the LSM Shar is like these technically semi fungible tokens that you get as a user that are in practice useless are like not intended as an enduser product it's just kind of like a piece of infrastructure that's supposed to be deposited and d stried and they actually give you the end user product um the opposite direction of that that you could try to take um is you could say hey like the the protocol itself should just offer like one maximally fungible um LST to everyone um the tldr is like if you try to do one single maximally fungible one from the protocol like what you end up backing into is just like the proof of stake mechanism doesn't actually super make sense anymore and you basically end up going into like the proof of governance thing

which is what I've written about before like proof of stake mechanism actually isn't needed um what others are trying to do in the middle is something that um Aiden had touched on is what could have been a different implementation is you if you modified the proof of stake mechanism such that each validator can issue their own um LST that is fungible like within their own validator um uh and so this is the kind of approach that if you've looked at some of the writings in the ethereum world recently over the past few months of like where some people in ethereum have toyed around with the idea of like how can we change the staking mechanism um like the two-tier staking post that Mike had written about and the donr had written about previously um and also actually very similar um to something that penumbra has been working on with their

um staking tokens is the idea that like in the LSM if say like let let's say Aid and I are both uh delegated to the to the coinbase validator on the cosmos Hub like his delegation record of that his LSM share and my LSM share would be different even though we're deleg to the exact same validator you could implement it in a way which is more like what p is trying to do of like if we're both uh delegating to the same person like we could have like that the you would be able to have like a coinbase specific LST that is actually fungible between us and so you could start to see that like okay is that a useful thing to have like is that an end user product that could be issued that for people to use I I still think what you basically end up at

the end of the day is like okay but people don't want fungible within one of the hundred validators um they want like an ual maximally fungible thing not the like oh this LST comes with a seven and a half% commission that gets cut out of this one and that one's a 5% commission and they give you like me rewards and the other like people don't want to do that they want one maximum funable thing so even if you tried to do this what's going to happen in practice in my mind is like okay not a protocol solution like stride like Lido whatever is still just going to take in these shares issue a maximally fungible token that kind of uh pulls that across them and that's what the end user will end up with um so that is basically kind of the guiding principle that this ends up coming to to

me like at the end of the day is like as a protocol when you're trying to design this regulation it should just be with the goal of what is the thing that we can design that will make out of protocol uh liquid saking tokens better and more competitive and safer with against each other um such that there are lower switching costs they are just a safer and better product for users um it's not trying to like replace them or like get them to not exist or anything like that or replace them like with an unrine version It's just how do we make this other like a of protocol thing uh safer and better for users yeah I mean so much to unpack in there John but you know basically you know I think if you brought I I'm just remembering back now to some of the

conversations I've had about uh liquid staking in the past and fungibility is like a a core design uh constraint or design principle of of something like Lio and probably the reason for that is because there are such power law effects to liquid staking and liquidity is so crucial like liquidity and fungibility kind of walk hand inand and uh you you definitely wouldn't want to destroy that so yeah I think that's I mean this is kind of like pretty nerdy stuff here but I I find it sort of beautiful actually that uh it's it's an interesting sort of alchemy that uh protocols like stride perform and they take these sort of non-fungible LSM shares and they produce something that is fungible U which I find super interesting I also do think as a side note I don't want to go too far down this that down this tangent but

I I think that the liquid staking module in general will end up you know history will will show that this is the right approach to take that some form of regulate like in protocol regulation uh is probably the right way that a lot of these different Protocols are goingon to ultimately end up walking down um and even though it's been moderate adoption so far I have I have a lot of Hope for it um as a design principle I think it's been very good uh okay last last s of detail on this is one uh how do we get the 25% cap cap like this is also one of my favorite Parts about Cosmos versus ethereum this was ethereum this would have been like a year multi research posts and Cosmos just kind of go 25% feels about right let's give it a shot we can change it um but how do we end up

on 25% yeah that is a great question so um there's sort of this uh Edge case in LSM where let's say you hit the 25% cap um and then uh so you have 25% liquid stake 75% native stake now native stakers start un bonding uh the share of liquid stake to Native stake starts to go over 25% there are other like solutions that you could come up with here for example you could force liquid staking protocols to UND delegate um and then like put that STI in a buffer and then the yield for each LSP goes down but it's a bit tricky to do that so uh the The Simple Solution today is like yes technically the cap is 25% but if you hit the cap and then native sakers start unstaking

it actually goes above 25% um the big mental threshold is 33% because that's where liquid saking protocols can halt the chain so with the 25% cap I don't have the math in front of me but I believe you'd need uh yeah you need You' need 25% of native stake uh or sorry 25% of all Stak so onethird of native stake would need to unbond for the liquid staking protocol to be uh 33% of the network and that's just a massive amount of Stak to on bond so it felt like with a 25% cap the chance that all liquid saking protocols collectively actually reach 33% of network stake uh like felt very low um and I think most uh like even the critics of liquid sing

agreed on this to your point it is like a little bit handwavy uh don't have strong evidence for this um but that's that's sort of how we got to that no more no I love that that's great and uh one more I want to just zoom in on that third point because you know this has been an uh this has been of interest to me for a little a little while in terms of mitigating principal agent problem and uh you know requiring validators to post a bond there are many different ways that this could get implemented and I feel like you could actually dedicate an entire podcast episode to just the design space for something like this alone but John for for folks who might be a little bit less familiar with kind of the the trade-off of requiring um validators to post a bond or

something like that can you just give like an eli5 overview of again why that is the case and what are some of the different trade-offs and different flavors of how that could get implemented yeah sure um so like the basic idea is the kind of like fundamental trade-off your you're trying to do here is the the higher that the self Bond you require out of validators in theory the more skinning the game that that validator has so you have mitigated the principal agent problem uh more of like okay they actually have skined the game they're you know this validator isn't just going to go something go do something stupid get slashed and just like get the users money slashed because like they have skin in the game they'll get slashed too um so that in theory is why like a

higher bond is better um on the lower side the the benefit of that is that basically it just makes it a whole lot easier and it's much more Capital efficient so if the bond is too high what happens is okay I'm some random guy at home like I want to run like you know like I'm pretty responsible I want to run a validator and get some delegated stake from people but like I don't have a million dollars to go put it myself now maybe I can't be competitive as a validator because I just don't have enough money to do a self Bond so you kind of self-limit yourself of like all right you cut out the little guys who aren't able to put the capital costs up themselves um and you just make the system generally less Capital efficient because you can't liquefy this stake um so the like the extreme stance

that you take on this is you just don't have any impr protocol delegation which is itself uh implicitly just a 100% self Bond requirement um and this is what like ethereum does and so what happens in practice when you go like all the way in this direction is everyone just evades the mechanism and you end up with zero skin in the game anyway because everyone just says screw this like I'm not putting up 32 e myself and the majority people end up saying all right here li like take all my money coinbase like you take all my money and then they're entirely putting up the users's money um and so like if you look at like lios uh like their note operator registy like their white listed set or coinbase validators today they're not like self- bonding their own money they're just like taking all the users money and

doing that um so what is this balance of can you have like a number that is reasonable and gives them some skin in the game but isn't so big that it cuts out the little guy and also just incentivizes everyone to kind of just like cheat the mechanism anyway and just get it all delegated to the m of protocol anyway um and so it like interestingly in the self Bond of the LSM it is like called a self Bond um because in theory that is like what it is supposed to be but there's obviously no way for you to like actually perfectly regulate that um so for this like self Bond like shride can it it's not the way it's that they do it today

but like they can decide to like hey we are going to put up the self bond for this validator um and that can sound like a bad thing because then like oh okay we just defeated the self Bond but it can also sound like a good thing to some degree if it's used responsibly of like hey what if we make a really high self Bond and then uh like taking protocal like stride kind of subjectively say hey if you're coinbase like we're not going to front any of the self bond for you like you put it up yourself but for the smaller validators that we delegate stake to like we'll help you out and we'll put up like half yourself Bond for you because we understand that like you don't have the money um and so like that sounds like a good thing um and so like that is kind

of the fundamental problem of like what is the objectively right number that perfectly balances oh you mitigate the principal agent problem but you like have the right Capital costs for the little guy and balance all these things that number just does not exist um so in the same way that 25% is a little bit like ah this like seems about right 251 like sounds about right of like it's a non-zero amount of money that they're going to put up but isn't going to like squish the little guy out completely but is like enough to like mitigate it so it's like this seems like a reasonable number um but like where do you put that number like there is no perfect answer to it um and in theory anything that you put up can always like kind of can be evaded out of protocol if it's too

extreme anyway yeah so would it be safe to say that in general what we're trying to do here with these sorts of mechanisms is yeah it's almost like a lot of a lot of this one of the problems with crypto is that we don't really have a a stick with a lot of things right so we're almost trying to create these regulations that are going to the the end result will be something that's beneficial over a long period of time for users and a lot of what has been you know applied so far it's basically like an abstinence policy for sex it's like just don't do it well that doesn't work because people then just evade and not use those regulations we have to find a way you know to find some sort of Middle Ground where responsible actors maybe there is a little bit of social pressure

it's like hey you should participate in the LSM because this is in the best uh you know long-term you know value proposition for of us and uh don't do stuff out of protocol so I think that's an interesting analogy to use and one one additional implementation detail that I would say there as well is you could mess around with slashing requirements as well or slashing conditions where you could say okay we'll just just slash um the self Bond part of it and not anything that gets delegated so again wide design space there in general but uh moving past the the LSM and and maybe this is where we can get into a little bit about um some of the differences even in between like ethereum and C OS in general like one of the one of the things that I've been sort of thinking

about is that ethereum had it didn't really have the it had to do all of this stuff first um in a sense and figure a lot of this out and now Cosmos kind of has the the benefit of it has a more mature staking uh ecosystem but a slightly less mature liquid saking ecosystem and so I think there are some that there are definitely some lessons um that could be learned and I would just love to get a sense um from you guys and maybe John you touched about this honestly and you uh expanded on this a little bit in even previous portions of your of your blog but you you started to touch on some of the proposals that are coming up in ethereum land for things like two-tier staking and stuff like that um can you kind of walk us through what are some of the the

changes that are coming down the pipe potentially in the ethereum ecosystem and then we can kind of compare and contrast some of the demand drivers for liquid sticking adoption in between these two ecosystems so I'm skeptical that these changes will happen um for the just obvious reasons with ethereum of like it would take a huge amount of momentum to like meaningfully overhaul the perose take mechanism and like get a lot of social consensus on it where I don't know that that's going to happen um that's my like General intuition on the situation right now um but like Mo most of the stuff that's been proposed in ethereum is uh similar to the liquid saking module in that there is some notion of like an in protocol awareness of this kind of like self- Bond mechanism of anyone can put up like as a

validator you know I put up say one eth and then I can get delegated another 31 eth and you could play with whatever numbers you want I think at Don cr's Post I mean he put 20 to one but I mean you could change the number that was just like an example um so very similar idea there of like whatever amount that I put up I can in proportion to that get some amount delegated to me uh against which you can issue a liquid staking token um so that all sounds like quite similar um the the main difference I would say um that pretty much all of the ethereum posts um between like donr Mike um and vitalic had had some on that they kind of contemplated is something that the liquid saking module at least initially the way it's implemented does not do um and it is what uh Aiden had

touched on before and that is kind of differentiating uh the treatment between the self- bond capital and the delegated Capital um so in particular um what some of these other kind of like ethereum ideas floating around had been I was like okay we could uh give different interest rates to the two different tiers um and you can also apply different slashing rules to the two different tiers um so you could for example like pay a higher yield um to the self-bonded tier as opposed to um uh the delegated tier to kind of like compensate them for the uh the additional lack of liquidity and the higher slashing risk because you wouldn't slash them um and so I I I don't know that that makes a ton of sense from thinking about it more and

more of like like really just putting in any kind of like higher yield for that just incentivizes going around the mechanism to like make another LST against the self Bond anyway um and in practice the market is always just going to set whatever is the right commit like the right overall rate of like let's say that you know you set the difference too high and so uh the the delegated alligator is like they're making too much money well what are they going to do you just like kind of like return that money to users in the form of like a negative commission or if you make the difference too low or the same or even give them like zero% yield on the self Bond they just charge a higher commission against the yield that is given to users so the market is just always going to correct with commissions

whatever the yield is anyway um the the more interesting and fundamental part um that matters is uh what some of them have contemplated doing is removing all slashing risk for the delegated stake um and limiting all slashing risk entirely to um the self-bonded stake um so that is something that is interesting it is like it is kind of just like basically an admission that Economic Security numbers today of when people say like oh we have Economic Security of X because y amount is staked uh like that words like a little bit like not super perfect in that like it's all delegated stake um and so like that's not the amount of money that like actually gets slashed by the person who's doing the action so

they're not like actually incentivized to do that um so removing the slashing on the delegate stake and limiting it to the amount of self bonding sake is saying like hey this is what like the bad guy is actually going to lose if they do the bad thing um like they will actually lose x amount of their own money and it's kind of saying that like this is really the economic security at the end of the day it's like what will the person who does the bad thing like actually lose um and so I I I think that like intuitively that like does kind of make sense um and the idea of like why you would want to do that in particular is that it kind of helps fix this problem that like fundamentally exists with staking today and that you see in like delegated proof stake of i as a

user among other factors one of the factors that I'm picking on is like is this a good valid that it's just going to like screw up and get me slashed and then I'm going to lose my money um I obviously don't want to do that so what people will do in practice is they will overcorrect and they will use just like brand among other reasons as kind of like a proxy for safety of like coinbase is responsible I see that they have 20% of the stake other people trust them they're reputable I'm going to give them all my money I know that they're not going to get slashed or like do anything funny with it um and so when you entirely remove the slashing risk and you say like hey no matter which person you decide to delegate to like you're not going to get slashed anyway don't

worry the user should have a much higher Toler risk tolerance of like the risk of slashing is removed so they should be able to like vote with their conscience more of like okay I can just like delegate to the smallest guy in the validator set because I want to help decentralize the validator set he's like a pretty good guy like I know him I'm friends with him and like even if he screws up I'm not going to get slashed anyway and so you should get a bit more distributed validator set um so that part does make sense it definitely like lowers that calculation your head um that being said there is still the calculation your your head of like okay but like what if a different validator is like offer me different rewards of like what if this guy at the top is like doing timing games and like juicing

their M Rewards and like he has a higher like yield while that like kind of still matters to me and so you don't like entirely remove that um but it does at least kind of reduce the barrier of like users worrying about this risk in the back of their heads when they kind of pick a delegator um and elect to them um it also helps mitigate just like a lot of random tail risk scenarios that like LS create of like hey like what if we have all of di based on lsts um like that is what everything is based on and now you have an incentive potentially for someone to take over the validator set and just intentionally get all of it slashed because like they have some short position open or they're going to profit from a bunch of liquidations if this thing deegs um you kind of just get

rid of that risk because now the asset like actually like can't really move away from slashing um so it's a bunch of trade-offs in those um but like in in general it is like a reasonable acceptance that like hey this entirely delegated Capital probably isn't providing like a whole lot of incentive compatible like Economic Security anyway so can we just remove a bunch of these other risks by getting rid of the sashing um and my expectation is not that that that will happen in ethereum I would expect other chains to play around with that particularly in Cosmos as other chains are going to play around with different variations of the LSM I think it makes sense for other chains to play around with this of like we should just like not slash um delegated stake or like treat it differently in some other manner or even just give like the

first trunch of slashing to the self Bond Hood stake and then after all of that has been slashed then only start slashing the others like there's different games you can kind of play with it um I I would definitely expect people to start playing around with that as people have more variations with the LSM yeah I want to zoom in there John on one thing that you were starting to talk about which was uh the validator selection process and maybe we can um shift to that because that was another part of the reason why you know we talked about liquid saking protocols being really close to the metal of proof of stake chains like this is a huge part of that right basically validators having or chains having some opinion right opinionated approach to what their validator set ultimately ends up looking like um Aiden as as that you know one of

the founders of stride where you've been a liquid staking provider for multiple different proof of stake protocols each with their own sort of opinionated version of what their validator set should look like can you kind of walk us through a how chains think about this and then what are some of the different methodologies that stride um has approached uh with basically yeah basically helping select the validator set or like what influence does stride have over the validator set so so to speak yeah the influence that stride has over the validator set is there's a percentage of stake that stride has and that stake stride can delegate to any validator in the set um the reason it can delegate to any validator is again

delegated proof of stake so uh it's fully permissionless to do these delegations the percentage of stake that stride has across different networks varies on the cosmos Hub it's on the lower end maybe 2 3% on osmosis it's actually quite a bit higher closer to 10% on OS it's even higher maybe closer to 20 um and expect it to keep going up through time so this is a really crucial decision for stride um although decision might be a bit of a Mis nowhere because uh really stride tries to push this decision to the chains that it's supporting um going back to strides core goals I think uh any liquid sing protocol should be very as we said aligned with host chains um for

validator selection what that means typically is decentralization and network performance different chains have different preferences there's no one siiz spits all um the default approach this drive takes is it excludes all centralized exchanges um because why would you want to stti to them uh there like doesn't really help uh decentralization or network performance um exclude validators with a higher than 15% commission which just quite high and often they're investors that are running their own validator it's kind of a proxy for that and then stride delegates to the top 30 validators um it uses an approach called copy staking for the top 30 so it just looks at the weights and it delegates proportional to those top 30

validators um the reason it's only 30 is sort of a technical implementation detail and I expect this will increase the entire set soon um the when strides sends these interchain messages uh it's much so interchain blockchain programming is like super tricky there's all kinds of weird edge cases that you get when you're trying to program things asynchronously versus if you just have like one Global State machine and um there's all these like fallbacks and edge cases you have to handle if something succeeds or fails so uh getting a little bit technical here but the way that SRI Stakes again is it sends an IVC packet which says like hey on Cosmos Hub please stake this on my behalf Cosmos hub does it or not and then it sends an acknowledgement um so

it's much easier for like uh stride if everything happens atomically so if like an entire um batch of staking and unstaking happens atomically and um there's only like you know so many stake and unstake messages that can fit in a single block of transactions um so across most Chains It's about like 30 um but anyway we're refactoring and this will be 100 soon um popping back up the sack uh there's some different processes that stride uses on different chains to optimize for decentralization and network performance um so on atom and osmosis the process is community lead um stride Stakes uh 25% of all of its stake to each cortile of the set um so this

ensures like a baseline level of decentralization you know we don't want to decent we don't want to S everything to the top of the set or the bottom there's trade-offs of both so we just kind of distribute things mostly evenly but then within each cortile uh a neutral Council on each of these post chains Adam and osmosis will evaluate the validators based on things like uptime governance participation um uh commissions how long they've been in the active set things like that and then they get stack ranked and then delegated to accordingly and this gets refreshed every few months um for DX you know they really care about Network performance obviously for a for a purpose protocol this is crucial um so the validators there were selected with

some feedback and help from the DX Foundation optimizing for Network performance and latency um and for Celestia uh you know Celestia is a very minimal blockchain so the approach the St is taking for sta is just copy saking and for Celestia uh we actually will delegate to every single validator in the set um so it's we're trying to be maximally unopinionated we got lots of feedback from the celes community and um yeah just delegating to every validator in the set proportional to their stake uh and then rebalancing through time this removes the effect of uh skewing the stake that a liquid staking protocol would otherwise have yeah and and just to underline that that last part Aiden

for for folks who might not be quite as familiar one of the one of the issues with proof of stake chains that start with Native um the ability to delegate built-in you you end up with very topheavy validator sets because of exactly the dynamic that John was describing before where there's kind of an early lead there's typically a validator you know with a brand name maybe it's chorus one or coinbase or P2P or whoever you like I don't really know any of these other long list of names I know these names they have all the stakes I'm just going to delegate up there um so there's kind of this this problem that a lot of chains have early on in their you know early on in their life cycle where they have these very topheavy validator sets it makes sense from the standpoint of a delegator but

it doesn't it isn't necessarily in a Chain's best interest so maybe there are like a couple of different options that a chain could go down and I do think there's a little bit of tension here frankly because there maybe like let's just generalize and say there are three options which is one you could just say hey uh I don't actually really know how to construct a validator set that's maximally decentralized stride could you help me out with that and stride has like a very detailed philosophy on what they think a validator set should look like then there's kind of a middle ground of this you know Community uh sort of approach where there's a little bit of input from stride and a lot of like a good amount of input from the protocols like it's what osmosis did and then there's just like a copy which is

to say this the route that we go with Celestia and just say hey we're just going to copy the existing validator set and I can the tension and I'd be curious to get both of your guys perspective on this is I understand from the perspective of Celestia wanting they don't want to surrender any control over what their validator set looks like but similarly to other chains they have this kind of topheavy validator set right and it actually might be in their best interest long term to give someone like stride who you could almost consider them a neutral third party uh in some respects um more control there but I'd be curious about how you guys see that um I don't know I don't know if tension is the right word but Dynamic yeah I mean I think you hit the nail on the head there's uh people are

going to delegate their stake to the top of the set um for obvious reasons um uh so this is definitely a problem on many chains uh I think for now taking one of these approaches and applying it to a chain is the simplest way to do things um so for example you know with Celestia they want copy saking makes a ton of sense St to just do that um with Cosmos Hub they're actually they want something that's a bit more opinionated and that decentralizes Network stake I think they're just maybe a bit um uh yeah they're just more comfortable with that idea um but there are merits to both approaches so I could see some blend of these working well in the long term maybe after stride builds

up some trust with the celestial Community um improves the technology you know we're we're starting with one solution and progress toward something that's more trust minimized maybe we would move from copy staking to something that's more opinionated um that's sort of how one way I could see it playing out um but here's here John Ste I know this kind of starts to get into the proof of governance territory so that yeah yeah it's like it's such a tricky question because like for you know what is the right thing for stride to do for most These Chains um because particularly for someone like Celestia and Someone Like ethereum You stride and Lio actually can't answer that question when ethereum and Celestia themselves don't know the answer to that question I think like most onchain governance chains like the

cosmos Hub or osmosis like they have uh I I would say a reasonable view of like Hey we're fine with being like pretty opinionated and like we want to decentralize the validator set intentionally like we would like to move in this direction and like onchain governance will like have a say and like this is kind of where should we should go ethereum doesn't have that onchain governance and agreement on like hey this is what we want to do in the first place um and Celestia has some form of onchain governance but also wants to lean very heavily on offchain govern offchain governance and emphasize that even more over time um not trying to just be subject to like you know what do TAA token holders all want to do um so then kind of the fundamentally like difficult problem with that is like okay

let's say that we want the Celestia Community to decide what is the right you know staking distribution like like what like what does the Celestia Community like actually mean um in this scenario is it the Tia token holders because we kind of just said no it's not just the Tia token holders but that's the simplest thing to do is just to like say like what did the T Tia token holders like do like who whoever they delegated to is like the right thing to do um and so kind of to the point of what what I think will probably be the right natural progression is clearly for stride having spoken to the community the celesy community a lot people around it the thing that they want right now is Just Launch at first with like a very minimally opinionated

copy staking pretty much just copy the entire set and then remove the handful of uh both sexes and like some people who charge like 100% commissions because they're like investors running their own validators like remove that handful and then otherwise just like copy what we're doing um and then I think as you build up more trust and work with them over time um and as the selected Community kind of figures out what they want themselves of like hey this is how we want to build the validator set then stride can work in reflection of that um because liquid saking protocols that just kind of intuitively get this is like one of the most important things to me of like the teams that get that the best thing for them to do from a product perspective is literally to just do

whatever the hell the host chain wants like and not try to like you know what is the thing that like optimizes our validator rewards on the margin that like our liquid staking protocol can get the way that you grow the fastest as a liquid saking protocol is by like having the trust of the community and building like the safest and most aligned thing for that community and like that's how you grow really quickly and that's how you become money and that's how you become the safest product for them to use anyway um and so I think it's going to be this natural and just iterative progression this in both uh stride for st's case and also like Lio uh and Steve's case in ethereum it's going to be just like this iterative process over time of both base layers are difficult because they don't want this like super

opinionated onchain governance that just says like hey this is exactly what we want like please just do this um there there is no clear answer um so it's going to just be kind of this iterative game over time and it will probably get more opinion at it over time just taking more feedback from the community um and like intentionally kind of decentralizing the validators that over time yeah you know it's really interesting to hear you say that as well John and not to you know speak speak but it is a it's sort of interesting to watch how Lio and and PTP have approached this over on ethereum and again this is not necessarily anyone's fault there there there's always so so many moving parts and yeah if we had perfect communication then we could solve a lot of problems but even like

some of the recent timing games that have been getting played over on the sort of uh on the Lio side of things like well that's kind of an example where you're maximizing the Meb rewards that you're getting for your staking pool but that's probably not what you know someone who's working on ethereum consensus would say is the best thing that we should be optimizing for right um obviously we want to extend the window where we can earn rewards and extract Mev but that puts an enormous amount of strain ly on you know sending messages around them so so interestingly stuff for uh like for stuff like timing games are actually an interesting example of why I do think the end result for a lot of these and will not even be a bad thing is a single liquid staking

protocol for some of them potentially to end up with the majority or all of the stake and then just be pseudo rained in to be like this like pseudo andrine solution where like they kind of do what the governance of the pro like whatever the community wants um because like the the problem with something like timing games is it is actually like inherently Zero Sum and like arguably like value destructive because you just mess with chain functionality um so if Lio has say 30% of stake is which is what they have today um while they haven't done this and I'm sure they would not because it wouldn't be a good idea um they are explicitly incentivized um to tell all of the validators hey you must play timing games or we're going to kick you out of the validator set because they

will make more money they do that like absolutely directly because they are only a third of the validator set and on the margin they are picking the pocket of like some other guy's validator if Lio has 100% of the stake they are incentivized to tell every single validator in the set hey if we catch you playing timing games we're going to kick you out of the set immediately because now you're picking from like our own pocket um and then what they're incentivized to do is to be 100% just aligned with how do we maximize the value of the underlying protocol because the liquid sing protocol like their value is tied to I get some percent of whatever ever this underlying protocol is worth effectively and the staking system so I want the biggest most valuable healthiest staking system staking system underneath because if I nuke it well then I nuke my own protocol

and like I lose money um so something that like a team that really gets that hey the thing that is the best for the liquid staking protocol legitimately is just what can we do for the host chain that is like whatever they want whatever is best for them um like is just like fundamentally really important um and that is the direction that I think like some of this will start to go over time um is like people will start to realize that like liquid sing protocols the ones that really get that hey we're just incentivized ourselves to do whatever is in the best incentives of the chain like those are liquid s Protocols are going to make the most money they're going to do the best anyway um because those are the ones are going to grow alongside the host train what's up everyone we are now

almost one month out from Das London the largest institutional conference in all of crypto that's happening March 18th to the 20th obviously in London this one's going to be a blast we are almost 10 times over subscribed per tickets which is pretty nuts so again we've had to lower the discount to Bell 10 still hooking you guys up get you a 10% discount on Bell 10 and we've onboarded a whole bunch of new speakers so that's Dan tapiero of 1rt Pascal gothier of Ledger Anthony scaramucci the mooch himself Michael Sunshine of grayscale Brad garlinghouse of Ripple s nazarov of chain link Matt mcdermut of Goldman Sachs the global head of digital assets Stony kulov Danny Masters the list goes on this one is going to be an absolute blast make sure you don't miss it and

better yet make sure you bring your friends we sell a four pack of tickets you're going to get a discount on that so find people in your company bring your boss bring your family bring your girlfriend or boyfriend whatever it is just go you're going to get a discount if you use that team pack run don't walk make sure you go get those tickets today and cheers and see you in Sunny London Town okay I'd be really curious I don't want to go too far down this Dynamic but I do I do find it very interesting is basically what you're describing there John is a they're a different sort of natural Market structures that arise based on industry so there are some Industries which are prone to natural monopoly so that would be like a utility provider something like that and the US regulates that and that's how we get

around it but what we're describing about what we're describing here is a monopoly type uh Dynamic where in some senses that's actually beneficial but obviously there are some issues with monopolies as well so a really interesting example I've talked about on this podcast ad nauseum a really interesting period of time to go back and look it's going to sound like a funny analogy is when John D Rockefeller was creating Standard Oil a lot of analogies between the early oil industry and the crypto industry today and one of the issues for them back at the time was this um like volatile pricing um of oil and they were like well it would be great if we could just find a way to fix the pricing for oil in a way that it was standard and they did that and the way that they did that was through Monopoly

that's where you get the term fixed prices today um and obviously that provided a benefit for people at the time that wanted some form of standard way that they could price out oil and that they knew the price of oil I was going to pay for in 12 months is going to be the same as it was today we didn't have robust Futures markets or anything like that back then but obviously over time it was you know too much control and overtime the interests of again the it's sort of a form of principal agent problem actually so how do you guys Square because there are lots of infrastructure layer things that would just be better if it was like yeah we just have Monopoly here but is there a Steelman argument for the other case are we sacrificing competition or something like that or is it just all upside what

do you guys think there's definitely some benefits to having the kind of Monopoly Here particularly and I mean there's also a question of uh like is it possible to get around it um but the kind of like benefit of like a quote unquote Monopoly Here is in the sense that like I mean like that just means maximum fungibility and kind of moneyness of the asset which is like inherently like what most people who like hold a liquid s and token lik steth that's like that's what they want they want there to be one canonical version they don't want to think of oh there's a like there's a mantle staked eth and there's a rocket pool staked eth and there's a Lio Stak teth and there's like 20 different versions like what the hell is this thing they just want there to be like there is eth and there is

stake eth and like that like that's all they want to think about um and so like that's why the natural kind of incentive goes towards that um I I think naturally what most of these tend towards over time is a single party being very very large because of that possibly a couple a small number of them and then what you just like really want to make sure that you have at the end of the day is okay I like I'm the the downside of having a handful of big players is only if like they're acting against the interests of kind of the host itself if they're really big but they're doing everything that you want and they're like serving you perfectly then you don't care that there's one asset like like there's no inherent centralization in the asset that's like bad um and so it's a matter

of having a system that's set up reasonably well to keep them in check such that you know if Lio ends up with 100% of the stake they can't just say like tomorrow like hey uh we change our minds we're actually just going to keep 50% of all the fees now and like sorry you deal with it because we have all the power like that that's what you just don't want to make sure that the power Dynamic is at the end of the day um and so just iteratively like making changes to the staking mechanism that make the difference on the margin between different liquid sing tokens generally smaller such that the switching costs are lower and it easier it is easier to move between them in different ways um and then I think naturally there's just going to be pricing power against um someone like that in the long run

particularly because um like the uh like the version of the Stak and token like sta or Ste that will actually exist for most places in the future isn't actually Lido's version um like concretely and you start to like kind of see that at the end of the day of like because it is going to live on these many other chains these other chains at the end of the day like do have some level of power and you're starting to see that actually with l2s today where l2s start to realize like hey we've got like two billi ion dollar of eth in our bridge that we could stake why do we leave this in Lio Stak eth like why don't we just make our own version of like mantle Stak eth or like whatever other stake teth because like we have some bargaining power now um and I think what that tends

towards over time is people don't actually want like a million different versions um but that there is real leverage such that like you can't just have this extractive pricing power of like if the taking token underneath just starts to charge like crazy PE like phase then people on the other side are going to like forkit and have different options to like make sure that they're internalizing their own value capture so I think that you end up with like pretty Lindy money like liquid staking tokens across like many chains for something that's like a money like asset um and then just naturally their commissions are like kept in check to a very reasonable rate where they're going to end up charging like what do we like what is the value we actually provide like what does it cost to run this protocol and do all this stuff because

you're not just going to have a valueless governance token there at the end of the day that's extracting too many fees in an open permissionless system where you could Fork everything like be able to extract that much like I think it's just going to get like killed by the protocol itself and other consumers to have power there yeah I I would agree with a lot of what John said um the way that I think about this is in the short term I think having high competition is very important um because it forces liquid sing protocols to build things that are aligned like John was saying I think the natural incentive is to make something that is maximally aligned with the underlying protocol um but if it's impossible to compete and you get a monopoly really early on then

uh like that one protocol might have no competition and not build in a very aligned way so I think in the short term like basically what we want is just make it really easy for lots of LSPs to compete um in the long term there are these like uh really powerful Network effects brand liquidity Integrations Etc we all know them um that might tend towards one or maybe a couple of of players um and then so in in that case I think what is really important like John said is regulation keeping liquid saking protocols in check having you know checks and balances um and also preserving uh some sort of uh right to exit um those so I I think the I think things will play out differently in the the short and long term um and right now

I'd say we're still in the short-term phase maybe we're like more in the medium to longterm on ethereum but for Cosmos it's just like my perspective is just make it as uh easy to compete as possible and LSPs will naturally build things that are lines and then they'll aify Through Time awesome all right guys I want there's one more section that I want to cover here on General demand drivers for um liquid staking tokens and then I want to get into I actually want to spend basically the rest of the podcast talking about Celestia which I feel like is its own extremely unique animal and frankly ecosystem that I've been really interested in and Diving deeper into as well but you know uh John in your blog post you you had kind of a list of some of the different demand drivers for liquid staking General so that could be

we talked a little bit about the ux um and that was a little bit of a an idiosyncratic ethereums specific reason but there are other things like a robust defi equos systm can you just kind of walk us through what some of those main demand drivers are for liquid staking protocols in general yeah sure yeah I'll kind of just like walk through the list of these um I think there was like seven of them I had in the post I mean like the yeah some of the like super idiosyncratic ones for ethereum were just like the very simple stuff that we all know that like definitely ramped up a lot of defi adoption at the start and this fact that you don't have any native delegation so this is just a way for people to delegate stake um and the other part being the merge was obviously

a very OS syncratic Factor if you had this long period of time where the beacon shame was live and you could stake but you couldn't unstake it until the merge so the only way to have like any kind of Promise of hey maybe I just put my money into a black hole for like five years and then I can't touch it if the merge like doesn't happen is like you need a liquid staking token um so liquid tokens filled that Gap and so by the time that proof of State came around of the merge um it already had like a super high adoption um so those are very idiosyncratic in favor of ethereum um some of the other things um that are these kind of uh apply I would say pretty equally to both ethereum and Cosmos um this is where I say like not

tax advice not legal advice whatever I don't know what I'm talking about consult your accountant or whatever depending on where you are um so there's two things about particularly like reward compounding and tax efficiency um that a lot of people like lsts for this reason of again depending on your jurisdiction but like very often staking income um that comes in the form of like I'm just continuously receiving rewards may be treated as income um which is often taxed at a much higher rate compared to say like long-term capital gains um so ideally what you would like um is to try to defer that income into capital gains rather than um income so often you that is like sometimes an appeal um for some of these non- rebasing um liquid staking tokens

um which is strides model um this is like how like joso on salana Works um and this is why some people actually don't keep base steth they wrap the Ste um it's because it doesn't rebase and so the price goes up over time so there's a better argument that like when you sell this thing it is actually you are incurring a long-term capital gain on a price increase rather than um taxable events along the way that's like treated as income there no clear guidance on this depends on your jurisdiction but like generally that's like people do favor it for that reason like there definitely is real demand because of that um another part is like reward uh just Auto compounding of like whatever the Baseline APR is of like let's say the protocol issue is like 6% per year um you get a higher apy if you

automatically as you get more rewards you're just automatically like staking those rewards um so then you get compounding returns over time um and um lsts can like like stride will automatically fulfill that role for you of like the second that they get new rewards like every few hours they're just like reaking that again so that you can compound rewards over time um and that compares to dep again depends on which staking system you're in but like something like ethereum the way that it's currently constructed right now is if you have 32 eth on a validator and you're getting getting more staking rewards they just sit there and they don't earn extra rewards because it is fixed to 32 eth per validator so the only way that you could start compounding more rewards is once you get another 32 eth to spend up a full new

validator um for a regular person that's running one or two validators that doesn't happen in practice you just end up with a lower apy compared to someone who has like millions of eth and they're just pulling it and like constantly spending up new validators um so there actually are proposed fixes that should like hopefully eventually happen over time with ethereum um like Mike no's propos around like a max effective balance which I think will happen eventually um although probably not probably won't happen in Petra it sounds like unfortunately um but probably in the fork after that um would be kind of fixing this issue of like okay the validator B balance can go beyond 32 um and so you can automatically compound rewards so there's ways to mitigate this but that is like a real incentive that exists is the ability to Auto compound rewards because you get a higher yield

so that kind of applies to both um and then the main big difference um and this has been the thing that is like very in favor of ethereum adoption over Cosmos adoption is just um like what are the Dynamics around the moneyness of the asset and the defi adoption in the ecosystem um and so disproportionately what you have in the ethereum ecosystem is this whole like buzzwordy like means 10 different things but like eth is money like concretely it is the thing that like when you go to a new place like this is the default you know trading pairer or what what like I'm going to use as defi collateral or we're going to go spend places like this is what most defi stuff is based on um and so that means like there is higher

adoption for this thing people actually want to use the thing as opposed to what you see disproportionately in a lot of Cosmos proof stake assets is like it's a random chain and there's no like moneyness or like utility of the asset people buy the asset and they want to get yield so there isn't like a big difference to them of like hey I already have an easy and protocol delegation mechanism I can just go like stake it in protocol you know having St atom or St osmo or something else like doesn't actually H like help me if I'm just buying this thing staking it for a year and I just want to like sell it after a year it's like I don't really care it doesn't make a huge difference um so that has disproportionately kind of like affected um the adoption in the ethereum

world versus Cosmos World a lot um another quick thing is just liquidity to sell um if you want to like avoid the unbonding window um generally you won't be able to sell without avoiding the UN bonding window if you're natively staked and people who want like Fast liquidity if you know Market changes I want to sell really quickly is like give a liquid sing to and you have that optionality um the moneyness is the kind of like very interesting one um because that's what kind of like Segways into why I think celesy is like a very interesting Market um like the the largest and most interesting market like that I would say that strride has had so far um that they're launching into now and it is because the asset has fundamentally like very different dynamics that I think over time will lead to disproportionately much higher

liquid staking adoption compared to other traditional Cosmos assets um and that is because it is something that more closely mimics the Dynamics of like how eth is used um in kind of ethereum world and I think early on there's going to be lower adoption naturally because like it's a new coin that launched I mean like most investors are still vesting and locked up like they can't liquid to take their tokens that's where like most of the supply is it's just like locked up it's not actually circulating um like you have all those kind of like weird early Dynamics um but over time you have the Dynamics of this is an asset where it is supposed to be used in this like money like way across all of these Celestial rollups where for many of them it will be the like the gas the base gas token

um it is what like fees will need to be paid to down to the Celestia base layer it is what will presumably be um as like kind of the base gas token and that has a very high market cap coin it's probably going to be used in a lot of like d defi collateral across many of these chains um so there's going to be a lot of adoption of this thing and then what you also fundamentally have is it's going to be used on many different chains um and you kind of see this in ethereum I've felt this for a while of the fact that like in the long run most eth will be used on l2s as opposed to the Bas layer itself is actually a driver of lsts in the long run because you're now fundamentally in the place where this asset everywhere it's going

to be used doesn't like the base asset doesn't fundamentally have any special place anymore like on ethereum you can't pay gas and Ste today like there's no like difference kind of between these assets once you're already kind of holding a bridg representation of the asset anyway you're kind of like self- selecting for people are okay with this understanding of like I'm holding like a wrapped representation of this asset and it kind of lowers the barrier to okay if I'm holding eth on a rollup like why am I not holding like rra teeth and similarly it's going to be like all right if I'm using like te on all these rollups to pay gas and like using defi collateral it's like a rrap version anyway especially like why am I not just holding like STA and like earning more money for no reason at this point like

why wouldn't I just use it for all of these things and I think that you're going to see that in practice so it will be accepted as a gas to and it will become very commonly used as defi collateral across these chins um so overall I think that they have the best shot of actually mimicking like a much higher adoption over time um just because of these Dynamics like just make sense for a much stronger liquid staking adoption yeah and just to underscore that that point and this is why I think the liquid like bridging first of all just in a sense bridging is kind of a myth like the asset the native asset never actually leaves the chain it just gets locked up in different types of vehicles that export like debt or synthetic versions of that asset and

some mechanisms are more credible and safe than others hence the idea of the LSM being a you know potentially a progenitor of this idea of kind of regulating or making more credible the vehicle that exports the sort of wrapped version so I think that's it's an extremely interesting point and maybe Aiden as someone who's approaching you know the Celestia sort of ecosystem you know can you expand a little bit on what John was saying about about why it's such an interesting market for stride specifically and then we can talk about the the moneyness of of Tia narrative definitely yeah um so I'll give a quick overview of uh where I think Celestia is at high level overview of where the liquid sing Market is at um

and then touch on that point um so we recently put up a post outlining uh how stride is planning to launch on Celestia how we're thinking about it um the key headline is that SCA uh both at staking APR and utility as a monetary asset on rollups will drive demand for SCA um because as John is going to get into sat is modular money um I think Celestia is going to be the biggest market for stride this year hands down maybe in coming years as well um John brought up a lot of good points about why sta in particular makes sense if you have these thousands of rollups they're all using Tia everyone it's like I mean the the the uh the explanation at the end of the

day isn't that complex people just want more yield so they're going to hold the Stak version of the thing not the unstake version of the thing and the easiest way to export the stake version of the thing is through liquid staking um so uh that's sort of how how we're thinking about it um I'm sure John is going to get into this modular money angle a bit more shortly um in terms of what the liquid staking market for Celestia looks like today um Celestia is very minimal they actually don't have interchain accounts so uh stride with its typical approach can't launch out of the box we built a different approach um which we'll be launching which uses a multi- for custody on the back end the reason for that is the only two ways to support liquid sing on Celestia today are through a centralized exchange or a

multisig um and so we're going that route uh we have a CIP a celes Improvement proposal to add interchain accounts um soon and uh I hopefully interchain accounts will be added in the next few months months and then stride will smoothly transition from multi-state custody to interchain accounts um at a high level our goals are to reduce trust assumptions um have Celestia govern validator selection and use battle tested observable audited protocols um in the long term there are sort of interesting approaches you can take you could build like a ZK liquid staking rollup if you have this thing called a snark account on Celestia makes it even more trustless than energ accounts you don't have to trust a

validator set to uh attest to some logic through IBC you can actually just verify ZK proof on Celestia um that's a bit further out um but uh short-term multisig medium-term IA long-term ZK rollup is sort of the the way that we're thinking about it um right now um yeah yeah and kind of on that like the like the whole like modular money thing that like people are that like is kind of the thing in Celestia when people talk about Tia like that that's in practice why a lot of this stuff matters um particularly to Celestia I think um is because I think in practice it's not going to be like for the reasons that you said of like bridging

is kind of like a myth in the sense of these wrapped assets like it's not Tia is modular money it's going to be whatever version of sta on these rollups as modular money like that is the asset that is actually going to be in end users hands that they're going to really be using um so it is very important in that scenario that like that's not going to happen if that bridged LST is some oneof one multi- that has like one validator underneath that is issued by some like random protocol that nobody knows and like can just rug you at any moment with like a close Source protocol like it needs to be something that mimics the like underlying asset qualities as much as possible that needs to be built in a very safe and aligned manner that like actually mimics the properties of the underlying asset um

and that that is also actually becomes an important point also uh in addition to that um uh which is very important in stri in my mind and this is one of the biggest things that we thought that when we were looking at Stride and like can anyone else build like a competing solution um is kind of just like the neutrality of what they have actually built is so critically important for this um because stride is like actually an app chain where the purpose of this chain is like hey we take in assets we issue liquid scking tokens and we manage your valuers like that's said it's not some general purpose defi chain that has like a DEX on them that's competing with these other people um it is hey if you get a version of sta on your rollup it is bridged through stride and it is just

like a representation of a bridged asset from like an actual neutral issuer um and that is going to matter a lot because particularly this version of Tia that's going to be used throughout these rollups for the reasons that we've described isn't actually going to come from Celestia itself um because there isn't that native smart Contracting and bridging there's not the native L deployed there like the thing that ends up being the like bridging Hub um for the celestial rollups is going to be another chain um and so that is what like strride is trying to fill um and the question is is like thinking strategically from the perspective of like any of these other chains that wants to import STA and for that to be an important part of like their economy that they're using as a gas token for defi Etc if you're you know uh a man

like Manta or eclipse or whatever just like any of these rollups is using this asset do you want a bridged representation of that asset that is coming through a chain that is your direct competitor um a chain that is going to for example like they are trying to be the the STA like trading Hub themselves they want to be the defi Hub in this whole ecosystem and now they have the leverage over you um so like for those reasons it generally doesn't make sense for me um if you're one of these chains one of these Celestial rollups to like get that bridge representation you probably don't want that coming through a chain like osmosis or chain like Neutron you don't want that to be the asset isure you want it to come from the most neutral Place possible so that you know when you're dealing with this person you're not just

like giving leverage to your direct competitors um that like have these incentives over you um you don't want to get into all of that you just want like like an actual like neutral asset representation that is bridged to your rollup um and that is like a really important thing like for stride um and like contrast to a lot of these other Cosmos chains that are like are looking around doing this it's like in practice through general purpose chains that are going to be directly competitive with these rollups so just thinking strategically from their perspective they're going to want the neutral asset that is the closest representation of the base underlying asset that is the safest the most align coming through just like it's just routing Hub that's kind of going through here um and so that's like a really really big advantage in stride my mind yeah and d

double clicking on that this has been sri's DNA since day one um this is an early differentiator against like P and quicks some of our competitors you know their vision is to have all these defi applications on top um I think early on we realized that for liquid staking tokens what you want is to export it everywhere else you don't want to like suck in activity onto your own chain you just want to push it and get it used in as many places as possible um so stride has always been very neutral does one thing does it very well um and we just try and keep things simple and support Pence yeah really well said and I I want to for for listeners who might be a little bit less familiar with Celestia's particular architecture uh and and I do want to draw a comparison to ethereum

here but one of the things that Celestia doesn't have is native smart contract ability on the on its base chain so that's why there isn't you know you can't have the same type of like canonical bridges that you have between ethereum and arbitrum or optimism between Celestia and any ofit Sovereign rollups that just simply doesn't exist right so that that's a big architectural difference but I would be interesting let me draw this comparison and see what you guys think about this but in a sense Celestia and ethereum actually converging on a somewhat similar design here in in basically minimizing um the the complexity of the base chain right or certainly the activity on the base chain and then exporting its its native asset to its uh ecosystem of rollups right um and so that's basically

ethereum again started very differently there's an enormous amount of activity on main chain and now it's it's pushing its activity up to its rollup layer but what it wants to do also is export ethereum uh celesia is almost in an a completely different but maybe they're pros and cons right to the situation they don't have all this activity to push up but it's even more minimally designed which is kind of a better fit for the exporting of the money so do do you guys also see that as a similar is that an apt analogy and just what do you think about that whole dynamic and comparison it's definitely how they're trending over time I think that Gap continues to converge of ethereum is progressively going to have the majority of dis value transacted um that's in

terms is going to be on other chains probably not on ethereum itself um and uh Tia is completely minimal right now where literally the only thing you could do is like just IBC out the Tia token to some other chain to the point where you can't even have any kind of different Bridge um you can't have the liquid sing protocol deployed on it natively um and in the long run I expect that to change of some of the stuff that Aiden had touched on earlier of what I think in practice will happen although this will take probably multiple years to happen um is adding some kind of at least like a ZK verifier like snark accounts to the Celestia Bas layer so that even if we're not doing arbitrary computation on the Bas layer such that you know we can't deploy like a smart contract for a

liquid saking protocol on Celestia you can deploy uh just a ZK verifier contract um there um just a ZK verifier such that you can have some kind of offchain logic of like a liquid seeking protocol um where this is now verified by the Celestia base chain so you can have effectively like a ZK rollup um like like stride built as a ZK rollup transition to that um that would be able to post these proofs to Celestia that just gives you a much stronger set of trust assumptions um they will never have that general purpose computation I I don't see any world where SLA itself adds like general purpose uh like smart Contracting or anything like that to the baser that will never happen um and I think that actually is a thing that I

don't think ethereum is actually figured out still of like where exactly on the Spectrum should the base layer be of and this is something I tweeted about like kind of recently um that was highlighted by like the the the gas limit increase kind of conversations around that um where I think that ethereum is very clear that the goal is for the majority of eth and activity within the ethereum ecosystem to happen on other chains um that are supposed to happen on ethereum l2s um I don't think it is settled what is the role of the Bas layer in that world and I think that it is still like a little bit in this Middle Ground of it's not in the Celestia Direction where it's very clear that ethereum's message is kind of like hey everyone on the L1 get the hell off like go to an L2 you do

still have general purpose smart contract and there are still like two quite different views I would say in a lot of the ethereum community where I think that there is a large subset of the ethereum community that thinks in the long run the ethereum base layer the execution layer the only purpose is really to just like you're posting commitments and it's just like verifying um proofs in the way that like kind of like Celestia maybe eventually will in a few years that they will like actually converge to the same same thing and I think there's another large half of the community that says okay most of the activity will happen on l2s but we actually want the the Bas layer itself to actually be like super functional too it'll just only be for like the really high you know uh value applications like the most valuable defi the most valuable

applications will still live there and that would be valuable because we're going to do like statelessness we're going to do zkm we're going to bump up the gas limits and it like will actually be useful um I think the Ean base layers is like kind of in this Middle Ground where I don't think it's actually decided like which of those two directions it's going into um and I think a lot of that is highlighted by this kind of debate um in the last few weeks of like should ethereum just raise the gas limit on the base layer um like vitalic had like written in the E is like yeah like we haven't raised it in like several years now you know Harbor improves like it's pretty normal you should raise the gas limit a bit um and there's kind of this like philosophical difference of will ethereum converge to

the same thing that we think Celestial will converge to where like there's really like basically nothing there but Pro verification or should it still be like actually a pretty useful thing um and I do think that materially changes kind of like what the architecture of the system looks like in the long run of like where do a lot of these applications live um and so that is like a pretty important thing I think for ethereum to Grapple with I don't see functionality on the Bas layer going away anytime soon I think you're especially going to see that in the next year when like probably the biggest meta in crypto for activity in this coming year is going to be a lot of the restak stuff like all of that is rooted on ethereum all of the reaking and liquid reaking tokens and all the stuff that

people are GNA be playing with most of that's going to be on the Bas layer still um it's not going to be this minimal thing um so I I don't see that happening anytime soon I think it's reasonable to add functionality um but directionally I would say that they're probably moving closer over time because I think celasa will at least add some functionality um and etherum most activity will still move to L2 regardless of what the base player does yeah I uh I mean in that world how do you guys I mean this is we're departing a little bit I suppose from the liquid staking part of this but you know in in this let's just say we're zooming out two to three years into the future and ethereum has gone down the road of basically minimizing um you know the role of the Bas layer and it kind of

takes a very Celestia philosophy um in terms of that direction H how do those two chains compete in terms of their rollup ecosystem I'd be very curious to get you guys perspective on that so and and also sorry do you see the majority of ethereum rollups today seeing as ethereum Roll-Ups like is it accurate to say that these Roll-Ups are scaling ethereum I'm pooking John here because I uh uh or or is there the possibility that they could shift over change to architecture and like transition to Sovereign rovs or something like that I think we are going to see this continued blurring of the lines which is why I was poking at a lot of the stuff that I was poking at earlier this year here um with some of the blog posts of like the L1 versus l2s and roll up stuff

I like I think that if you try to abide by the old mental models of you know is this just an ethereum L2 or is it like or is it a Celestia rollup and are those mutually exclusive and like everything needs a clean categorization I don't think those are going to exist anymore I think you're G just see the blurring of the lines and I think that we're seeing that play out in practice of what do you see multiple ethereum robs doing um in the past just like couple months of like hey we are paying way too much money for ethereum da like economically this is just not viable for us as an application developer this does not work for our users this does not work for us who has bottom line we're going to change da underneath um and for now like the clear

solution to that is like hey we're just going to swap in Celestia underneath because way cheaper um I think that's a trend that will continue to happen I I don't see any logical reason why that would not be a trend that continues and grows over time um I think 4844 will definitely provide obviously like some additional bandwidth and mitigation to that of at least slowing down that for current existing ones but the trend is very clear of we're going to have applications and businesses that like understand what their bottom line is and it's not going to be an acceptable answer of like oh I'm paying a hundred million do a year for some like handwavy notion of alignment or security that like doesn't really make sense to their application they're going to pick what makes sense for them as a business um and increasing that's going to be a

number of alternative da Solutions whether that's Celestia or igen layer da whether it's a veil different types of committees whatever it is there's going to be a lot of them I think that continues to happen um and in that world I think that you still see ethereum like l2s um where the core of their users and the assets that they are like scaling in that sense to the kind of question you had is like they are still going to be quite ethereum based um and I like I think that we see that in practice like that's going to happen with someone like eclipse of like they're in ethereum L2 um depends on what you call an L2 but they're going to continue to use something like celestic underneath for da um because it's just going to make more sense for them as a business um so

that is kind of the differentiation that like I see between them is like I I think the all the places that TI that most of the places that TI gets used will disproportionately have ethereum da um sorry will have Celestia da like they'll be relatively celestian native projects because that's like kind of what it starts as a telling Point um I think that increasingly you will see a lot of the places that eth gets used uses offchain da just because there's only so much da that ethereum can provide and at least will for at least a couple years um but there's a lot of demand to use e and so I think you're going to continue to see these kind of like hybrid solutions that are we're in ethereum on two that's where most most of our users come from that's kind of the ecosystem we're trying to scale but

like we're swapping different da underneath whether that's AO Lia like all these different ones you're like you're gonna keep saying that um so I I don't see that Trend changing anytime soon but like ethereum still just has such a gigantic head start on just the lindin of the ecosystem the moneyness of the asset that people still want to use use eth um like that is still what most people want to use as like while sta is hoping to become this modular money over time the Practical reality today is that like it has a much worse token distribution less of it's you know it's got a higher inflation rate it's less neutral like all these different things that ethereum has by a gigantic leg up over every ecosystem um and that gap's not going to change overnight like people are going to still want to keep

using this and the center of activity is still going to be ethereum because of you know reaking and all these high value applications that are there so Y how would you how are these two ecosystems going to compete on their export being money it's sort of an interesting reframe because initially and honestly Chris go has written a phenomenal blog post about this kind of like supply side versus demand side economics when it comes to blockchain but the mental model used to be all these things were bundled into one place and if you wanted to go use the things within this protocol an ecosystem then you had to use the native currency which was something like e but now what we're talking about in both both the case of Celestia with Tia and ethereum with eth is there's this protocol which doesn't

actually really do that much but the thing that's valuable is the liness of its export and so it changes the game in terms of how you're supposed to compete and I I would just be curious like and I promise we'll bring this back to like with sing in a second but how does Tia and eth the asset compete when the functionality of the protocol is much less of a factor I mean ultimately what people use as money and what they prefer as money is going to keep changing over time and there's I there's no objective like right answer to that I think there's a lot of factors that go into it and it will keep changing over time um in practice especially in the longer run I I mean like I definitely think you see a kind of like power lot to this like there's not gonna be a thousand

different monies that like people want to use especially because I mean the barriers will just continue to break down such that it's easier and easier and easier over time that like hey if I spin up a new chain it doesn't actually matter with the protocol architecture underneath is what I use for da where I settle blah blah blah like all those different things I just have a chain and if people want to use x asset they can use x asset and so as those barriers become better over time you're going to see okay it doesn't actually matter if my chain is using this da and that blah blah blah like if people want to use eth on my chain they're going to use eth on my chain um and that's what you see in practice with someone like Eclipse again of and all all these other ones that are

transitioning to a lot of this Celestia da is that like their exist user base that they're going after is like hey we prefer eth like this is what we want to use it doesn't matter that in the background there's like some cost that's like variable that the chain needs to pay in Te terms like it's not that hard for like all right we just handle this on the back end like we swap to me to Tea and like we pay the gas fees for you on the back end it's going to keep getting abstracted away more and more and you're just going to have what what do users prefer to use as an asset um and so that's where a lot of it becomes like siy needs to make itself if it's going to be any form of like the modular money like it needs to just make itself

more of an attract itive asset um for people to use within a c certain ecosystem um and that's going to be a lot of just like the community around it and then the assets of the the quality of the asset itself that will like change over time and all of those will get better um but it's all a lot of it is really going to be like just the decentralization of the asset the ownership of it the distribution of it um just like having more reasonable Economic Policy that's going to take time like it like it's not actually money today I don't think that like anything outside of Bitcoin and eth is actually like reasonably close to like a form of money today like even Sol is not there I think they can get there in the long run as they get a much better

distribution a much better cred neutrality of the asset um they have so celesy has a path to that um and I think people will use it in excitement of that but like it's definitely not there today like it will take a very very long time um to fully get there yeah one area that I am pretty excited about is seeing what tokens are used on Sovereign rollups built on Celestia um something that I've uh underestimated in the past is how powerful tribalism is and I think Sovereign rollups in particular you know this concept was born out of Celestia and the first sov rolls I think are going to be built on Celestia um probably by people who own a lot of Tia and will use Tia as the base asset so there's like reasons to use eth um as money you know it's more decentralized

less volatile um very liquid all these things um but I think all of that can be outweighed by tribalism and Sovereign Rives I think is probably going to be the first place that we see to use this m so I have a I was actually going to go exactly to this and I'm curious to get your perspective on this Aiden and and yours as well John but here's a here's a pro and a con that I see for the etheral up ecosystem versus what has historically been seen in um Cosmos and I think it comes down to the trade-off between a shelling point and interop and the vision from Co from Cosmos from the very beginning was this interoperable network of chains and sovereignty was a huge pull for why you building in Cosmos

as opposed to ethereum and the benefit of that is that you have this like kind of ideologically driven neutral public good in the form of IBC which has solved like interop and bridging and it not only solved a technical problem it's solved a social problem which is everyone just built their chain from day one from the perspective that these were going to be interoperable now the the opposite is going on over an eth rollup land where maybe eventually there's going to be interoperability between Roll-Ups but maybe never and I don't even think it's a technical reason it's a social reason it's like the incentive is for each of these rollups to try to create the dominant ecosystem where all of this

stuff lives now the tradeoff of each of these things is Cosmos has struggled from the beginning to have one canonical shelling point and the sovereignty kind of cuts both ways because everyone wanted to use their own native token as gas they didn't want to use atom right um and there was never a cohesive narrative and so that was the that was the the flip side of that where I could actually see over an ethereum land that it's the vibe like everyone use eth as gas and I could actually see ethereum getting used as gas whereas I think the challenge in The Sovereign rollup land is actually going to be every Sovereign rollup wanting to use their own token as money and even if that's not feasible long term miles and I have this debate on a weekly basis it probably will be tried in the beginning so I be I'd be

curious to get your your take on that so I see it to summarize I see T's competition not as eth but the Sovereign rollups that actually use its own ecosystem yeah well two two things I would say to that the first is uh I think there are uh other reasons so uh like using native token as gas that's one reason to build na chain but there are other reasons um being Sovereign allows you to fork in the case of a hack for example um or a protocol bug um it allows for much easier coordination around um upgrades and then there are some other sort of security benefits that you get um from having an nchain as well um so there are other benefits and I think a lot of them translate to rollups as well um but in Cosmos it's

always been the case that when you launch a protocol you need a token uh to secure the validator set this is no longer true after interchange security but historically it's like 98 out of 100 app chains have a token so there was no other route with rollups you don't need a native token and you still have all the security benefits um and I think this is like sort of played out on eth like eth is much more money likee than ARB or op and uh I think it it'll I think it'll play out similarly on on Susa but uh I guess yeah we'll have to see yeah I I very much agree with that um I I think for a mix of reasons you won't see most of these Sovereign rollups kind of mimicking what we have seen in Cosmos in the early days for a

mix of what he was just describing there Aiden of I think that a lot of it will look like ethereum where a lot of these protocols don't want to launch a token or at the very least don't want to launch a token uh when they launch because people want to wonder if there's going to be a token and there yeah like when being realistic like that was very helpful to people like optimism and arbitrum that like they didn't have a token at the start but like people wondered like when are you gonna have a token most protocols would want that as opposed to just like launching with one right away and just like hey here are all the tokens um that's generally attractive to most protocols and from most that I've spoken to they like tend to be going that route of like we won't

launch with one but like I like we can have one later um and there's a meaningful path dependence um to how these ecosystems develop so like okay if that's the incentive is to launch in that way without your token at first but like have one later on but you know hey we're live for like six months or a year first and in that entire period uh this other asset whether that's sta or eth becomes the base money and the base asset in your ecosystem over the past six months or a year you're not just going to like show up a year later and be like hey here's my Governor token we're going to make it the gas token now like users are just going to like kind of tell you to [ __ ] off if you try to do that for the most part um and it would

just be like a really bad business decision um I I think that more people had a view a couple years ago of like oh this gives us like a lot of utility it makes our token worth more like if it's used as a gas token I think that most people realize in practice like you're just creating a lot of barriers to use your adoption you're just going to hurt yourself if you try to force in like rollup token number 46 as the gas token of your chain and this user has to figure out how to H like how the hell to get this thing like just not going to figure it out they're just not going to use your thing um and so I think in practice what aen said is right it's going to look a lot like ethereum where these chains are going to build

themselves on either eth or Tia as probably their like starting asset and there's just gonna be a huge path dependant um and particularly these Sovereign rollups they're not the ones who are going to start with eth the ones that are ethereum l2s like Eclipse even though they're using celes da they're going to start with a high to path dependence on like eth is probably going to be the main asset that's the gas token even though we'll have a lot of stad defi the ones that start as Sovereign robes without a tie to ethereum I think that most of them are incentivized to just start without their own token and just use Tia as like the main token because like that's going to minimize the onboarding that's going to be tapping into the right community that they're trying to go after um like they're generally incentivized to take

that path and I think that path just keeps running itself out they don't change that you know a year later when they have their own token and I think it's a much better model than all these different chains forcing their own momentum F fun fact Tia and Adam are both gas tokens on Str yeah very cool so U you know some light bulb actually just went on there hearing you discuss that so it feels like there's an opportunity for reaking as well there's a reaking part of this story for Sovereign Roll-Ups right that might want to launch without I hadn't even thought about that John but that's a really good point without their own token so they can do things like points right points points points or whatever and then get that when token you know sort of uh initial burst of activity uh

I would be curious a have you thought about uh reaking at all because there's there's a natural alignment as well in between liquid staking and raking I would say um so I mean I guess this is something that could potentially it's just such a funny could I guess Igan lay could say you know I think a lot of people assume that Igan lay is going to be E3 staking forever but there probably good evidence to suggest that that's not actually the case um pretty sure F has actually said that on a bell curve in the past so anyway we can assume that's not going to be the case but there could be opportunity I guess for a more sta or Tia aligned reaking provider as well so I don't know if that's something you thought about yeah the way that I think about

um about liquid saking reaking stride all this is uh to to some of John's earlier points stride does one thing and does it very well right now which is liquid staking um if it does uh anything else in the future um like reaking or exporting other tokens as a bridge or something like that um it should be very aligned with those with that ethos um reaking is a huge opportunity for sure um it does have I think different uh risks than liquid staking um in particular managing Leverage is is much more challenging um so on the one hand you know maybe there are some vertical integration benefits to liquid staking

and reaking but on the other there's all these new risks that you introduce um so I don't really know where where I stand on it um today but stri doesn't have any plans to to build resing um the the other thing I would say is I think like the in terms of the value chain uh I think like let's just take ethereum for example eth is the base token that's what everyone wants um like that's uh the community that people are buying into it's what defines the ideals um Ste layers uh yield on top of eth so uh Ste depends on eth and I think similarly reaking will depend on on liquid staking if steth is the best um collateral for example and users demand you know they already are getting like their 5% yields

from Ste they're going to want to deposit that into IG layer um unclear what the yields from igen layer will be but uh let's say it's like one or two% I think if Igan layer says like hey actually no we're not going also I'm just uh i l has not suggested this I'm just using these familiar names if IG ler said that you know we're not going to accept SE and we're going to build our own LSD I think that would be a big foot gun um because users are demanding using SE as collateral so that's sort of like the the dependency value chain that I see um right so I I think reaking liquid staking will be very um uh mutually beneficial yeah I think it's hard to answer like where this will play out I I think that sh will have the very clear

benefit of just like looking at ethereum and being meaningfully behind that and just seeing how it plays on ethereum of like who kind of has the power between the liquid staking protocol um um versus the reaing protocol if they're separate um depends to a large degree on like like who has the kind of stronger consumer demand of like if literally everyone wants to restake with Igan layer and like all of this teth is deposited into igen layer well then maybe IG layer does think about like oh hey like we actually have the power here like what if we just like Swap this C our own thing um if in practice the vast majority is still in Ste and like reaking is this like fun thing but it's not like overwhelmingly a gigantic piece of the market where they could like really kind of take it over themselves

um then in practice they like can't actually do that and so a lot of it will just depend on like how big is reaking over time um in ethereum I mean most of what we see is I think that reaking as a meta and as a defi thing to play around with will be very large this year um I think it is unclear if at this point still if reaking as a like actually very large economic model that like secures a million na BS has and provides a meaningful amount of yield in the long run for a lot of users um I think that's a huge question I don't think that like as of right now the answer is not yes um that's like like definitely um and so celesa is just like way behind on that of like there isn't you know uh a line

of people who want1 billion dolls of you know State uh steo right now to like re you know to restake and secure their chain like it just it just doesn't exist at all right now um but there's a real need for like people do want to use Thea in a lot of these places early on um so just B saying like how do these markets develop over time like what is it that users want because yeah there there are some benefits of putting them together but there are also benefits of like keeping them neutral and separate and like keep them very distinct products because like building either one is like a very full-time job with a gigantic team and they're very different um and that's why we see that in ethereum in practice so far of like lios is just like hey for now like we're just staying

in our own lane andan layer is being also saying like hey for now like we're just going to stay in our own lane and just kind of like see where this goes um I I think that's like the right strategy for pretty much everyone for now it's just like especially because celes would be so far behind on that like it's it's not about to have like this like gigantic need for reaking tomorrow it just doesn't exist yeah well said well uh guys maybe we can start to wind down here we've given uh quite a long podcast for listeners but I I want to conclude with you know John you sort of we we've talked through actually some of the some of the reasons specifically why but maybe we could end with you know why the market for Celestia and the penetration of liquid staking is going to be

meaningfully different from the penetration that we've seen in uh Cosmos or salana we've again talked about a lot of those reasons but let's just underline it so that the so the listener kind of walks away with it and then Aiden I mean uh and we should have caveat this at the beginning by the way but both John and I are investors in stride so you know but uh we're we're you know for good reason we've been fans for a long time so um yeah would love to just kind of end on why Celestia again that that penetration might be very different and kind of what our future plans for first stride that listeners can expect to look out for yeah kind of yeah in summary the I would say the the kind of main things is like that's my high level view of like why Celestia is

such an attractive market for someone like stride um is I mean one is just the raw size of like the underlying asset of just like yeah Celestia like the t is worth a lot and probably worth more in the future not Financial advice um but um the other part is like okay out of that like how much is going to be liquid Stak and I do think that like that's going to be higher over time um and the reason is because I do think it mimics a lot more of the Dynamics in ethereum um much more closely than most of these other existing Cosmos chains or other existing chains um particularly in that the goal of this asset is to be kind of used as this like money like thing across many many different chains like the the version that the end user is always going to be interacting with is

going to be this bridged version at the end of the day anyway and is going to be used widely in that capacity in a way that like a lot of these other Cosmos tokens are are not of like Neutron cep a bunch of gas tokens uh and stride accepts a bunch of different gas tokens of uh most users don't actually pay in them because like they don't actually want to use this thing and they don't care about it like most just use whatever um TI is actually going to be in a strong position where like that will be the preferable thing that like most people use across these both gas defi all these different things so you get a lot of broad adoption all these all these different chains um and it will be a bridge representation on all of them um and so like once you're

already in that position you're going to you're going to hold the liquid sing token like that that is going to be most used users preferences and we start to see that playing out on ethereum today of like there are a lot of ridiculous things around blast but like the the core idea and that some others are like leaning into now is like yeah if I'm holding eth on a rollup I should just be holding the liquid staking token like like why wouldn't I um and so I think that trend is going to very much play out in celesti in a way that we just don't see um in these other Cosmos chains with this one asset like proliferating his money across these many different chains like once you're in that scenario you're going to want the liquid Stak and token and you're going to want the one that's the most

neutral the safest the most reliable the closest to the base layer um and that's what let us to drive because I they were clearly the best team who were doing this we were very impressed So yeah thank you John and um in terms of our plans um as John said you know uh neutral aligned all those things uh By the time this goes live we'll have launched um with st um it's secured by a multisig on the back end comprised of a number of uh validators um this is the only way for us to launch now um we'll be migrating to interchain accounts in a few months and then ZK rollup approach is probably 12 plus months out that's sort of our technical migration path in

terms of what's next on the uh like what's next in the wild like where is St going to be used what's actually going to happen um three main things I would highlight the first is air drops uh I think the reality is today uh you know there's an explosion of activity around cestia for good reason and lots of those teams are airdropping to uh t stakers uh I think it's going to be really important that SCT sakers and any other LSP that they're included in those airdrops um practically this just happens with um like work behind the scenes talking to these teams indexing St holders things like that that's going to be really critical um the second is organic activity um so stride typically incentivizes liquidity and sometimes

organic activity so that'll happen around the ecosystem you we're talking in teams like Eclipse Astria um Dimension Manta long list um so bootstrapping that um and then the third is uh we're starting to think about how to bridge St to Roll-Ups um and uh more news on that will be will be coming soon so that's kind of what you can expect um for SC in the next few weeks awesome guys well look this was a this was a phenomenal conversation from my perspective we went for almost two hours and I think we only covered about 50% of the D detail that was in John's original post so again guys we're going to link that in the show notes definitely go and check that out especially if you want to nerd out a little bit more around some of the

technical details that we sort of skipped over but yeah Aiden could not be more pump for uh for stride and the future of sta as modular money um so and guys Aiden uh or John if if folks want to find out more about the work that you guys are doing or follow you or whatever what's the best way to do that I'm Aiden zerx on Twitter best place to find me yeah can find me on Twitter or just db. XYZ is our website easiest to find everything there awesome guys well this was a really fun one appreciate both of you and uh yeah we do something like this again soon thanks man' thanks man take [Music] care