Institutional ETH Staking Infrastructure

Transcript

[applause] >> I'm going to uh hopefully uh talk to you a little bit today about uh what we go through as an infrastructure provider and a staking provider as it pertains to Ethereum staking within the traditional TradFi and institutional space. Um the question really is you know, not whether people should stake. That was probably, you know, 24 months ago. Really, it's now is who do you trust and how do you how do you find a a a a partner to scale with.

Just to give you a sense of Blockdaemon, I don't know if you're familiar with us. We're an 8-year-old infrastructure company. OG in the space, started out with uh node infrastructure. Full dedicated nodes, RPC API business. We morphed into a staking company where we we support well over 70 different chains and protocols. We have an MPC wallet technology uh business too as well where we provide wallet technology to those institutions that we talked about. And then uh we also have a DeFi infrastructure play too as well. So, as it pertains to us in the industry as on Ethereum staking, we've been doing this from from conception and we represent uh approximately 5% of the overall ETH stake market today.

So, Ethereum really is at a has been at a crossroads and we've really crossed a a a big threshold as it pertains to institutional adoption. Um you know, it's very different than structurally different than Bitcoin. It builds an economy on yield and and generates a great deal of cash flow. It really is producing a treasury asset not just uh for price exposure, but for price appreciation. So, you've seen now well over 500 million of ETF adoptions within the Ethereum ecosystem.

We have approximately 200 publicly traded DOTs that are in the ecosystem today, but of that 36 of those are Ethereum focused. So, we're representing about 20% of the overall publicly traded DOTs in the marketplace. Um you know, it's really you can see that continued adoption and I think we're not slowing down unless we see something unprecedented happen. So, of the of the DOTs that represents about 7 million of staked assets, uh that represents approximately another 6% of the supply that's being staked and we continue to we'll see this continue to grow.

So, what we're seeing from a structural growth perspective, it's really not a bull market cycle. Everybody can attest we're not currently in a bull market cycle. But, you can see continuous growth in Ethereum adoption and Ethereum development and Ethereum being staked. Um total assets staked today represent just north of 38 million approaching 40 million. That's roughly a $10 million increase from January 1 of '24. Of the overall Ethereum assets, that represents 32% and as I as I said, you know, we represent about 5% of that overall market. So, what we're seeing is continuous steady growth, uh uninterrupted climb uh from '24 to

present, barring all the craziness that's going on in the in the in the broader market as as we see today. So, uh it's really reducing uh a great deal of opportunity for us in in the continuous growth and in watching that institutional adoption grow. When we talk to institutions, we talk to them about a lot of different things, but you can really identify these five categories of where we sit down with someone say, "Okay, talk us through your risk, your security your security posture, your compliance posture. how can you help us provide liquidity? Talk to us about yield, not just maximizing rewards, but how do you protect our assets from a slashing

perspective? And then the operational exposure of how you're going to service us kind of 724 365. So, each of these we we will address and talk to, but that's really the nature of the business as it pertains to talking to these institutions and how they want to adopt uh using Blockdaemon from an institutional staking perspective. So, from an operator's perspective, we really get into appealing the onion back with the client of talking about um how we manage uh our validators, how we manage the the key the KMS and the signing process, how we manage the the policy exposure on the engine from a

slashing protection perspective. We really want to reiterate that there should be no key exposure to the client. The operator should have no access to the keys. The keys should never leave the secure enclave. Um from a remote signing perspective, we want to make sure that that the policy-based uh access is at the KMS layer. Um and then from an MPC perspective, we want to make sure that there's no single operator holds any signing authority. So, these are the postures that we go through. The core insight here is that the operator should have no need to touch the private keys in any way shape or form. Signing and triggering operations should be fully decoupled. Um so, this mirrors kind of what they're used to from a evolution of

tradfi perspective on on the custody side from a dealer discretion to programmatic policy enforcement uh steps uh settlement. Going now to OFAC screening, which is another key component of when we talk to the institutions, it really has to be applied as a default. Um a lot of providers in the space today put this function onto the client's responsibility. At Blockdaemon, we do not. We operate the OFAC compliant MEV Boost uh relay infrastructure.

Uh we validate every entry uh as it pertains to prior to it being uh signed on the block. You can see some of the the compliant MEV Boost relayers And the other conversation that we have with our customers is really the certification and controls that we have in process. Blockdaemon, as I said, is an 8-year-old infrastructure company. We've been ISO compliant 27001 for at least the past 5 to 6 years, probably one of the first in the industry to be ISO compliant. We're SOC 2 Type 2 compliant. We're just now completing SOC 1 Type 1.

We have our sanction screenings and obviously the SDN list monitoring. So, when we go into a client and talk to them about our posture, it's not just meeting with the node ops and dev devops teams and our head of engineering and staking infrastructure, we really bring our our MEV quant team in to talk to them about how we're performing and how we're going to perform on their behalf in in in totality of this component. One of the other things that we counsel our clients on is really the entry and execute. It's very unique in in this particular uh experience with with uh Ethereum.

You can see the on the uh the red line dictates the uh the execute, the blue line dictates the entry crew. Depending upon market conditions and unforeseen hacking incidents and and so on and so forth, the market is going to react to these particular entry and execute, and we need to counsel our clients to manage that proactively with them. We definitely try to get our clients to maintain a 10 to 20% unstaked buffer. It's unfortunate that they have to put 10 to 20% aside and not leverage that and have it be earning, but they need this for the entry and exit queues. We also try to solve the problem by bringing the the prime brokerage and lending

providers to the marketplace to partner with them uh on being able to to provide a facility to if if something needed for an entry and exit queue. You want to make sure you're in and not lose your pricing power and pricing position. So, I kind of view it as like uh if you own a home, your banker convinces you to get a home equity line of credit. It's there for you when you need it, but you don't have to use it unless you want to. Um that's kind of how I view the lending facilities with the prime brokers is it's there for these instances that are unforeseen as it pertains to exit queues and entry queues really getting out of shape in a in a hurry. So, we're trying to counsel our clients and be and be completely consultative with them to

making sure that they can monitor anything that's happening that's going to be unforeseen in the marketplace. So, the next thing that we talked to them about is protecting and maximizing production. Um we really guarantee our clients 100% slashing and double signing insurance. It's uh contractually guaranteed. It's not best efforts. Um all the principal is protected and if Blockdaemon is at fault in any way, shape, or form, we cover it.

Never had an issue uh historically for a number of years. So, we want to make sure. So, giving them comfort that we will be able to protect them in unforeseen incidents and their their uh their principal is protected. The other time is performance. Um how are we performing in the marketplace? So, again, that's when we bring in the node ops and the dev ops and the engineering, but also our MEV quant team to show them that consistently, quarter over quarter, month over month, year over year, Blockdaemon is outperforming the average as it pertains to earning.

You're going to continue to see Ethereum be challenged as it pertains to yield compression, MEV compression. So, this is going to need to continue to have a much more importance stature in when we're talking to clients that we're consistently performing a blended rate of anywhere from 3 and 3 and 1/2% over the years. So, we're always above the average. So, when we talk to clients about why you should come to us, we really show these statistics and performance year over year, and we have um, a monthly performance report that we send out for both Ethereum and Solana, and we do that to all of our clients and our particular prospects. So, the main key thing here is how are we going to protect your assets

from a slashing and a double signing incident unforeseen, and also how we going to help you maximize within the proper confinement of the structure of rules, how to maximize your performance. And that's what we bring to the table. The other thing is really operational excellence and the full stack advantage that we that we offer. What we're trying to eliminate here, the biggest risk on the institutional staking side and anything that has to do with institutional adoption, is really fragmentation.

Every inference between uh, a vendor is a compliance gap. So, if you're using one vendor for your node and RPC API access, and you're using another vendor for your staking, and you're using another vendor for your wallet infrastructure, and you're using another vendor for your data and analytics, all those gaps are compliance gaps and they they have a security attack surface vector. So, when we go into a large institution, they're always asking us, "Hey, can you help us reduce our vendor footprint? Can you help us reduce our risk exposure? Can you help us reduce all this fragmentation that we have and extend our budgets? We want to partner with one strategic institutional

infrastructure provider that has that posture that can help us and be a partner for us." So, having a single provider, you provide, you know, a single SLA, a single master services agreement. You have one contractual relationship. You have a one security module uh where you're interacting with the client. And so, you have a lower risk threshold as you look to accomplish anything you want to do within the digital asset landscape. So, this is really what we bring as a strategic advantage into the marketplace that we can help them with all aspects of their business and reduce their cost of ownership, reduce their vendor footprint, and extend their budgets all protecting while protecting their assets

and reducing their risk exposure. Where is the industry heading? And I know I've gone through this pretty quick and I've got some time on my hands here, but this is a this is a really kind of an interesting slide. Um you're going to continue to have the ETF exposure. Institutions are adopting Ethereum staking structurally and it's self it's self-reinforcing. It's going to continue. The ETF flywheel is already kind of spinning and it's already in motion. Corporate treasurers are treating ETF uh ETH as a as a yield uh bearing asset and they're looking for partners again

to maximize their their earnings as well as minimize their downside risk. Right now, as we mentioned, ETH is roughly around 32% of the staked supply today. I'm really anticipating that to be north of or close to 50% within the next 3 years. So, you're going to continue to see that institutional participation um will be the primary driver more so than than the retail crypto native side of things. Uh ETH is uh is on an incredible path to becoming a dominant institutional grade uh digital asset uh platform unforeseen any any kind of uh issues in the marketplace. So, they also

need to make sure that the digital asset treasury stuff continues to move, which it is. The roadmap is key too as well. So, really working with the Ethereum Foundation and understanding their roadmap and how they're eliminating certain uh issues and requirements so they can have further adoption and further growth are going to be key to to uh to the uh where the industry is heading as it pertains to to ETH. And then obviously the the validator economy is is key. It's how are we going to continue to leverage uh MEV compression and how are we going to monitor that, maintain that, and how are we going to choose a proper provider that's going to help us protect our assets and maximize as much growth

as we possibly can. And final slide is really kind of again, bringing it all home from an enterprise staking perspective. The institutional grade Ethereum infrastructure really is is here to stay, is continuing to be adopted. You can continue to see the growth in in institutional adoption as it pertains to ETH staking, more dots, more ETF adoption. And again, as long as we're talking about how are we securing the keys and and protecting the signature aspects of when things are in motion. Uh the compliant component of OFAC and your policy engine of being SOC and ISO

certified and how are we managing liquidity? Um from an entry and exit queue perspective being consultative and bringing those lending providers to the table. And then from a yield perspective again, protecting 100% of their assets but maximizing the growth all within a compliant performative infrastructure way. And then how can we help them manage the full stack? One master services agreement, one particular SLA, zero fragmentation, and really being a partner to the client and extending their budgets, extending their reducing their vendor footprint, and being a a key asset to them in the long term.

That's really been Blockdaemon's stance from the very beginning and when we started uh 8 years ago. Again, we have north of 10 billion of assets staked under custody. We support well over 70 different chains and protocols. Our uptime performance is is stellar, 99.9% and again, we're ISO and SOC certified. So, hopefully that gives you a little bit of color of what we do when we talk to uh the key TradFi and institutional aspects of how we convince them about you should be staking your ETH, how much, and how do you pick a a proper provider that has a proper institutional enterprise stature.

Thank you. >> [applause]