Liquid Restaking is Coming Sooner Than You Think

Transcript

at a very fundamental level that the Federal Reserve or JP Morgan or maker Dow or Ste or enan layer or any of these liquid reaking protocols they're built in the same way and they have very similar challenges of managing assets and liabilities and frankly let's just let's just be honest eventually these things will be transparent and onchain and there'll be these services that we can track at one for one on real time check the code is kind of a meme now there aren't enough people that actually know how to check the code all right everyone getting to be that time of year again where we are four months out from Das London the largest oldest institutional conference in all of crypto but it's also Thanksgiving in Black Friday and I know what you're thinking you're thinking Mike I'm a

loyal listener of bell curve here been wanting to go to D London but I've been waiting for my Black Friday deal I just haven't seen something from you yet well don't you worry dear listener I and the good marketing Folks at blocks have intuited that and we are rolling out our Black Rock Friday deal special see what we did there Black Rock Friday institutions are coming and all that for the next 5 days if you head over to the Das London site which you can see Linked In the show notes here you will get 20% off of the group pack that's four packs so grab family members that are interested in crypto grab folks from your company and come hang with the growing list of speakers in London we've got the guys from framework San's coming out there eany gavo of winter mute a bunch of the big European funds electric

1kx this is going to be a really really good one so hope to see you there with the entire blockworks family in London in March all right everyone welcome back to another episode of Bel 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 BC you got miles and I here today miles how you doing buddy great to be back another another Deep dive fireside chat um if you want

to teed up I'll let you yeah this is going to be this is going to be a fun episode because this is actually a little bit of a revisiting uh of an old theme that we that we talked about a couple of seasons ago that has become relevant again so this episode is going to be a deep dive on liquid reaking and we're going to get very into the Weeds on how that actually works um as well as some of the new uh protocols that are up and about to launch but uh I would highly Rec commend for folks liquid reaking miles and I did a an episode on or a whole season on liquid staking which was one season ago highly recommend that folks go back and listen to that particularly the episode on reaking that Miles and I did with shiram but throughout the entire course of that

season there was intersection of liquid staking and reaking and we sort of hypothesized or mused about this idea of liquid reaking but back then I think we thought maybe this was going to happen uh but far off into the future and I think you and I wanted to do this episode now because it looks like wow there are a lot of teams that are operating somewhat on the DL some are just starting to to come out and this looks like this is something that's gonna happen sooner than I think you and I both thought yeah well let's be honest I think it was one of those things that we knew was probably gonna happen um for all the same reasons that liquid thinking you know is is inevitable right um one you know the the ability to to retain your like liquidity and and also

have the higher yield is avail able there's there's no way that you know it's not going to happen so here we are a couple months later with uh over 10 liquid reaking protocols um that have launched or at least announced that they're entering the space and um you know I can layers a few months you know at most away from from going to main that so it's uh yeah time to time to see how this plays out it feels timely I agree so guys in terms of the agenda for for this episode miles and I are going to do a little bit of a uh a recap on our framework for looking at protocols like uh or liquid liquid reaking protocols and how they're similar to reaking protocols like I igen lay Lio stable coins it's kind of a commonality

between some of these protocols that we're going to be talking about then we're going to get into sort of the different models that exist for liquid reaking miles is going to call on you to kind of walk us through pros and cons and where you see the dominant model being uh then I think we're going to spend some time getting into kind of the competitive Dynamics between all the different players that exist in this liquid reaking supply chain uh and then when maybe we can view sort of at the end of what this actually means for eth and this new sort of era of eth exporting security and what that means for Value Cru we can end on some sort of higher level um higher level consequences but for now I I want to walk folks through this was a theme that that you and I touched on quite a bit

during that season of liquid staking and uh we had several guests uh discuss the similarity between different types of protocols that on the surface look very different but under the hood look extremely similar so this this comes this diagram if you're following along via video this comes to us from Adrian over at steakhous shout out Adrian and all the chefs over in the The Steakhouse um but this is something that Sam uh kazami and arra talked to us about as well which is there are these very different entities and what we're actually looking at here is illustrative Capital structures of the US Federal Reserve JP Morgan maker Ste and I think we could add igen lay and liquid reaking balance sheets to this as well but basically the similarity is when you

look at it from a balance sheet standpoint you have um assets um on one side of the balance sheet which are sort of yield bearing assets and then you have liabilities in the form of in the form of these sort of uh callable deposits right so for something like a bank right you have the the callable deposits which is cash that you deposit to a bank then they turn around and put that in uh very liquid Securities like treasuries or they put it out as loans um and what they're trying to do is it's a net interest margin business where they're trying to manage duration and risk of the assets and the ability for those liabilities to be called so there's kind of deposits debt and then an equity buffer on the liability side of the balance sheet and that's actually very similar for for crypto protocols as

well so you've got maker Dow as an example Ste is a really good example of that where there's kind of this two-sided marketplace where if you look at it from the the standpoint of assets and liabilities you have uh staked ether so you have sort of your your um network of operators that are earning eth bearing yield and then the callable deposit is Ste right and then there's a surplus kind of Insurance Fund so that's that's kind of the the framework that I think you and I want folks thinking about when we start to get into some of the weeds of what these liquid reaking uh protocols and uh kind of look like actually under the hood anything to add here or or what what you know what do you think about this no I think that makes sense I think we we can get into

it um you know this is adding another layer of of risk and complexity I think to that original model um and we can talk about some of the pros and cons there um and and the different ways to do it but you know overall it's the same idea of of you know you have a demand side of assets coming in you have you know those assets are deployed to some yield generating activities and and and operators um and then you're giving the users you know a derivative on the other side that they can go using defi um and you know I think again we can get into kind of the differences in models but some of them will look more like maker where you can you know depending on the

risk of the underlying collateral you can mint you know less than one to one or maybe one to one if it's if it's the least risky and then others will will look more like Lio I think where you're really depositing into a vault or you know get a derivative one to one and then the protocol is managing all that you know allocation and risk management on your behalf yeah I I would say two two concepts to keep in mind as we go through this episode is principal agent risk and fungibility which are both extremely important Concepts to understand uh for these protocols so principal agent problem is this sort of difference or uh a Divergence and incentives in between the principal

holders of something and agents who are acting on their behalf so this is relevant for all of these protocols who are like let's just take the case of Lio where there's a delegator right so they'd be the Principal in this in instance that's coming to Li and saying hey I want to um delegate some of my eth um and then there's La who is the agent and how they're being an agent in this in that respect is they're they're choosing which operators so which you know professional stakers or eventually Community stakers to actually delegate that eth too right so principal agent risk is something to understand and then there's the concept of fungibility right there there are intense power laws for these businesses because they want that that token or derivative or kind of claimable dep it to be viewed as money

right that's the goal of something like Lio they want Ste to be the dominant asset there are huge power laws there they want it to be basically one for one good with with eth um and so one of one of the key one of the key things that Ste needs in order to do that is kind of this idea of fungible oneto one right and on and something like like Lio that's a little bit easier than than the situation in something like reaking or liquid reaking because all the operators are doing exact same thing right these are all validator nodes that are staking and earning consensus level and execution layer rewards but that's not necessarily the case in something like uh a reaking or liquid reaking protocol which we can get into which just adds an

entire new batch of complexity yeah absolutely I and I think we it's probably worth like just doing a quick rehash of what the the igen layer model looks like without um liquid reaking tokens and then from there we can you know overlay okay where are these protocols coming in um and how do they impact the user experience and um you know essentially potentially impact like the Igan layer Marketplace itself at some point if they're if they're if they get larg yeah that's I'm just going to te you up there miles could you just give us a a refresher on the igen layer protocol what it looks like from kind of a Marketplace perspective and then the different operating models that people

can use with with igen layer and then we can into where liquid restak belongs there okay awesome so just to rehash I guess what the igen layer model is here um so if we recall Igan layer is a Marketplace for ethereum's trust um on one side the supply side you have stakers either lsts or or native stakers that have you know are basically securing ethereum um the protocol and on the other side of the marketplace you have protocols like rollups shared sequencer sets um you know other POS chains that want to rent this existing security and they also want the operators ethereum operators to do

additional jobs for them and in the same way that normal staking Works they basically have you know a set of operators they're doing a job that secures the protocol if they do a good job that leads to positive externalities um and if they do a bad job then they need some sort of economic punishment right so they will be slashed um and so here you have the supply side fragen layer are the native stakers and LST holders um they will go if you're you know a Staker or an LSD holder and you say okay great I want extra yield um and I'm willing to take on a little bit more risk for that extra yield so I deposit my you know LST or I deposit you know my

my native stake to igen layer and then I will go and pick which AVS um which is the demand sides of these are protocols again like POS chains you know uh rollups anything um I will decide okay which AVS do I want to restake to and which operator of that AVS specifically do I want to delegate my stake to um and this is this is a complicated you know sort of decision right you not everybody is going to be an expert at evaluating you know the slashing conditions of these AVS is evaluating the performance and risk associated with various operators um but they do want extra yield right and that is where liquid reaking tokens come in most of these

liquid reaking tokens are have have recognized that there is demand from ethereum stakers and LST holders for extra yield um yet there's probably less demand for you know specifically these the supply side to really want to choose themselves which abss and operators to pick um you know in the same way that Lio does arguably a better job at choosing you know how stake is delegated than than users if they had their own choice um that is the role that most of these liquid reaking Protocols are going to play and so so you can see here they basically wedge themselves in igen layer's Marketplace between the demand

side for for for them which is Ian layer's supply side um being the stakers and lsts and the supply side for liquid reaking again is the demand side for ien Lay um and so basically if I'm holding Ste just to walk through this I will come come go to the website of one of these liquid reaking protocols I will deposit my you know Ste and then the liquid restak Pro protocol will deposit that to igen layer on my behalf um and then the liquid restak protocol will basically allocate all of of these deposits across a set of avss and operators that they have

onboarded and on the other side they will give me a derivative of of my basically restak ethereum um and so how is this different than normal lsts I think like the most clear difference is in the amount of risk that they're managing um you know as you mentioned earlier right if I bring my eth to Lio I give it to Lio and then they go find you know different node operators to uh to to allocate that to and I get extra yield um it's hard enough I guess uh evaluating the performance and and risk associated with uh operators for Lio um

when all those operators are doing the exact same job right they're all just proposing blocks on ethereum now with liquid reaking these Protocols are going to take on you know a lot more responsibility they have and Ju Just to underscore miles why that's why that's sort of a more manageable a difficult but manageable task is because if they're all performing the same exact set of activities then you can have some sort of standard criteria for ranking them right you can apply you can apply a shared framework to say and by the way just to you know there obviously ethereum has a a large ecosystem of solo stakers but especially the original node operators in Lia we're talking about professional staking companies like

chorus one block Damon figment Etc so it's much easier to take a a relatively smaller you know relatively smaller group of companies that are all doing the same thing and apply standard framework for risk assessment scoring all of that kind of stuff but when you open it to this wide world of avss and it could be a sequencer or an oracle or some other validator on a completely different L1 that has a totally different set of consensus and rules you can't apply any sort of standard framework so the the operational load for the underwriter right the liquid reaking uh protocol is just much much higher much harder to get right right of course because if something goes wrong just like liquid staking those losses are socialized across the whole the

entire holder base right and so you need to be if you're a liquid reaking protocol you need to be you know very very careful about which avss you on board based off of their own specific ABS you know slashing condition risks um and Technical risks right like bugs something go wrong there and you're evaluating The Operators Associated you know that have that have opted into securing those additional protocols um and so my guess is this going to look very similar to lsts did when they first started right these operators are likely only going to be professional node operators um and it's a little bit less clear to me exactly how conservative they're going to be with avss because to date you know before igen l i has a

launched yet um we don't know exactly you know how risk is going to vary like how highly it's going to vary across avss but the bottom line is the liquid reaking protocols have two layers of risk that they need to evaluate and then manage on an ongoing basis um in allocating all of these deposits across operators and abss and if they do a good job it's very happy days like you get the equivalent of steep right because it's all fungible with each other um except you're getting extra yield right um and and there's no slashing hopefully so you know I think for the most part you the ceiling I guess for a lot of these liquid staking um protoc liquid

reaking protocols is that their derivative will have the you know equal to Ste in terms of liquidity and Integrations and use cases but with extra yield um and now to do that it's going to be you know it's going to it's going to be take some very very careful management yeah Yeah so basically to to sum up here maybe to connect this this diagram that we're looking at with some of the diagrams that we were looking at before you can actually start to see you know even that what we're talking about is much more logistically complex underneath the hood there's still that same exact dynamic of a balance sheet here of uh managing assets and liability so in this case the liability is the

easiest to understand it's the liquid restake token uh but the the asset side is what becomes a lot more complicated here and you know in theory you're connecting these two parties which uh you know which really ought to be connected right which is people who want to earn extra yield on their stake deth okay there's a lot of incentive there and then there are all these other actively validated Services which we've just kind of talked about in this you know it's in this uh you know group together way but it's really very heterogeneous sort of group so alternative layer ones that want to you know solve the cold start problem or you know pay for security and not just inflate their tokens into Infinity uh you know oracles uh sequencers what whatever that whatever that ultimately ends up being there's a very rich sort of ecosystem there I I have I do have a

question for you miles maybe um you know it what we're looking at here maybe for for listeners who aren't watching via video we're looking at a diagram here of sort of all the way on the left the the native stakers and lsts which are moving into sort liquid reaking vaults which is actually going to be sort of the frontend that users ultimately end up interacting with right you're going to take your Steve to the liquid reaking Vault you're not actually see igen layer igen layers on the back end they've already onboarded a bunch of these avss and operators there's going to be overlap in between the actively validated services and operators between igen layer and some of these different liquid reaking tokens the the liquid reaking you know token uh protocols Jesus so many words here uh are going to

decide uh which avss and operators they want to be a part of their token and that's what the asset part of the the balance sheet is going to look like then the the right are the liquid restake e basically these liquid reaking Protocols are going to allocate deposits to a subset of IG layers avss and AVS operators um and in the same way that you know Lio is now expanding into different staking modules and they're adding like you know solo staking the community staking module they have the DVT module right as these I guess you know liquid reaking protocols start to take off their training wheels and get comfortable they're going to start you know like similarly um being able to

onboard more and more you know different avss and and more operators so that maybe at some point you know the the construction of these liquid staking um you know what's backing these liquid staking tokens um you know it's no longer a small subset of of igen layers universe and maybe it covers the majority I think that's the best case scenario um okay but got to be careful that that's a good that's a good analogy so is could we look at something like this cuz I was going to ask you like why doesn't I guess the obvious question here um or something that I was definitely wondering is why igen layer isn't just isn't just doing this I guess the idea is there's sort of a credible um you know a credible layer where they've just onboarded a bunch of these avss and operators and then you have the

the liquid reaking tokens what what their value proposition is is they're basically creating different products which might uh which might be different modules on the staking router if we can draw that analogy it's the same reason that ethereum itself has has not enshrined liquid staking um because then ethereum would need some sort of governance body that determines how stake is allocated across node operators that adds tons of bloat to ethereum you know governance number one and number two makes you know ethereums no longer neutral right and Igan knows that you know they're taking the same approach or the biggest version of itself is one that is as you know thin as possible and as unopinionated as possible um as it

relates to who's you know leveraging this this Marketplace and and who gets the supply side deposits right and so I itself doesn't you know basically wants to maintain complete neutrality here but you know we can get into this a little bit later they're very you know wary of like where this can go um and maybe just one other thing to say you know on this diagram that we we've thrown up here this is the dominant model um this model where basically the users just deposit into the liquid you know reaking protocol and then that's where their Journey ends because the liquid reaking protocol will will will basically handle the rest for them um and and this model

kind of assumes that the majority of this you know of their Market just wants extra yield and doesn't actually care about like which AVS is it it they're reaking to um there are other models here that that I think will be tried where it basically you know you if you're an LST holder um you could deposit into igen layer then you could choose your abs right and the operator and then you could borrow off of that position you could mint you know some LTV based off of the individual risks of your you know position um some stable coin or some some some e you know base derivative um now I think that that is

maybe the less popular route here because I think most people are recognizing that in the same way that you know Lio is not bending over backwards to to let users basically choose which staking module they are they are like allocating their stake to um because it creates lots of like fundability issues and it's just like shown the market doesn't actually want that right um I think that's where where people are why people are are are most these projects are going this this Vault route um but I did want to call out that you could basically you know at the risk of like losing fungibility or at the risk of maybe not being able to Mint you know one to one from your position um

you could have a similar sort of like end product but letting the users have more control over exactly where their deposits are going yeah this is exactly the the conversation again to maybe to refer to an episode that you and I did with Izzy of lione and machine of obal labs we tal we we got really in the weeds of what the staking router was going to look like and you know there was a a big conversation about you know especially I think this comes up with institutional staking something like that where they're like look we we want to stake here but we need to know who our counterparties are so we need to be able to choose validators who have been kyc and L's like well I mean we can't really do that because then you know you

have a direct position with these specific set of validators and the position isn't Fun fible and that defeats what we're trying to do here with making Ste this this fungible asset it kind of sounds like with this alternative model where users have a little bit more choice they get to select one AVS something like they have they have a preference maybe for this AVS or the set of operators or whatever I know there are technically two submodels there one where you can select the AVS and The Operators one where you can only select the AVS but just for Simplicity sake let's just say you get to select the AVS and you can kind of construct your own risk profile and then instead of minting one to one simp Illy to Lio there's underwriting of risk and say well you're selecting really risky abss here so we have to build in some

loss Provisions so you can only get 75% LTV something like that right looks looks more like maker frankly right looks maker yeah yeah depending on like you you know your collateral is a reflection of like the the asset itself and the you know in this case AVS and operator and based off of those you know risk uh parameters you can mint you know up to up to one but likely less than one uh one: one right um so yeah I think I think that's kind of laying at the lay of the land right now um and there's lots of interesting competitive Dynamics and maybe we can get into you know starting to get into I guess before the competitive landscape like you know is

this good is why might you think this is good why might you think this is bad if you're say in the shoes of somebody at Igan ler or just you know General ethereum stakeholder before we get into even the like is this good or bad let's talk about some of the competitive Dynamics here yeah let's let's talk about this actually from the because the way that I see it right now there are there are multiple different stakeholders here there's the liquid reaking tokens right there's igen layer itself here there's actually kind of Lio um which I again there is the possibility from an operational standpoint that you could have like a solo Staker which is re hypothecating their their stake through something like igen layer but let's just assume for the most part there's going to be people taking their Ste and then dumping it

into the these liquid state re staking vaults yep I mean y we we talk one of the one of the words that we used to describe uh the relationship between Lio and Igan in this last season was coopertition because there's always this sort of threat like consideration of vertical integration right so mostly the strategy of these protocols has been you know what you just said sort of minimizing surface area and making it a very thin very credible layer that people can build on top of but you know from the perspective of Lio they for something like the staking router they can roll out a raking module and then compete directly with igen layer something like that so there's always kind of this idea of vertical integration where do those do those

sorts of same tensions exist you know here um and how if you're if you're putting yourself in igen layer shoes how are they feeling about these loid reaking tokens that are kind of building themselves around your protocol yeah okay so I think this is going to be one of the most daunting competitive Landscapes of of any like area of crypto for the next I would say like one to two years um because if you are a liquid reaking protocol um let's look at what the competitive landscape looks like you have uh at least 10 other liquid reaking protocols that are all basically either have your exact same model yeah already or or some variation of your model okay so you're competing with them in terms of you know like brand distribution

value prop um I would say like all of that normal thing all of that normal stuff right um now where this gets interesting I think that you alluded to is that if you're a liquid reaking protocol again your demand side are basically LST holders and Native stakers those are the people that are wanting extra yield and using you to get it your supply side is are the avss that you basically allocate stake to now I think liquid reaking Protocols are going to face compet comptition from both their demand side and their supply side so let's maybe touch on this for a second to your point if your demand side of deposits and are you know the vast

majority of them are lsts and the vast majority of those are you know one or two lsts um those lsts whether it's Lio or you know rocket pool um or Stater or another one right they're going to probably know the amount of Leverage they have over your protocol right um and they're going to understand that they can you know potentially just you know pull all of that stake back in and then provide that same service um you know with with only one counterparty now from like the eyes of the user right they don't have to worry about Lio and you know the LRT protocol they only have to worry about Lido and they get both um I would argue

the LS TS it it let's be honest it's like Lio and then there's everything else um I think Lio it it is you know easiest for some for them obviously like they have the most leverage to to compete if they wanted to but I would argue that like that in in some ways flies in the face of of what they're trying to do from like a long-term strategic Vision which is making the protocol as thin as possible and you know um it's it's it's govern as minimized as possible you're now adding a second product to Lio and I and I feel like that at some point you know kind of flies in the face of of everything they're trying to do to

become you know equivalent to eth itself um and becoming the biggest version of itself all of these self-limiting debates probably you know get pretty intense once if Lio were to choose Alto to take on liquid reaking right um so I I just be I agree with you yeah yeah I say the supply side is like everybody outside of Lido is going to want to try to do this to capture more market share um I just have a hard time seeing Lio do it in their you next like one to two years um okay so that's the that's your demand side they could compete with you if they have enough leverage sorry I actually have a question there do you see okay so there's let's actually say there's three groups of actors here that

are influential there's Lio and we think that probably based on this is everything that we heard from the Lio folks and liquid we stick the liquid staking season the long-term strategic values to be this credibly neutral very thin layer governance minimized and even just with all these self-limiting debates okay probably not going to be them then there's maybe a a long taale of liquid stakers maybe the the the rocket pools of the world and maybe they have a little bit less to lose and so maybe they're like you know what I'd like to have this too and I I won't have a ton of market share but I could have this sort of compelling uh you know they wouldn't sell it like this but like a vertically integrated option here where from the user perspective I can just stack all of my yield under one brand

that I trust really easy and my margins are great and I have lower market share then there's the centralized entities they be the coin bases of the world right which they actually have a couple they they've got their hands in a couple of different pies you know they've got CB eth they've uh you know are participant in aluvial and they've got the institutional sort of angle so you ever see you know coinbase entering the ring in something like this I mean what do you think about that that's the other entity that I think would be interesting yeah totally I I think it kind of depends on if coinbase Cloud uh so first of all I would say I think it's it's possible for their liquid staking products to do this I don't think it's that as as likely but I do think their like actual institutional staking

service so coinbase cloud like X bison trails and and like figment um you know players like that course one they will be you know some of the major operators of of these avss and so if they have you know institutional clients that go into their own interface you know to stake with them um I think they'll probably offer you know reaking to the avss all the only offer reaking to the avss that they support so I don't think that they'll compete in terms of like liquid re liquid reaking tokens I think they will compete as like a front end for reaking okay I like that take sorry I interrupted you let's let's talk about the other all right so now to the okay so you're the liquid reaking protocol

you got to worry about you know your demand side now you um let's talk about the avss um I think there are certain classes of avss um like let's say another proof of stake chain um that on the surface really want ethereum security for bootstrapping I I think there's lots of reasons to want that lots of reasons why that's a better model than you know relying on your own native token from day one which could have a very low market cap and it's frankly just really expensive but it would be even better if you could rent security and unlock that security and turn it into liquidity and

users on your platform and so I think that there are a lot of avss where you know it's actually a platform where you could then go do something where they're interested in igen layer not just for security but also a chance at converting some of these stakers into users um and so what's the easiest way to do that it's if I'm like a Ste holder and I select you know your AVS um to restake to maybe you just unlock that stake and say you can go use it in for limited re like use cases in defi maybe if I'm like a you know a DEX app chain or something like that um and I think that I mean what I'm getting out

here is I think that there are a lot of AV s is that like you know are really interested in aair to for the chance of capturing those users in liquidity and the best way to try to like do that is to basically launch like a liquid reaking token that's specific to your abs and you can do you know very limited things with it right does that make sense maybe yeah that does make sense um yeah that's kind that's a pretty interesting value proposition because you know it it does sort of beg the question you know I mean a what the the ultimate Market structure is going to look like for other layer ones I sort of actually I feel feel like this might materialize more immediately with the

form of the form of rollups actually where okay so for something like a layer one at least the the business model sort of exists but I you know whether you like it or not but for for layer twos they're actually looking for they're sort of looking for you know the reason for them to have a token and it makes sense maybe even outside of uh layer twos but something like subnets on Avalanche or something like that for them to rent eth security but then yeah there is this kind of tension in between maybe I want to do that for the time being and then maybe you could talk a little bit about the user meta um as well because like sort of user acquisition uh is a part of this as well um but yeah I I kind of see uh a CL I

actually don't really know how to think about it yet but it's a super it's a super interesting Dynamic yeah I like I think what the I'm I'm also kind of getting at here is like you see a lot of you know projects moving to Ethel 2 you have a lot of projects that are basically trying to find ways to improve their ethereum alignment and I think what that the subtext there is sometimes we want to capture users and liquidity from ethereum by presenting ourselves as more ethline um and one way to get more eth aligned is to say we're like secured by igen layer um secured by eth stakers okay that's that's great but like how do you convert that alignment into new into users in liquidity easiest way to do that is unlock that you know restake

value and and let it you know go deploy that into your your specific defi ecosystem or your XYZ so I think that yeah I think I think they'll face I think they'll face pressure from their from their demand side and what adds to that as well is that I think a lot of these avss um they'll be paying you know igen layer resters in their native token right um yeah and so these these liquid reaking Protocols are going to get you know an alphabet soup of of yield and all these different tokens and what are there what are the liquid reaking you know protocols what do their users want they want more ethereum right they don't want alphabet soup of rewards

um and so the the more the likely path here is that the liquid reaking protocols will get these rewards and all these random tokens they will sell them and back into eth and then redeposit that to compound the rewards right so now if I'm an AVS and I am getting the majority of my economic you know security it's actually coming through you know igen layer via this liquid reaking protocol you know I'm sure I'm getting security but that that security is not converting I'm not converting that security into new users like I want to too and it you know this liquid reaking protocol is like instad dumping my my reward token so I'm feeling a lot

of sell pressure now alternatively I get them to stake restake directly to me by offering this you know platform specific re liquid reaking token now that those rewards are not being instad dumped necessarily because they're being you know it's gr back to a user who's using them in Defi and so you've converted the user into you know uh you've converted the security into a new user into liquidity on your platform and you avoid the sell pressure and so I think that like the incentives um you know on one side it's great because this is going to funnel in I think net net more like Economic Security than then if you know Ian Lair didn't have liquid reaking

tokens and that's good for abss because they get they have more security right um on the on the downside you know I think that they would really really prefer that like in some ways that they could just get that reaking and turn those into users and avoid the cell pressure right yeah I was actually I wonder if this is going to be such a basic question for this podcast because kind of a fundamental premise to igen lay but I'm now really trying to put myself in the shoes of someone who wants to rent eth security let's say I have the sovereignty of being able to uh launch my own token I wonder if there's a little bit of an analogy here in between countries managing foreign exchange reserves where they keep a bunch of

their reserves in something like a US dollar but then they can print their own currency and what they kind of have to worry about is exchange rate risk dual dual token models yeah yeah that's kind of what that sounds like because you know immediately where my head goes is like okay well I don't actually know if that sounds like that good of a deal okay I want e security and the reason that I want that e security is because I'm just printing tons of my token and I have this crazy inflation rate but you know the advantage of that is I can always just hold on I would say that you don't need to print crazy amounts of your your token if you're getting eth security right you actually have to print like less because you're not having to convince people to go buy your

random token and stake it that's what I meant sorry that's what I meant so in in the situation where you haven't rented e security that is the relationship and there's a tradeoff in between you know you have to convince these people to do this crazy stuff and you have a higher inflation rate um but you have total sovereignty over that as opposed to to something where you have this this Li this liability in the form of you have to pay for this e security which is denominated in something that you don't actually control and you're trading off in one instance uh almost like execution risk uh versus exchange rate risk and I that's kind of an interesting I I think there'll be plenty of protocols that opt for that I do think the point that you're making here is very key about

potential user acquisition and eth alignment and all of that stuff I feel like that's a that's a critical point as well yeah yep and I think I think it you know at some point you can basically use I layer for boot strapping but then once you're a certain size you can start to wean off of it um because at that point you can actually introduce your your native token that has some some material value right um and so you can be Shifting the you know proportions of where the security is coming from you know away from it being 100% IG layer and it costing you that much to okay maybe now my protocol is like actually making money and I can you know I just direct that real yield to stakers um I hate that word really y but yeah you

know what I mean I do all right everyone getting to be that time of year again where we are four months out from D London the largest oldest institutional conference in all of crypto but it's also Thanksgiving in Black Friday and I know what you're thinking you're thinking Mike I'm a loyal listener of bell curve here I've been wanting to go to D London but I've been waiting for my Black Friday deal I just haven't seen something from you yet well don't you worry dear listener I and the good marketing Folks at BLS have intuited that and we are rolling out our Black Rock Friday deal special see what we did there Black Rock Friday institutions are coming and all that for the next 5 days if you head over to the D London site which you can see Linked In the show notes here you will get 20% off of the

group pack that's four packs so grab family members that are interested in crypto grab folks from your company and come hang with the growing list of speakers in London we've got the guys from framework San's coming out there going give away of winter mute a bunch of the big European funds electric 1kx this is going to be a really really good one so hope to see you there with the entire blockworks family in London in March I've got one more question for you almost from the the sort of a strategic or go to market standpoint from the perspective of these different liquid reaking protocols and then let's return to that question that you posed about is this good or what are the the broader implications of this even existing as a thing so I I feel like let's put ourselves in the shoes let's say you

we're not M well we're still you know Mike and miles but you and I are launching a liquid reaking uh token provider right we're like we're gonna we're going to do this we're going to compete with our supply and demand sides that are trying to squeeze us because there's massive Market opportunity and we think we've got what it takes let's walk down the set of decisions that we would need to make one one I think would be are we retail focused or are we institutionally focused and I think that's going to be like there are some you can you're starting to see this within liquid staking which is I think it's sort of starting to cleave a little bit in between retail which is kind of the Lio version and Lio folks if you're listening to this please correct me if the the intent is to pursue the you know

make some changes to liquid staking or the staking router and to pursue the institutional Market as well but but let's just say Lio kind of dominated retail and the benefit of that is it's mostly retail here now and they got you know huge power lws they got all this market share the downside is maybe the retail money runs out and eventually you need institutional money to come in and also you have this you know virulent response from the community this you know Lio isn't aligned and this social scaling dilemma then on the the for the institutional angle it's kind of a different value proposition right you are you're pursuing a group of capital uh pools of capital ultimately that are much larger but are probably longer term customers and maybe you're taking the

risk that you're too early for something like this and you're hoping that you know these big macro funds or long only mutual fund ETFs are going to get staking all the sudden and then just you know what I mean how would you assess that kind of tradeoff of pursuing an Institutional or retail solution and or or am I making a a dichotomy out of nothing no no I think I think you're I think that's right um I don't know there's there's just part of me that I think I can see the path to like institutional staking very clearly um I can see the path to staking becoming like you know commonly incorporated into ethereum investment products and ETFs um and I can see like basically the

preconditions like the types of solutions where this might actually work uh to get those to get that Capital you know from fiduciaries and actually have it staked um and and that really comes down to like I think the counterparty risk with the node operators that that it the capital is being Stak to um and so from that side I have a hard time actually seeing um inant the same sort of penetration into liquid reaking apart from when you're adding zero counterparty risk like the if you feel comfortable staking with figment or coinbase Cloud the only way that reaking you know you could see yourself entering

reaking is is probably through those same operators um and so I think that again that's why I kind of pointed at the native staking and Native reaking as probably being you know the more likely sort of like competitor there um I just have a hard time seeing you know let's like if it's direct investments from like an Institutional fund a hedge fund whatnot um you know or like some of these some of these Market neutral yield shops like I could totally see them like you know being mendable to this but I think this is going to be one of those things again and where like um it's going to it's going to start retail it's going to start for the yield the the risk on sort of like you know Crypt

native shops um but this will I I have a hard time seeing this like you know reaking incorporated into you know an ETF at any point yeah all right so I agree with that and maybe to compound your thinking there one of the Dynamics that you and I talked about in our liquid staking season was that eventually it looks like the yield that just gets paid out to stakers or vanilla liquid stakers is trending down probably because for for two reasons one is the stake rate goes up that's just less consensus layer rewards going on but I but I also think that we probably seen a now that I say this it's going to be the

opposite but a maybe a local peak in terms of me just this even this last season of bellur been really focused on dexes and this every amm operator that you talk to are they are single-mindedly focused on minimizing the amount of me that leaks out of their app and I actually it's funny I went into this season thinking it's going to be this competition in between LPS and swappers and it's like No actually they're just like there's this huge other problem to solve before we even get to that Dynamic which is you know lever so are LPS getting screwed by sexto deex Arbitrage and you know 1559 and gas cost and all this stuff and they're they are you know single-mindedly focused at recapturing a

lot of that or redirecting it back to the app layer to the stakeholders of their platforms so I kind of feel like the the the staking yield for eth is going to go down which is going to push people into reaking liquid reaking but the but the risk profile of someone who's willing to do that is probably not an institution yeah at the very the only chance again is like the institution's not going to be basically like taking on additional risk with with operators that they don't know and avss that they don't know um I do agree with you that like all of this leads to lower you know base like Risk the risk-free rate you know

comes down quite a bit ethereum security goes up a bit that that's that's you know healthy for the protocol um but then you know Finding like that that next opportunity I think is it's it's going to take a little while for people to get comfortable with this um or at least the additional yield by that opportunity I mean if I could I've heard because I've heard this referred a number of times which is idea of the risk-free rate and we've talked about it on podcast before and I never really know how I felt about it it's not it's not a risk free right yeah it's not it's not it's not and I you know what I ultimately think it's kind of silly to compare something like eth staking yields to treasury rates it's like it's just not the same thing at all yeah

you're really you make the decision to invest in eth and then you make the decision do you want you know a little bit extra or not but it's it's not like people looking at oh you know my eth Stak grade or my treasuries like which one am I going to do like it's totally different you get exposure to eth you know that's where you're gonna make or lose all your money it's not the the 5% versus the 3% so I just think that's I don't know why that just crystallized with me this week I was like I feel like this's a pretty silly comparison actually it okay one one more sort of fun even just hypothetical uh and before we get into the bigger stuff let's say go to market now one of the things you and I talked about is people tend to spend a lot of time talking about the

supply side and how this is all going to work under the hood let's just assume somehow all of this works right what does the go to market strategy look like for for one of these protocols if you were kind of in charge I I have some ideas but I'm curious to to hear what you think yeah I mean I think honestly it's it's not that similar not that dissimilar than normal LST protocols right your first job is basically to establish like a a node operator set that you feel very comfortable that it's not going to lead to disastrous slashing you know like within with before you even get off the ground right then you need to build up in that okay so like number one is get the like supply side

set up um well number two is build liquidity right this is the same Playbook it's going to be going to the same venues going curve going to market makers and and you know maybe it's a little bit different now because we have like Unis Swap and and V3 and other sorts of like um you know amm and whatnot that this might like kind of good Beyond curve essentially um and then number three is is you're going after Integrations right and you want your user to be able to lend to borrow against their their assets as collaterally you want to you know basically get this as much utility as possible for your for your liquid restak token um and again I think the ceiling

here is like you know how Lio says our goal is basically to be as ubiquitous as as eth itself and to have the same utility as eth itself I think liquid reaking Protocols are looking at steth and saying our goal is basically to be as ubiquitous or as close as we can to steth itself and you know have the same utility as Ste so I think like you know one outcome here is like you get you know the vast majority of of staked eth is through Lio and the vast majority of you know of restak e is like through one winner I think it has the same sort of like winner take B Dynamics um and then you have you know two very very powerful entities um in in Lio and whoever that

winner is um yeah yeah the history of Lio is interesting so you know P top I I've heard actually you know Santi did a great episode with with Jason on Empire a little while ago about actually being in the early days of some of the tasos I guess they hosted like staking competitions I don't even know what that means really but apparently that team was just like crushing it so they had they had the team right then they had then they had the the vision of a lot of people a lot of protocols said they were going to do this but they started off and they were like we're not immediately decentralizing our operator set which was 100% the right move so they had a really good strategy in terms of executing that and then the thing that they got right on the distribution

integration partnership front but also kind of got a little bit lucky was the integration with a you know from the beginning and and a started to blow up they became the dominant you know liquid staking token on a and it sort of Kick kickstarted this flywheel so I was even thinking to myself you know if this were If This Were you or me and we we were sitting around we were being like we should be prioritizing uh you know Integrations would we be going after the of the world where there's already you know like established or are there upstart maybe new new protocols or something like that or ecosystems or whatever where we could catch a protocol that's on the come up and maybe the answer is both but you know I'd be

curious how how you would view that I I actually I'm maybe this is like counterintuitive but I would take like that tried and true path um I think what Lio didn't win on yield it didn't win you know uh because it like honestly didn't even win because of those like Integrations right away it really won on brand right you feel like safe depositing too their brand is as close as possible to like synonymous with with ethereum staking as you can get um you know some of the dark arts here is like getting you know a lot of these politically influential figures within the ethereum community to come out and say we support Lio which hard to believe today but like that was the case back

then um and so basically doing whatever is possible to have value ACR to your brand and I think that like ways to screw that up is like you know pouring on additional yield with like you know um inflationary emissions of your own token um maybe going after like the most dgen you know lending Integrations um getting like or or maybe like trying to compete on yield by take by being more risk on with like operators um I think like what really solidifies like you know I guess the lead here is is not necessarily the upside of like depositing into one of these protocols but limiting the the downside um and

then once you've kind of accured that sort of like Blue Chip sort of brand impression then you go to the AES right um and and you're going to have a better time getting integrated because they look at you as a responsible you know like non dgen protocol yeah I agree with all that all right why don't we one don't we move here to this sort of discussion about whether whether or not this is is good or bad and and how we're thinking about this because I think even even when we were talking about reaking we were a little bit on the maybe obviously very ex first of all extremely intellectually interesting idea enormous amount of Merit kind of

don't even doubt too much that it's going to be successful I think people get a little bit spooked with this idea of rehypothecation who have pretty publicly I would say not all of the ethereum foundation like Mike neuter has been great had very balanced kind of takes on this but you know um y not there have been some some public figures from the

ethereum foundation who said push back pretty openly against Lio so I mean how do you think something like liquid reaking is gon to be or even like I've said come out and said like we need to treat reaking like AI right like lots of guard rails and things like that right so I think I think there's a couple different ways to like you know if you're in like thinking if you're coming from the EF or like you're a just a core ethereum you know like stakeholder um you can look at this as as good and bad and that's a little bit different than the way that even like igen layer itself looks at this as good and bad um so maybe we'll start with like if you're thinking about this from the perspective

of like etherum itself the base layer if this is good or bad um I think the good side is that IG layer and you know liquid reaking on on top of that is going to bring in more stake like to ethereum like the staking ratio will go up the demand for staking will go up um and that's a combination of looking for additional yield and now having ability to get additional yield so that's good the bad side is that you know kind of similar to liquid staking um people looking for additional yield typically are also the node operators themselves um and so I think the largest node operators for L1 which are already being looked at as like oh they're they're

getting pretty big are probably going to be the largest node operators for liquid reaking as well right um and and igen layer in general um and it's important that they are because like you you want to have those you know professional node operators as as training wheels to make sure that nothing breaks right away um but I think that's generally how they we have is this is like you know okay good in the sense that we'll you know increase the amount of Economic Security of ethereum potentially bad is the centralizing force um then okay I think that's that's the base layer's View and then let's talk about igen layer because I think that like the if you're if you're in you know on the Igan layer team this is probably even more interesting um and igen layer if you're on that team why would you like liquid

reaking tokens well I think it like this is not for sure a thing but I think it I think it bre brings in net more tvl if you don't make users pick the AVS and operator and and like take on on those decisions frankly I agree I think I think I think if there was like you know if there was like if you without liquid reaking maybe it's like you know a billion dollars of of tvl um if there's if they're with liquid reaking it could be double or or much more than that um and that's not just because you're like taking that choice off of the users um backs it's also like you're breaking a tradeoff which is I think again like if you were without these things you would

have a liquid token Ste you would restake it and now it's illiquid again right you lose your you lose your liquidity um with with with regular aen layer um so right what what's good about this it brings in more more deposits what's bad about this this is where it gets interesting I think um it you could argue if maybe you know to pull that like diagram back up again liquid reaking Protocols are wedging themselves in the middle of the marketplace um and if one of them becomes dominant basically the deposits that come into them right they become basically King maker for how for which avss get to

receive those deposits and so you could see a situation where let's say the 80% of all you know restak eth has been deposited to one liquid reaking protocol the Marketplace the competitive you know dynamics of the marketplace completely break down right the liquid reaking protocol has complete control over like which avss actually get any sort of Economic Security from from from Igan L and they have pricing power over that um and that's I think why you know Igan layer is is sort of weary of this they're saying okay first of all like we

lose the user relationship because like the ux they never actually touch igen layer but the demand side economics for Igan layer which is the AVS is you know they they could break down because they're basically would be you know at the uh mercy of the liquid reaking protocol instead of at the mercy of Igan layer to onboard them to like the slashing veto Council or something like that right yeah it's an interesting I I don't have any thoughts that I basically agree with all of that I think yeah I think you should always be wary when you're losing the relationship with the user I do tend to agree with the the cosmos point of view on this that the your proximity to the user is just an enormous amount of Leverage that you're

you're never going to lose the same time I do feel like this is definitely going to increase usage for igen layer itself yeah because it you know it increases the demand for people that want to restake because then you have another liquid token that you can do something with so and and same time like what can Ian ler do right they that's kind of the point right of being a protocol with that strategy don't you sort of want people to to build on to build on you I mean right right and and if Ian La was in charge of how you know liquid how the restake eth was allocated across the avss it's no longer a neutral

Marketplace in the same way that if ethereum enshrined liquid staking and then decided which node operators get stake it's no longer like you know a neutral sort of marketplace um with its with it supply side so I think they can't do a lot that's the that's the reality and and anything they they can do at the moment um that's directly competitive is is at odds with their with their Grand Vision um and if you remember igen Lay's Grand Vision is to be you know more or less enshrined into ethereum itself um right or at least some of like the core functions and maybe IG layer is like you know just more of a front end for like those core functions um I think it's kind of an interesting Dynamic here where maybe the

biggest version of this liquid reaking protocol is one that eventually gets enshrined into I ler you know um when they have to work out that's I was gonna say maybe a baby step for that miles would be like a stamp of approval from Ian lay like uh you could you could imagine you know it would be very powerful from the perspective you and that way you you don't maybe need to enshrine the whole thing but you can just say hey basically this is I layer approved that that would immediately have the effect of if it's not igen layer approved way less people would use it but there there are a number of protocols that I think this is starting to apply to almost a boring kind of marketing strategy question but one where you don't necessarily have the

direct relationship with the user and you need to market around uh someone who is standing in between you and the user the example I'll give you is drug com pharmaceutical companies in the US very simplified uh supply chain here makers of these pills doctor's offices and Hospital that distribute the pills patience right and what what you what you see actually this is where you see these horrible ads these are the worst ads in the face of the planet but they just roll these things on TV you know so that you can have a relationship with whatever this this uh you know medication it's effective I don't know what the hell Sky Rizzy is but I see a commercial for it like every other day and yeah so you'll go to talk to your doctor if God forbid you get whatever

disease skyine treats then then you're going to be like wait this is the one that I know and there's some element of that here and maybe there's a soft enshrinement I agree strategy that's kind of what I was referring to with the dark arts of getting those politically influential figures to come out and support you in the same way that I Lio had a bunch of you know advisers that were working at the EF and and Shout singing its Praises as like you know the what's basically our our our cter position versus like this you know centralized taking risk right or the exch centralized exchange staking risk I was like no use SL out I don't think there's going to be anything like that here where the liquid reaking protocol could frame itself as solving a problem

for Ian lay and getting out support that way but if I were one of these liquid reaking protocols I'd want to be positioning myself as you know two I layer is okay if this is going to be a thing I want these guys to be the winner because they're going to make it as decentralized as possible they're going to protect the users as much as possible I don't want the you know the ones that are basically like maximizing yield and and trying to get like you know agre do taking the dgen path to all this um so yes that but that occurs to Brand as well is like what I was getting at earlier right having Igan lay or somebody influential come out and say like no these are the adults in the room like if you're going to do this we want you to you know use use that I agree

okay let's talk about even on a high level not from the perspective of the Bas layer or Igan layer like do you and I what what do we think about this and maybe because I actually have a I I have a maybe a more positive view to end on here but to just clearly spell out I think the risks to this is I mean you're you're taking on a lot of principal agent risk with something like this and it would be interesting to get either folks from igen layer or one of these liquid reaking tokens on to debate if this is creating leverage but in a sense I sort of feel like it is creating leverage you're creating ex multiple different claims on the same underlying spot eth and one thing I've been worried about

for a while is I kind of I worry that we might have learned the wrong lesson during this last blowup and everyone blamed because they deserved it frankly centralized finance and they said look at this opaque system like centralized Finance uh this would never happen if this was in Defi and look it a and compound and all these protocols ended up working out it's kind of like well yes and I want to believe that narrative and I do think in a in a in a long-term future putting things on chain radically does increase transparency and solves that problem but I don't think we're there yet and just to to reshow you this this uh diagram

because it shows at the base layer or at at a very fundamental level that the Federal Reserve or JP Morgan or maker Dow or Ste or enan layer or or any of these liquid reaking protocols they're built in the same way and they have very similar challenges of managing assets and liabilities and frankly let's just let's just be honest eventually these things will be transparent and on chain and there'll be these services that we can track it one for one on real time check the code is kind of a meme now there aren't enough people that actually know how to check the code and I just don't really believe in that so I for the time being eventually I do but for now I think we have to acknowledge that there too few people actually know how

this stuff works for it to be usefully transparent and is very very complicated and so I sort of worry going into this next cycle because you can see this there's a lot of onchain infrastructure being built which is awesome that is so good that's 100% the direction that we should go but I think we should go Eyes Wide in saying a lot of the challenges that blew up these centralized lenders are going to come to these decentralized protocols and we shouldn't just kid ourselves and say it's all onchain it's decentralized don't we shouldn't worry about it there probably are going to be stresses to the system on the defi side of things during this next cycle and let's just call it spade a spade you know reaking and liquid reaking does not

alleviate the stresses that would happen in that case you know yeah um yeah I think I I agree with all that I I would say that I think a lot of um a lot of this is kind of gonna have to be a a collaborative effort at at making good decisions um and I what I mean by that is it's not just on the liquid reaking protocols and you know being smart about like which AVS is they on board um and and operators they on board it's not just about Igan layer being smart about like you know the slashing veto committee and and onboarding through that only like you know would say like safe sort of AVS setups it's also on like the AES of the world right um to not allow like or at

least be like pretty conservative with things that could make this 10 times worse because if we remember liquid staking really blew up when you know a a onboarded Ste and then people could run that Loop to you know like basically have like a 3X leverage on on staking well imagine if you take Rex leverage on staking you have that Ste and then you put it into Rio or another liquid reaking protocol and then you take your you know liquid reaking token back to a and you could do like three more loops on it right and that's when this thing like gets really scary um that's just like one example of a a dpeg sort of like cascading collateral um you know impact here and that's when like I think you could see the withdrawal queue you

know endend up with like months at long like like withdrawal times uh because every because I layer is trying to withdraw this e the Slash and then you have lending protocols that have bad debt because like that that e you know needs to be repaid somehow right so like all this thing all this is like kind of you know there's a lot of like interconnected pieces here um but I will say it's in general good that I I think that this is now opening up the design space for like different sorts of security models because we have this big pool of capital that is like ready to go you know either secure machines that are doing a job like that's the that's the general idea right now but like I think

that there's you know if it's there I think things like you know interesting Insurance models could become could become a thing that's not like traditional reaking you're not taking stake eth and giving it to another machine who's doing a job but maybe you just let it you know it it's there it's available to be drawn upon if like something happens um because yeah I think I think like staking is is you know it's kind of been the first use case for all this but like could be a lot more so I tend to so maybe to end on the positive scale I think ultimately this ends up being a pretty dominant model and I kind of think it's the way that trafi works in a not bad

way I think just describing my own Journey going through trafi because Trad in especially in the US and and just Western markets everything is highly financialized and I think it's really easy to look at that and say man why do we need all this financialization these people are just pushing paper around creating derivatives getting rich doing nothing and we've probably taken it too far but and when you look under the hood there's some really good reasons for that financialization I give you an example the 30-year mortgage that's not an animal that you find in the wild so to speak right that that relies on derivative and swap markets um and actually Deens to take the other side of interest rate swaps so there there's good to to financialization as well and I think this is what a natural thing

that was going to happen in crypto because we're not actually that wildly different we have better systems but it's the same overall principles and financial gravity still applies and if we're going to be basing the next financial system on anyone asset I'd rather it be eth and I think there's a I think there's a pretty bullish eth argument to be made here because I you know exporting security like this exporting eth is a is um it's actually something I once thought Bitcoin would be able to do but I I think they've chosen a very different path and instead you know what it actually reminds me of is treasuries so the dynamic of the world is is in treasuries is we export treasuries to

the rest of the world through raising debt and then those treasuries are the collateral that a bunch of compan uh countries sorry end up using a either as a foreign exchange reserves or B to fund additional projects considerate security right in this in this instance and what that looks like that's essentially what ethereum is doing right now it is exporting its its asset to all of these other ecosystem country type things and it is the closest thing that I have seen in crypto to date of transitioning purely from a commodity to something like a denomination and you like I push back on this idea of eth being

ultrasound money but you know there is there is a deep analogy to be made here from treasuries and I feel it is it is pretty bullish and for the endurance of eth at being at the base layer of this yeah ecosystem good for Capital efficiency which is good for new products and investment um yeah I I agree with you crypto crypto native treasuries wait I thought we said this staking was not the risk-free rate now now now now not now maybe it doesn't become the risk free rate until you're not taking beta really on E but here's here's the um here's the uh the other little idea that I would leave you with is I feel feel like this trend is the

inverse of the real world asset Trend and what I mean by that is real world assets they they they probably still are going to be a big thing and I wouldn't wouldn't sleep on them but I think the real reason why they existed is there is a profound lack of collateral that exists onchain like pristine onchain collateral and Bitcoin for better or worse because of the design of its protocol and how alifi it is it doesn't really interact with the rest of crypto so you've kind of got eth and then if you're a protocol like maker and your your the demand for your product depends on the demand to borrow against basically just eth you're limited in terms of growth but I feel like this is

the first real step in exporting the amount of claims on on that eth and creating real collateral in totally onchain self-contained way which I think is better and neater than real world assets anyway so I feel in some ways don't have the Oracle problem um yeah yeah I totally agree with that I would say like I'm rooting for Babylon also like to maybe help export um Bitcoin I just think that reminds me of babon it's a tough it's a tough sell to the holder given their personas at the moment and just naturally there's like less you can do with it um but yes I I totally agree um so it's a little it's all more native

here I guess you know it's kind of interesting to think about like if uh maybe there's an alternative to rollups where you don't have to have the constraints of a rollup but you are economically secured by ethereum um you know is that good or bad for for E you know long term um and the market by the way when I say like the Mark if the market says like you know no this is just as good for like us as a rollup then you know that that will be like the outcome whether eth likes it or not whether is that good for ethereum I think it still could be good because again like this is increase in the staking ratio which takes liquid eth out of Supply which you know drives demand for eth staking like the all you know

could actually help the price of ethereum even though it's really directly benefiting ethereum supply side by giving it extra yield I think it also could potentially help eth holders at some point I I agree yeah we'll we'll see we'll see we were talking about that a little bit before it's it's it's hard to really speculate on is this going to be directly good immediately for the value cruel or whatever but I think longterm there's there's no doubt that this is very good for ethereum and good for crypto and these kinds of ideas and these big swings obviously there's risk you know don't want to downplay that feel like we did a good job of underscoring what that risk is this gets me excited this this is a big idea and this is I feel like why we're here kind

of to to take these big swings and really cool ideas like this yeah I totally agree it fires me up is how I honestly feel about about it really excited about it really excited about like just to see how these competitive Dynamics play out um you know what people end up like the design space that a lot of this opens up from like a security model angle um now that you have all this you know Consolidated Capital that's looking to do some you know looking to an additional yield there's there could be a lot there um yeah so saddle up we'll see how it goes saddle up baby uh do your own research know your risks be safe you know don't do anything don't do anything dumb but I think at least from from where we're

sitting it's it's safe to at least get intellectually excited about this and and watch how it plays out so absolutely all right partner this was a good one think we did our subject Justice here hopefully I I think and we might have some more igel related stuff as as this start Oho just a tease little tease yeah maybe we do miles yeah we'll drop more more tidbits and hints like that but uh yeah maybe look out for something else for all yeah sounds good man all right buddy see [Music] y