Vasiliy Shapovalov: Lido – The Liquid Staking Solution for Ethereum 2.0 #412

Transcript

hi and welcome to epicenter the podcast where we interview crypto founders builders and thought leaders i'm sebastian cucchio and i'm here with felika ernst today we're speaking with vasily shapilov he's the cto of p2p validator and the co-founder of lido dao before we talk to facilitator about lido and all things staking we'd like to tell you about our sponsor this week nosis safe is a smart wallet for securely managing digital assets what makes noises safe different is it allows you to define customized access permissions so notice that safe enables users to control digital assets with granular permission involving multiple private keys a subset of which is required to execute a transaction these keys can then be stored on different hardware or software

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smart chain so you can just toggle between those if you're so inclined cool so all of the evm chains i guess great so uh thanks felika and vasily thanks for joining us today hey yeah thank you for inviting me so before we get started uh tell us about your background and how you got involved into crypto i come from a software engineering background i used to be a software engineer in infield information security in russia and then i became an engineering manager and in 2017 i just got sucked into crypto part-time first then uh in

i think in 2019 full-time and 2020 i became a cto of p2p what does p2p do uh we're a professional node operator we we run uh nodes validators for multiple blockchains and blockchain protocols um that's essentially what we do like like many uh validators were uh also active in communities and participating governance so that's part of what it is this is why we're talking about lido today right so basically you're here to talk about um lido and your role in lido and to explain to us how lido works so tell us um how you got involved with

lido um so i i started working uh in pdp in february 2020 and in march 2020 basically the second thing i did after i just like got uh uh acquainted with the team i wrote like a first draft of what what lie that would be why because uh when um when i took a look at the staking landscape i realized that the most important uh event of 2020 for not operators for for all this taking ecosystem will be uh finally the launch of proof of stake uh version of ethereum uh the beacon chain

and it was extremely likely that it would launch in 2020 which people uh started to dub to this point uh but like i i was sure that uh it will happen and it did in in december so uh and i took a look at how the stake in in ethiopia uh he is made there is no delegation and protocol and i understood that there is no place for professional note operators in vm like it it's not like there is absolutely no place but it's very hard to attract clients and work with them uh uh it requires paperwork and legal agreements and uh like b2b marketing and all the stuff that is pretty cumbersome for not

operator operators and i took a look at uh staking protocols of which there was only a rocket pool uh building at this time they are illogy in staking protocols and it also wasn't like really great for not operators because it required them to have uh a significant self-bond and rocket pool tokens which is uh like not very capital efficient for for not operators so i tried to design a staking protocol that would be would work well for users for not operators and for the human health uh hence the draft the first draft slider

okay before we dive into this can you maybe explain um in a nutshell how ease staking works so basically what are the requirements for stakers um and what is it difficult to to meet these or why is it difficult to meet these ethereum sticking protocol is a technical model it's it's very well designed from technical point of view it allows uh tens or hundreds of thousands of individual validators to participate in staking the way it does this it allows validator which is essentially in this context is a validating key to sign an attestation

or to propose a block and uh this attestation are aggregated in uh in an aggregated signature bls signature uh in a very efficient manner so there can be a lot of uh a lot of nodes in the network potentially but to run one single validator you first first of all you need 32 adders which is pretty expensive and second you need to run a node you need to run a uh we can chain client node and you need to run a validator node there are penalties for uh for your node being offline and there are severe pretty pretty serious slashings for your node being uh

equivocating for for example if you run accidentally run uh two nodes with the same private key at once uh ethereum uh running this a single variety of clients is not very hot it's not uh it's not as challenging to get some other blockchain protocols but it's still uh you know to to run and then node you need to run a uh full like 90 95 uptime service in the internet you need to uh check health to upgrade to the newest client versions and uh you get penalized if you don't do this um so for most people uh there are like there are two barriers to running the

validator note it's one one bear is having 32 e and the other is barrier is having enough technical chops to uh to actually uh run a note which is not very hard but it's not very easy either and it's uh unpredictable uh pretty much unpredictable uh workload on you you you might be like uh pull it off your vacation to to restart a note or something like that uh which is why most people don't do this uh most people don't don't do don't don't run blockchain notes these are uh this is professional activity so how different is it from say other blockchains i think like other

other our listeners will be familiar with like staking on cosmos or perhaps like solana and other proof-of-stake blockchains what's the what's the fundamental difference here because it feels to me like the main difference is primarily the fact that we don't have staking delegations built in um but there are there are other things that are like kind of fundamentally different yeah yeah that's that's what i was getting to the the the real difference between uh ethereum and [Music] is mostly there is no native delegation protocol most modern uh staking protocol they they have delegation protocol because they acknowledge that most people don't run their own notes

and they they can't do that but they they own some capital and people who uh who own like a lot of uh a lot of some coin they don't want to to do a complex technical task of running the node they want they like the money graph to go up onto the right and uh running no that's not for them so um ethereum doesn't uh there there is no delegation that by design uh that there is no delegation protocol and but what's the rationale behind there not being a delegation protocol um so it's um it's it's a number of of reasons uh the main

the the gist of eden the main vector uh of uh all of this boils down to that uh ethereum was well optimized to to have at least a few small stickers uh run their own notes so the uh while uh cosmos or polka dots were optimized to have as much stick as possible basically well polka dot no no not really it it it targets about fifty percent it's taken but like cosmos is optimized to have as much uh in sticking as possible ethereum is optimizing to to to to the ease of use for a small small time validator which like with uh operational requirements and capital requires the small time where the data

is actually not a very small time really so ethereum is is a is is optimized for decentralization i guess is one way to look at that optimize for as decentralization so like uh what what what do you mean by centralization uh it it doesn't optimize for digitalizations of of state concentration at all for example the the way it's designed is actually pushing people to stake in pools and uh first of them like custodials taking pools like exchanges and stuff uh but it makes if you if you are really uh really wanting to run you or not you uh that would be uh participate in consensus you can do that is more easily

on ethereum than on cosmos on cosmos you have to fit into like 150 or i i don't remember 20 to 200 not operators by stake and on ethereum you only need like these uh ninety thousand dollars to run not operator which is like ninety thousand dollars is not is not a small amount right uh but uh it's not uh it's not millions at least uh so it's really well uh really uh makes easy for you if you uh makes it easier for for a nod operator to to get into into a valid data set but it doesn't make it easy for to to distribute the stake equally the way there is no delegation means uh and the

validation is hot and that means that people will uh who want to stay they will basically they will need to trust protocols and um custodial providers that can take their money and stake it basically okay so in terms of um staking providers and i will call them staking as sisters um can you describe the spectrum of possible solutions from a technological point of view um i don't quite understand the question okay so basically i mean at the very at the very um trusted end of the spectrum obviously i could just give someone my

eath uh like a centralized exchange and they would stake it for me and give me uh most of all of the rewards right um but um then uh if if you look on the decentralization spectrum you could have something that is non-custodial but but trustful and then you could have a solution that is non-custodial and trustless and so on can you kind of give us an overview of what's in principle possible uh yeah yeah so i i actually gave a talk about this on ethereum community conference in paris uh recently so uh if anyone wants to die when there is uh uh the stock available but it boils down to a few parameters

that that uh that can be uh chosen like uh first of all it's it can the stake in with the um can be custodial and non-custodial you you can still still have uh your your keys to to at least the ability to withdraw your stake back when this taken is finished or you can give it up for example with exchanges it can be fully custodial or different degrees of non-custodial it can be done natively in protocol like rydo lido and rocket pool do it or it can be implemented as

outside of the protocol like on staking on exchanges or staking with uh using a threshold signature protocols um i don't i think uh steffi is doing that uh and to an extent danker um so there are a few a few others this taken can be liquid or liquid and [Music] there are a few for other parameters but it boils down to that to the fact that uh we believe in lido that like the liquid is taken should be liquid because there is no way around this uh liquids taking just much better product and liquidity will win and if there is no liquid stake in on uh in

nature like in second in ethereum protocol then uh the flavor of liquid seeking that will will be like custodial one which already exists and is pretty popular um can you can you explain what you mean by liquid sticking liquid staking means that you uh uh you know when when you stake you get basically a voucher of your stake uh of your staking position and you can transfer it so uh usually the regular is taking a mechanism like in cosmos in in polkadot ethereum they don't do liquid staking they uh they lock you in a way my claim is is um locked whereas uh with lido um i actually i get a fungible token in

exchange for my locked eath uh namely staked e3 yes yes and lidar you get fungible token there are multiple flavors of liquid staking not all of them uh give out uh fungible tokens there are for example the form of quickly taken that is called delegation vouchers that give you a non-fungible position that uh designates who you stake with with what not operator and uh what's what's your tutorial was by this point like a non-fundable position is taken but it's also liquid because you can sell this nft uh or transfer or give it uh as a as a present i guess but at lidar we we went for full-on uh liquid fungible as much as liquid as

possible is taking so when you stick with lidar you get a staked if token that represents your staked uh the amount of heat staked lido and he is fully funchable fully transmittable and can participate in uh in g5 protocols in centralized finances if need be uh may be be stored on on wallets on in custodies and stuff like that so so let's just to summarize the way that i i kind of see lido is lido solves the problem well it solves two two main problems and then you know has some some advantages so one is

the uh requirements the technical requirements in order to host a node uh an ethereum node for staking and also the capital requirement of 32 eth so with lido you can forego that technical requirement because you're sort of delegating your stake to a staking provider and you can stake any amount of eth that you wish so you know under 32 ether above and what you'll get is you'll get a um a token that is liquid and fungible and that represents that ease that you can then use to do whatever you like whether it's trade it for you know die or you know participate in defy or whatever it's it's a liquid token that you can use

uh in decentralized finance um so when uh i would put it like we we solve uh uh for for users we solve uh three uh problems that uh uh are not possible with base in um stake one is easier delegation it's uh there is no native delegation in in idiom so uh it is possible to have someone uh stake for you while maintaining the custody of the funds using different keys for for staking and for withdrawals but it's it requires it's not a protocol it requires paperwork and

agreements and stuff like that so it's it's not achievable it's not possible for most people and uh to have a large position and it's like cumbersome so one position is uh ability to delegate which is uh there is no uh such ability in nature zero protocol so we solve that the second is capital requirements and the third is is liquidity all three are very important because like we solve capital requirements for uh most of our clients by numbers but not uh most of our stake teeth like i think uh eighty percent of us maybe more of stake teeth uh they they don't have a problem with taking thirty to it

they they they they have much bigger positions and vasily what do you mean by liquidity is that currently if i deposit eth into the eth2 contract it's a one-way street right there's no way to actually get it back out in for a long time yeah for for a long time it was it wasn't clear at all at the start when when light launched when the beacon chain launched uh how much time will we wait until withdrawals are implemented it's more clear now but it's still uh not soon uh it's probably uh like mid 2020 uh 2022 or something like that and uh that means that your your your your money is held hostage by basically

and if you if you stick with a native protocol and for for some people it's okay but for many people they they want to have at least some measure of liquidity for the staking positions yeah i mean that makes total sense so maybe let's talk about um how the peg between eath and staked east is maintained because you know inherently it's a one-way street so basically if someone wants out you need someone else to take their position and so basically what's how much percent does it currently cost to get someone uh to take a locked up eath uh until it's movable again on east too um so um that very much depends on

on the way on the staking basically protocol used because for lido currently uh staked to eat pack is held very well it's more than uh you know 0.99 sticks if you want it like a bit cheaper than it and uh for other protocols it's not so clear cuts some some maintain the discounts of 20 15 5 depending on the protocol um it basically boils down to uh perception of risk and this perception perception is really nuanced for example there is a

perception of uh risk of the the the fact that this staked idiom will not get uh like withdrawn by the protocol you you're not fully trust there is also uh missed opportunity risks like for example ethereum is pretty productive assets right now in in the fire ecosystem you can like uh locate and make have some dye and farm uh liquidity farm on on diet and get some no not a lot but like a few a few percent of apr probably uh so when you have your ethereum locked in stake and you miss out on these these opportunities and sometimes they are very lucrative like we see this in uh when we are monitoring our liquidity

pools in in in curve and there are weeks when people withdraw like 300 000 east to liquidity farm on our bedroom for example that was uh very interesting to see uh vasily let's talk about um what to do with in a bit but let me let me ask about the peg again so basically say i'm i'm a staked ether whale and i withdraw enough to actually move the pack so basically um now the pack is no longer point i mean obviously the pack should never be above one because then it would just make sense to uh to put put i mean i mean that that should never happen but basically say it

goes from 0.99 to uh 0.97 um is is the pack solely maintained by other people than buying in at a three percent discount we have a fairly uh big liquidity mining position the liquidity uh mining rewards program for uh sticky to each pair so stick this is is a pretty good uh way to utilize your ethereum so how does it work uh currently um we we've had two two two months like this when the pack dropped below uh 98 percent one was in march one wasn't uh just like a month

ago or so what happens is yes people start buying a stick teeth with discount and they generally buy up to about 99 discount and then slowly close back when people deposit more if into a curve pool because it's uh it's something that they see at a good way to earn some uh some rewards on static stake rewards and uh ill farming rewards on top of the uh their ease so it it happens exactly like this we we get sometimes drops in uh in pack and it gets better uh up to like about 99 pretty uh pretty soon and then slowly crawls back to uh

almost one to one pack so so basically incentivized market mechanic mechanics uh and and people actually buying the gip so this this both make sense uh these both are the factors here okay cool um so so let's talk about um the staked eve yeah so this is a fungible token that can also be used for yield farming thus a meaning that people who partake in eath too staking don't have the opportunity cost of not partaking in defy anymore so tell us about what you can do in principle with with a mistake ether right now with steak teeth you can uh

you can use it as a as a as a trading player in defy uh just when you uh want to uh move your uh like significant part of your but for the to if you can move it to stake it instead uh that uh through the uh very liquid uh curve pool and balancer pool and uh also we have a pretty liquid pass of to die on sushi and one inch um you can do it uh with like pretty pretty low slippage and if you intend to stand in your ethereum position uh for for some time it's a good trade like uh do you take this instead of ethereum because you

will earn uh staking rewards while you stay in the position uh you can use it to farm the liquidity mining on these pools these are all incentivized and that's how most people use it right now um you can use it as a collateral in a number of uh protocols that dlc was landing on money markets right now it's i think uh nc on encore on terra and co only room those are two different anchor protocols uh called the same but like they are different and it's inverse finance uh anchor um in

one of the fuse pools uh very capital fuse and i think it should be pretty soon maker and other but that's like up to them that's governance decision that is not hasn't been passed yet uh just we prepared a lot of materials for them to make this decision yeah and these governance processes they typically um they take time right yeah um so um can you talk talk about how lido actually makes money do you take fees um out of the out of the staking rewards yes we with uh lido takes ten percent fee out of staking rewards and five percent like half of this fee uh

uh five percent of totals taking rewards is deceived between not operators for lidar so they're uh they're getting paid for this service there are a lot of note operators for lighter right now it's 14 and i think we'll uh that's that's only the new lido is not only us taking on vm uh i'm i'm talking about the dream mostly right now uh so uh on ethereum we have 14 note operators and i think we'll have another round on board in union dupertus in october or early november um so we have more stake in this sterilization 14 node operators doesn't seem like a whole lot if if you compare it to say like you know cosmos with a hunt over 100 and solana why why 14 and

what's what are the mechanisms to add more operators um so right now it's not permissionless right now i did not more node apparatus is done using a governance process when there is a sub governance group that evaluates the operators and whitens them and when they are added we try to flatten the stake so that everyone in in lido has more or less the same stake we are working toward more permissionless algorithm but right now it's not the time to do this uh because for now when withdrawals are impossible there is no forced withdrawals uh command that uh can allow staking pools to withdraw from a faulty

node operator uh ethereum is basically hostage with them uh if they misbehave uh that means that uh all light is at risk of they misbehave so uh and the if you know the other is locked and key withdrawals are in so that's basically no recourse if something goes wrong with not operator right now and we need to be very selective because right now is not the full-fledged form of lido that will be able to uh to deal with not operators that are not up to standard so we need to select them before when uh withdrawals are in and

ssv is also a major technology uh they secretly had validators when multiple node operators can can share one valley data key and not be at fault of a single moderator we will be able to implement the protocol that uh allows people to come in without a governance process that is cumbersome and uh pretty slow and uh earned they basically they they stake by so can you elaborate a little bit on the on the risk here the the risk uh that um so the fact that there the withdrawals are not enabled yet represents the risk can you elaborate on that um

so there risk here is an individual not operator can can misbehave uh they can uh for example turn or turn off they uh their nodes uh for whatever reason for example because uh there is data center fire or they i don't know that there is government credit down not operators well that that's a tail risk but it can happen right uh and uh if they do um they are they will start getting penalties and these penalties will uh instead of sticking rewards will uh chew up at amount of idioms of at the stake in lido and instead of rewards will have

penalties for all the lido we we will actually uh make an uh a blog post about this with a detailed simulation uh which we we took like i think about one month and a half to do it it was pretty involved work um but like i i can say that not operators going wrong or being uh um or malfunctioning or uh being compromised can be you know really bad for lido especially if uh uh if it's compromised and or malicious and uh and is slashed instead of being

offline so i understand why um lido's takers behaving maliciously is dangerous to all um staked eatholders because they are all collectively penalized for this um i mean this is kind of it's kind of a problem in all staking protocols right and in most taking protocols um you have mechanisms such as each validator or staker needs to put up a bond and and you have decided you have actively decided against this right so basically the the um the validators um they're currently trusted um and you know if if i mean

if they misbehave and they lose reputation and they can be excluded from the process but there's no way to penalize them within the protocol so why was this design decision made that's that's a very fair question because like it wasn't an easy design decision the reason is uh mostly the capital efficiency of the protocol the the reason is um i firmly believe that there will be uh and most of life that actually does as well that there will be one winning liquids taken uh uh the the way of liquids staking because liquid staking is so

much better than staking and uh the main uh the main quality liquid statement has is liquidity and liquidity the gas liquidity basically so there will be uh one one major liquids taken maybe protocol it may it might be an exchange it might be uh like a some custodial solution for liquid staking but it will be one of them and uh if uh the the growth of the protocol is very limited for example by by having a lot of bonds uh that enough bonds that uh uh liquid taken can be made well trustless to an extent not not exactly trustless

but like to an extent right it maybe can be made more safe on this front so i understand that liquid um staking protocols are better the more people participate but this is actually a strong effect because basically the marginal use of each eath you put in basically if it's between uh the second and the third ease i totally get it but but if it's between the 20 000 each east and the twenty thousand and first east it's not that big a difference is it so lidar currently holds um uh 87 percent of all liquids taken in the room that might be attributed to uh to like execution or maybe uh i i don't know support from from from people

who participate in leiden or something but to to only talk to to a small extent i think like that's exactly these that is playing out that liquid staking is uh is one winner but do you think it's it's um it's um a networking effect or do you think it's just because you know so much ease is in this that it's now essentially you know vetted and uh tried for this amount of yeast so it's the most it's this most secure of all the liquid staking protocols uh isn't it the same thing basically oh so basically i understood liquidity differently so basically i under uh i understood liquidity in the sense of if

i wanna withdraw my stake what's the slippage i have to take that's how i understood liquidity is that not how you know that's exactly how i meant it but that liquidity is is based on trust like i said right people trust stake thief to hold the back because they trust their stake these two uh to be withdrawable when uh when withdrawals are possible uh it's uh it's exactly that like the liquidity of stake liquid staking token is basically how uh what what's what's the buyer side of this how many people with how how much capital are ready to buy it and at what discount and the amount of of capital that is

ready to uh to to to buy uh your your stative or sell your stake date is uh is basically based on how uh how save the thing this trade is uh how save the thing the the future for this token is how uh usable it is in uh in in trading and taking protocol and exchanges that's that's exactly the network effect people use tech teeth because other people use tektit so i'd like to come back to uh just the the governance for a second you guys see the track there but uh um so you you mentioned that for now it's a permission process so validators are added uh because they're vetted by the community and you've chosen validators that have a track record can you talk

about the kind of roadmap towards decentralizing this process or making it more permissionless and i understand as the ldo token and perhaps like explain what the role of that token is uh in this uh in this process what what we're focusing right now is uh right now at lido we are focusing on implementing and good withdrawals protocols so the uh making uh we we are spending our focus at making them um and designing more trustless weight on what not operators but it's a secondary priority right now because like primary priority is getting ready for when uh when the merge happens and there

is uh mev and the staking and the transaction fees and the protocol incoming that is uh going to change a beta uh smart contracts and then withdrawals a bit after that that are pretty hard to make so uh that's not like our first focus right now so what what there is is not a straight plan that is uh fully uh plotted out and uh ready to execute what we have right now is number of design decisions possible to us that we are debating right now and the way to have uh more permissionless protocol uh for not operators

uh after some time i think that current process of onboarding not operators will serve us well for for quite some time right now the the way to to do it is uh we we have several we basically need to wet not operators about how good they are we have multiple source of information about that we can use here one source is uh the past performance uh we can evaluate the past performance and uh use it a as a way to uh like the node operator who has been active and uh was working well for a year is probably uh uh can can can be uh somewhat more trusted than a fresh one

uh the other stuff uh is uh is boiled down to basically reputation and social trust which is not really easy to quantify in the protocol but it can be quantified uh exactly the same as delegation protocols do it like we can we can use uh stake date holders basically as as a proxy for understanding who's who what not operator they trust we can also use bonds uh eventually for at least for less trusted not operators so for example you can you can come in a protocol with a bond and uh eventually uh after you get some rep and uh uh staking history you can uh uh uh you

can reduce your uh what requires bit by bit so there is a number of uh of lego bricks that can be used to to make a a working protocol i think they all need to emphasize uh one thing is past performance the other thing is uh basically community input and they need to flatten the stake anyway somewhat you said that lido has like 14 knot operators which is less than uh much less than cosmos or someone yeah that the thing that um right now uh lidar is uh distributants take as flat as possible uh between not operators there is no risk taking right now so

this as flat as possible is uh looks like we will get to air every node operator to some point and then what you and they they are filled up until until they get some number of uh what editors but uh their gist is their stake should be distributed flat which does increase the nakamoto coefficient basically uh we we have more than 15 percent of ethereums taken with us with 14 knot operators and for example exchanges together have about i don't know uh 25 30 for example and they have certainly they have less not operators

between them it seems to me like the the model the delegate the the sort of like this delegated staking model in ethereum presents some risks for stakers because i mean i i'm i don't stake in ethereum but i have been staking in cosmos for like a really long time and like my experience there has been that i change validators you know on a semi regular basis for whatever reason maybe fees or maybe like you know i've unstaked and i want to stay with another validator like there's there's different reasons why you would pick you know specific validators on on cosmos but with cosmos if your validator is is um

is acting maliciously or you know it's getting slashed for whatever reason you you unplug from that validator okay there's a three week period but then you you go and move somewhere else and you always have that opportunity to move to another uh validator whereas here if if your vision of like how delegate is taking should happen on ethereum comes to fruition which which you've explained as like there will be one winner there'll be like one big staking pool on ethereum your options are sort of limited where if you're if you don't have 32 eth and you don't have the technical chops to build like basically like if you're a customer of lido because you can benefit from the features that light up proposes uh you're sort of stuck

there like you you can't go to another pool if there isn't another pool and like if that's your only way to stake then there's no other options for you um so if like validators um you know something happens where validators are being slashed your options are limited how would you like what's the way around this and like is this a fundamental flaw of this of this model my answer here is that liquid staking is is inevitable the question is how it will be structured so uh if you compare liquid staking to uh delegated staking and that you say that delicate staking is is more safe i i would agree with you that yes uh it

it it's less it's more straightforward and more safe though like not not much more in my opinion because there is less principle agent uh problem here so you can choose your your your node operator in cosmos uh if you're used or in the room if you're choosing staking and in liver you choose for liquid staking pools you choose a liquid taking pool and they buy some algorithm or galvanization they they choose an operator and you you have no say in this except they say that protocols does allow to you uh that is true and that's not really very much relevant

because liquid staking is winning even now even cosmos liquid staking is winning with binance being the top one not operator and exchanges together like there is also kraken and a few i think uh un unnamed not operators so liquid staking is winning even when there is uh no defined world and uh with just wallet gardens of of exchanges and with defined world especially defined on on cosmos uh through ibc and stuff liquids taking in cosmos will also uh win the day and there will be probably one winner

so realistic outcome and the basically the point where you can uh apply your efforts to make this world better is to design a better request taking protocol that is capable to to having this first place and still good for the ecosystem i mean it's kind of too late for this but do you think that a better design decision sort of generally for you know proof-of-stake systems would have been for liquid staking to be built into the layer one protocols so that essentially like the layer one protocol provides a token uh when you're staked um in in govern in a validation um so that's uh uh that's

probably better for the protocol because it's uh it will be easier to build taking pools on top of this their protocol can't uh itself the the product like cosmos or idioms something they can't ha they can't decide for themselves the the set of not operators you can't make it uh in the protocol the that that's something that users have to to do either directly or indirectly to the protocol or the custody they use so there is like the the the keys for security of liquid staking pools and fungible liquid staking is a selection of of a pool of not operators and this selection is uh cannot be baked into base layer

it it should be baked into in in in into an application that uh that does it so it boils down to the same question how the not operator pull is selected uh that can't be in the base protocol so the base protocol all all this uh it's a good thing to have liquids taken in some form and base protocol but you can't use it to circumvent the security of not operator said problem yeah i agree so um clearly there's um a whole host of governance parameters here that have to be set um and for that you have the light oda with um the ldo governance token um so can you talk about um the token and how it was distributed and what kind of parameters

um are governed by the dow uh yeah so uh lido fully upgradable set of smart contracts on the view so uh and it's governed by a voting based on ldo tokens so essentially at this point uh ldo govern everything about the protocol either directly through setting uh parameters in the current set of smart contracts or potentially by upgrading to something absolutely new that was not a light decision and that's not where we want to end up uh for the reason that uh like why we couldn't have a non-upgradable version

of of lidar is that when lloyd launched the ethereum's taking protocol was not even fully designed yet and it i think it's still not so it it's not uh it's not oscified yet so the liquid staking protocol built on the stake the protocol of staking on the um also needs to be fully upgradable when ethereum's taken is a bit justified we can't transform to a model where upgrades are either like more time locked or uh locked by a stick thief holders uh or maybe fully ossified that's that's happened there yet but uh

the the current state is not long term maintainable we don't want to have it for long term most decisions that dao makes these days are more or less operational uh it's the selection of not operators and raisins taking the miss for them it's managing the liquidity mining programs and a plethora of one-off initiatives like participating in integrands for the ecosystem or finding legs down and stuff like that so their grants program and stuff like that so um the one

exception was the upgrade of smart contract for better security that uh lido detail may so um how was the token distributed the the token uh was minted in in december which is initial set of distribution that contained some early dao members the blockchain venture funds and initial node operators and a couple of angel angels i think the team and about 35 percent of the token were were called in endowed treasury deceived by dow voting the initial distribution was uh fairly

uh uh it is still uh uh locked and the wasting will start in december so most of this talk like not all of these tokens are locked uh and uh the way we did this uh was exactly because we uh we wanted the initial uh governance set up to be uh stable and maintainable until uh the withdrawals are possible we okay i see yeah so uh the the initial governance should be powerful enough and stable enough to guide leiden through the uh this initial period when the when it's not fully formed and

vulnerable to governance and tax because it's fully upgradable uh it was again not not an easy decision but one we made because we thought it would be more secure for for the uh second protocol we designed cool and so you kind of brushed over this a little bit lido just a couple of months ago raised i believe seven to 72 million dollars from vcs right so we we did a round of distributed tokens from uh from governance to to a number of uh uh of fans and people uh the the major of them paradigm it was uh not not like not 72 million

it was uh for a full sum of uh 21 thousand and 600 eth so we actually uh use used either as a denominator so it happened uh yeah it happened in may uh publicly on uh on governor's forum uh we uh out of like most important names for their paradigm uh which had been great uh helping and doing a lot in lido they are like a proud member of leiden dao they contribute a lot uh shout out to georges and arjun and uh there are also uh folks like 3ac and ftx and uh a lot of angel that also are very

helpful cool so 21 000 yeah if that's still upwards of um 50 million dollars right so what what are you planning to do with um that treasury um so uh so so so far it's mostly just sitting there uh because lidar is actually uh it's uh it's pretty much in the black like we uh later has and uh uh earning about uh 10 adders per day right now on rewards is it not staked on naido um

it's not uh and mostly the reason is that it's debated currently on governance if this uh governs forum if this uh some should be used as a backstop if something goes wrong with uh with not operators as a cover so if that happens the uh at least part of it should be uh like not under the same risks and as lidar itself and part of it had been used to to fund lex dao uh but it like it it's mostly highly right now yes so you recently launched lido for solana and i believe it was for sierra that

course was a scheme that sparked at this yeah so tell us a little bit about that and what are the implications here so we uh lido is acting on three protocols right now it's ethereum which has been talking about because uh like the the talk went this direction but it's also active in uh in terra and in solana and has team working on implementation for polka dot and kusama and for polygon the strategy of the dao here is to have an independent separate kim to walk like to slide the walk

vertically where it's separate team works on lidar for for uh terra for salana for for for everything basically and the reason we go this way instead of concentrating it all in a single development team is to have a diverse and decentralized uh uh set of developers for for lidar which like many defy protocols uh are struggling to decentralize the development because uh they have like one product that they they do and this you can't really decentralized team working on pro on a single product except in maybe like make a dos in in the main teams which is not

very independent as well and lido can actually cut up it works vertically and have independent teams that have all building business on on different blockchain protocols uh building liquids taken for them uh separately so uh coros was uh the team that made the proposal on govan's form and got a uh basically deal with lido that they built light of solana and have a sizable grant and ldo tokens and the revenue share of uh 20 of uh leiden earnings uh earnings on salona so that's what they eat they they did

very very good job and they are handling the uh the salon liquids taken very well they are great operationally and technologically and [Music] yeah they're a really really great team um yes of course brian and we are chorus fans yeah actually happens right um the withdrawal basically withdrawal guarantees um that currently set you apart from other protocols um they will no longer be as strong do you think your

economic mode is going to um suffer from that and you won't be able to charge fees of 10 anymore because anyone might just duplicate your protocol and because you can always withdraw um the the 10 markup is no longer justifiable um so i don't believe this what will happens but like i'm i'm ready to correct my beliefs if that actually happens i think that the 10 card is actually uh pretty okay for uh for making uh

your your stake liquid and having a good uh secure set of not operators and the the not operators needs to be paid well as well so it can't go much beyond like the five percent we are [Music] much lower than five percent that we are giving to not operators apparatus so i think it will be like it it's uh it's a number that will work out um but if i'm wrong but that will we will see in practice and we will have to the light will have to adapt here so sure so um what else will change um for lydo with ethereum two and uh how

does this relate to your roadmap so um like one thing that is uh ethereum 2 no longer exists there is just ethereum that has execution layered consensus layer so what happens with merge with merch what happens is that stakers uh including liquid staking users will start to earn uh transaction fees and minor extractable value which will make uh [Music]

staking about twice as profitable i think than now and uh maybe more and uh that will attract more people to stake so what what what changes for uh for light and for all the stake in ecosystem and that will more money will come there so vasily you're not you're not hopeful for mev resistant um dabs i think that uh i'm really like in the corner of mv resistant depths but i think that it's a long wait uh to have them and uh it it it

it will be a lot of a lot of time and until we see the majority of economic activity on uh movie resistant ups that's one thing and the other is some forms of media probably uh impossible to remove like arbitrage between different uh uh blockchains and centralized exchanges yeah so basically i i i would only call um those i mean that i would just call you know arbitration right so basically um i mean so basically that's that's completely fine right so basically for

me mev is value that you can extract because you are in a privileged position in in the form that you are the person who can order transactions in a block right uh arbitrage is exactly that it's it's mav so imagine that there is for example a centralized exchange that is trading real time and ethereum that is uh has discrete trading intervals of 12 12 seconds after the match and there is this 12 seconds uptick that makes uh like three percent bump in price of a price of weather so in the next block

everyone who is arbitraging will want to buy either up on the centralized exchanges uh like union swap or something and who uh whoever buys first will have their juiciest returns sure but i mean that there's that's um a competition right so lots of people can kind of participate in that competition yes and the mind that comes who is the winner here sure that that that is true so basically the minor of the next block yeah so basically you have external app opportunities i i say i see what you're saying yeah so mmv is like the the one that is on the edges between different uh uh

different uh water gardens is probably inevitable the one that is within a like a single uh big protocol i think it can be mitigated to an extent but not uh not fully well before we wrap up uh let's maybe just briefly touch on the uh the lego program the the grant uh program and what are your what kind of projects you're hoping to attract here um so lego program is a grants program of lido we have an extremely lightweight grants program so basically it's been made to helicopter mining for the

greater good of lido and protocol that light the workplace like [Music] we are giving out a number of thank you grants for for for stuff that uh just is good for leiden and for the room uh we for example funded the work of a search called pintail on twitter who's working on [Music] researching the economics of validation on the dream we are using it to fund the uh the research the development of stuff that is this ladder for example we are right now working with the one developer to make a uh

a good data set of validation history in in beacon chain so we can run analytics over this and it's been really fascinating and as well as community related efforts and bit of marketing here and there so uh basically everything that is not very not big enough to be on the under uh full down mandate but is beneficial to lido cool well we'll uh we'll link to all of that in the yeah show notes yeah i guess uh the website for lido is lido.phy live.fire right okay and that's where

people can go to start sticking yes great thank you so much for joining us thank you for following thank you for the interesting questions it was a really good talk