# An Examination of the Evolution of Staking and Validators by Jun Soo JK Kim (Devcon5)

- Channel: [Devcon](https://streameth.org/devcon)
- Date: 2020-10-09
- Duration: 17:26
- Topics: blockchain, smart contracts, distributed ledger, ethereum
- Watch: https://streameth.org/watch/yt-9qVpFMWWkHc
- YouTube: https://www.youtube.com/watch?v=9qVpFMWWkHc

## Description

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https://archive.devcon.org/archive/watch/5/an-examination-of-the-evolution-of-staking-and-validators

Ethereum 2.0 Phase Zero is rapidly approaching. Extensive research has been conducted on Proof-of-Stake, along with multiple tests and debates to discuss the economics of how this transition will play out. However, there are a few real world data points worth observing in order to understand how Ethereum 2.0 staking and validator markets will play out. stake.fish has been in operations for a year supporting projects like Cosmos, Tezos, and Loom Network. We would love to share how these staking projects evolved along with the stakeholders around them. We can't wait for Devcon 5 and for Ethereum 2.0 :)

Speaker(s): Jun Soo JK Kim
Skill level: Beginner
Track: Consensus layer
Keywords: staking, eth2, general

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Devcon 5 was held in Osaka, Japan on Oct 8 - 11, 2019.
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## Transcript

my name is JK I'm the operations manager at a steak fish Thank You steak fish is a validator for different Priya West block chains and and no two operators for projects that use staking mechanisms I'll get into that a bit later but you know we're all excited for a dream 2.0 POS is going to be enabled but you know there have been plenty of other POS protocols that have been in operations for a year or even or slightly less than that and there are already good data points to take from there and having been in this space for about a year now and a bit over a year there's plenty of lessons that we've learned throughout the way throughout our our operations and we wanted to share a few of those with you today in the hopes that once eternam 2.0 launches we don't have similar problems we've seen on other POS protocols so just a very short introduction about sake fish steak which was founded by auction who co-founded f2 pool which is one of the of course largest Bitcoin and it dairy mining pools and you know he wanted to contribute something similar in the proof of stake space and of course naturally dye meant creating validators and staking pools and so so far we have validators or nodes on various projects we have AOS whereof a leader on B owes cosmos Tasos lunette work Irish Network boss a node operator for a chain link al grant and a storage node provider for storage as well and so right now roughly we're facilitating around 30 million dollars in stay Keable assets so first of all just a quick reality check I know that everyone will be able to run in a dream 2.0 validator known as long as you have thirty two E's but the reality is not everyone will be able to you know either you don't have the equipment we can't assume that everyone will have a PC at their home or even a laptop and we can't assume everyone will have the technological capabilities of you know parsing through github or even using command lines to actually run a validator node and so that's where I Valladares come in we're trying to help lower the barriers to staking even further by making seeking easy for retail and so there are two main service offerings that volunteers offer so far one is validated as a service this is where we run a validator and people delegate their coins to us delegate is where people don't give up their ownership but rather they provide the power and end of the coins to a validator so it's a pretty special type of transaction and so therefore we're able to run a validator but we don't have custody over the coins that are stake with us also there's a fair amount of Valladares that run a note as a service this is where you imagine like AWS right you're trying to spin up an O Valley general for any customer that wants to stake and you know there are I think in the US are two big players in the space there's block Damon and bison trails and you know largely loaded as a service you can really imagine it to look similar to just an AWS but of course with the 2.0 Razak there's no such thing as delegation you're not gonna be able to delegate your coins so unless you have custody of the funds Valladares a service is probably not going to be a viable business for for volunteers so I won't go too much into detail because of time constraints of over what validators are considering on what are their businesses that could be provided but you know rest assured and node as a service will probably be one of the more strong business lines that validators will pursue for East 2.0 but of course personally and there's there's other avenues that are exciting such as some giving a shout-out to Crockett pull of course which I'm really looking forward to for e 2.0 but you know so you know the valleys are losing probably like one of their main business lines and note as a service seems to be one of the more viable options but like why are valid ears and here at all in this space right now there's around about five billion dollars of stackable assets in the market so it's a fair amount and I estimated roughly that in a year or so there is gonna be this number is gonna balloon to 30 billion dollars and of course it Durham 2.0 is gonna be the majority of that with 8 billion dollars and so not to say that this is the exact like revenue opportunity but this is the the size of the market and so therefore there's a reason why do validators are here they want to either facilitate something here they want to do something here they want to help facilitate staking of 8 billion dollars and when eise 2.0 launches and so that's sort of a short intro on like who validators are how they're trying to they're approaching eath 2.0 but let's go into like the reason why i'm here today to talk about some of the lessons the key lessons we've learned by validating on other POS protocols and I've really summarizes it down to five Garf are many but these are the five key ones that I believe this Durham community needs to focus on so I don't know if any of you were at the first speaker panel session for today life Adam from life here actually gave a pretty good presentation on the one of the key bottlenecks of staking right now and it's a it's the user interface right now staking is insanely hard even on you know even for like a network like tezo's for example it's very difficult to understand like where I need to go if I have two Z's in my ledger is there an interface I could use to stake it's very hard to find out I recommend you trying to google it you'll you'll come up with very different you know explanations on where you could go it's not really clear on cosmos similarly so when cosmos launched there was only one mobile wallet available and what one web wallet available and obviously people were confused whether that was the only ones they could use but you know but the most safe one was actually using the command line and so people about some of the validators started telling people to use the command line and obviously as I mentioned when I first began to stop we can't expect everyone to understand how to use the command lines therefore there was a lot of confusion so it's important that some form of staking interfaces or multiple staking interfaces are available 1 2 e 2.0 launches if not it's gonna cause a lot of confusion and you're just basically limiting the opportunity to stake it's a very limited set of people of community members now another important part is the making staking trackable uh and you know of course you want it for bookkeeping you want to see how much income you're you have how much how much you have stake but more importantly there are tax reasons for this there's a lot of regulatory unclarity on how staking should be considered tax wise but eventually you know people will need to be paid our taxes on problem most likely on staking Awards and the only way they'll be able to do that is if they're able to track how much rewards even receiving how much assets Amiens taking so far there aren't that many of such dashboards many of them are launching right now but this is another of another another key tool that needs to be pride that when ES 2.0 becomes available so yeah so number one key theme here is try to make you know interfaces for users for retail such that they're able to stay easily and also to track how their state assets easily number two is so slashing has occurred on Kosmos especially recently not recently I guess in June July someone uh one of the Valladares had their value here was down for a while and they tried to bring it back up and accidentally they're back up note and our main balladeer node came back up at the same time causing a double double signing so when as a validator when I talk with retail or other funds the number one question they always ask us ask us is how are you gonna insure me that you know how are you gonna intervene in terms of slashing risk it's all in their minds but with this with this double signing event it's becoming much more this risk is becoming in their minds and it's become a key theme that they constantly asked for insurance or some way that some social conscious I'm option contrary could sign such that they're able to then somehow recoup the / amount and so therefore this is definitely another pain point and there needs to be some method to let you know people hedge their slashing risk and most likely I believe this will come in the form of defy in terms of like insurance markets most likely and so these sort of these sort of defy products needs to be thought of in advance and created not not after East 2.0 has launched really also another thing is another way of actually reducing slashing risk is by diversifying who you stake to for example if I'm trying to stake on cosmos random valid any rather is taking with one valid ear it's better to spread out your risk and valid just similar to how you diversify your portfolio this concept is sort of not really considered too much we see way too many just all in staking going on in various protocols so but the probably the main reason why that's occurring is because it's very inconvenient to diversify your stake when you're staking so providing an automated option or service such that people could automatically diversify the validators that they're using is also a pretty important method of hedging they're slashing risk and probably a very important product that will be needed you know close to when East 2.0 launches another key thing that we've seen constantly come up in other POS protocols is centralization debate it's so on the left here you could see sort of the graph of the state power basically distribution and and this is uh this is in cosmos by doing so for ether a.m. there's no delegation so you won't see this this dark of of a grant distribution graph you know and e 2.0 how this is relevant is in two ways so exchanges definitely will have so much in their custody so they're gonna be big players so there will be some some debate over their role in the staking economy in the East 2.0 but second of all remember I said that validators will probably enter into easy 2.0 as note as a service well imagine if any of these note as a service providers become big like they control like 50 60 percent of the market imagine that they find a very critical bug in their infrastructure what that means is then every single user staking using their node as a service are probably likely going to be compromised so it's another point of failure in that case so that's also so that's somewhat like not gonna be as forefront as you know seeing an exchange gain like five six percent of a networks power but this is also going to be a very crucial centralization failure point that will be neat will need to be vigilant about so I actually took this out I've put it as a separate point because this is very crucial so exchanges are finally entering staking you know I'm quite sure many of you have seen how by Nance announced that they're providing staking operations and the reason why staking is so exchanges are so entering two staking is crucial is because they're able to provide instant liquidity and they actually bypass any on bonding periods and you know imagine that you know like if you're trying to stake on a ES 2.0 and you don't need to lock up your ease you just keep it on a low exchange wallet and you instantly get each drop to your wallet like how convenient is that and so therefore this is this is a really problematic especially for independent validators like us because we're not really able to compete with these exchanges that are able to bypass these liquidity issues oh yeah and there's like your street points on how exchanges are entering I'll please come up to me if you want to understand more about how exchanges are entering right now so as I mentioned the the important part for the poor part about like of tackling this is that independent validators like us need to be able to compete with these guys and the only way we could do that is if there's a way where we could offer people who delegate to us who stake with us have similar liquidity you know liquidity wonder when they're staking and so therefore I see staking derivatives again defy playing a key role here there are a few players right now trying to tackle this and so once staking derivatives are alive that will then help us Valladares actually compete with exchanges and that's what that's key here I think that that's how I don't expect Valladares to be treated more favorably in compared to exchanges but at the very least we could level the playing field by providing staking derivatives and so this is just one a way of sort of tackling the exchange centralization issue of regarding staking but I welcome anyone to think of any alternatives to try to see where we could compete better with exchanges when it comes to staking so finally this is a topic that no one likes to talk about but that we seriously need to there needs to be a working group around this it's regulation and Taxation proof-of-work mining has been around so there has been some framework constructed around how mining and mining words should be considered but you know we can't assume that proof of stake staking and staking Wars will be considered the same way like as an example like let's say a proof of stake staking words will eventually be taxed will it be taxed once I get to staking Awards in my wallet or will it be taxed once I liquidate it into like a nerd a coin like these are questions that are still up in the air and no one knows the answers to so there is a POS Alliance proof of stake Alliance has been created with a few key players in the staking staking world I also do encourage the Durham community to think about how we could engage policymakers and and regulators around house taking should be considered because if this stack is not figured out like you know Valladares takers everyone alike is gonna be in a heap of regulatory issues so I think it's important that we we we actually take we take a proactive approach I try to talk with policymakers on what they're thinking and how we could make it comfortable such that they make reasoned and logical decisions on how staking should be taxed how staking should be regulated so yeah so those are sort of the five key lessons I wanted to share with you guys and hopefully that one sees 2.0 launches we have some answers to we might not have answers to all but hopefully most of them I loves talking about staking I'm happy to share any knowledge insight on what we've how we've operated so far so please feel free to reach out to me on Twitter on by email or or yeah I think that's it I guess I'll take questions if there are any you