The Future of Liquid Staking by Vasiliy Shapovalov | Devcon Bogotá

foreign [Music] folks my name is I work in Lido and what I want to talk about today is what I think will be the future of liquids taking I really love the crowd by the way there's so many of you a bit about uh last us and about me why I'm talking about this I'm a depleted Lido which is a dial that headquartered on the theme that makes Luke is taking protocols and it maintains the largest liquid sticking protocol in existence right on the denim which has a bit more than 4 million Heather in it currently the number two D5 protocol by qvl and I'm co-founder Tech lead so I guess I know a couple of things about staking so um um for folks who are not really familiar with the topic liquids taking is when a Staker gets transferable voucher when they look up the stake and has taken protocol so like uh it's not uh it can be used in defy it can be transferred sold both uh collateralized etc etc um and uh a liquid stake is a small but growing and pretty significant in size uh part of state and economy you know like all the stake in the common area without 80 billions and liquids taken protocols that together are about 8 billions or so and if we add to the liquid sync protocols also liquids taken on exchanges which I think we actually should count among the consequent options uh it will be closer to 20 billions I think so uh Lots but not overwhelming part of state and economy um so um I'm going to like I'm not going to do any deep insights here like I'm uh don't pretend there is something I'm going to say that is not pretty obvious I think but I'm going to say it anyway I'm going to make three predictions basically one is that like protocol based liquids taken could grow alongside the fire system uh when the fire system growth a liquids taken protocols grow with it when it doesn't grow and stagnates that like liquid state will not uh protocols will not grow like there will be uh people will use sticky knock changes instead um there will be a lot of options for liquids taking but few of them will be Witness and the like who will be the winner who will be the winners uh will be determined by stakers they they will be the the one with who vote with their money about like what the future would look like um now in a bit of more details area of this statement I'll talk about it so our experience at Lido building liquid taken protocols many chains we have like one on ethereum one on salana on polygon on polka dot the thing is liquids taking protocol growth is driven by defy ecosystem growth whether when there is a low amount of defy penetration liquid sinking will also be pretty pretty small and when there is like a very strong Academy like an ethereum liquid thinking would be will be very popular there are other factors but like that's primarily I think like when people want to use the other in defy they will rather use some kind of second stake and liquid second token in the file uh when they don't use uh want to use either and defy they don't care about State the rocket pull leather Etc so um and the main competition are the wallet guns of C5 like exchanges have liquids taken since forever uh it works very seamlessly it's very uh very easy for the user they like just deposit the uh tokens that they use to used to if they are working with exchange and it's automatically sticked it can be often used as collateral for margin trading like it has most of the users that people want liquids taken for and if you don't care about being in decentralized finance if you don't care about like this being not your keys uh it's perfectly serviceable so [Music] um and the product is just better than regular stake in the um liquids taken is better for users than regular stickers the adoption barriers that like a major problem for liquids taking protocol growth is smart contract risk governance risks and sometimes tax implications um the smart contractors can governance risk on one hand they go down with time so like with time people start starting to trust more the protocols for good measure because they haven't been hacked they are like less likely to be hugged in the future uh same about governance and still uh it's not worth it like if you're not using to use the token and defy like if you if you're not using no not going to trade it or collateralize it you don't want to take this additional risk um and uh there are like a multiple options for building liquid sticking protocols uh and like with the chicken in general not just protocols that are um uh going like exist already or will be existing going forward and um to talk about them we need to understand what is liquids taken as a product like who are the users what do they want and there are three kind of users like three kind of stakeholders for like it's taking one is the stakers they are most important here and they once taken Awards they want security they want liquidity and usability in uh in finance basically um protocols Community want the best solidity set for the protocol that is decentralized sensorship resistant and not operators in protocols they want to run a stable stake in business if they are professional and if they're hobbyists they want to be like I don't know respected they're not rational they just do it for the fun and for the feeling of uh contribute contributing to destroyalization which is great so um and the options that are available will be available in the future are broadly um it's custodial option uh the exchange-based liquids taken forecast that you basically sticking uh it's protocol that are based on risk management it's protocol that are based on uh bonds for security they're hyper-compliant protocols and Marketplace types type protocols um so Castor yeah I'm listing them in the order of adoption custodial liquids they can like a change liquids taken is uh like the largest one uh if you combine like even on ethereum but if you combine together all the uh exchange section options it's like a lot of uh market share they um uh exchange for custody based very simple to use for users because like centralized solution are like very good for you for user experience usually you can do a lot to make it simpler uh they have no additional risk if you already draw The Exchange in question with with your capital um often have included uh the options for margin training Landing money markets Etc um and because the operator of custodial could take like a change or something they are double dipping so they they're getting staking rewards and like fiance taking rewards and they are also getting fion trading on maybe custody fees or something like that um they can offer very competitive rates compared to others like the the this option will likely win on profit liability going forward it's not the case right now because like coinbase takes a lot of um a lot of fees but they have much more uh options to go all over on fees because they can double dip in vertical Integrations um they have usually subver value data sets so like the don't provide a like that much value for like as much value as it could for the protocol uh because they select few operators uh with little diversity in jurisdiction's physical locations etc etc um and it's not transparent and they are susceptible to regulatory capture because like C5 solution uh like extremely regulated um risk management based protocols they are non-custodial they manage slation risks protocol wide by creating creative value data sets that like minimize risks they therefore they are usually Capital efficient so they're easy to grow they're easier to uh to accept stake [Music] and for like um for the um competitive advantage on user side they rely on the fire system so like when the fire system is better than uh any any single wallet Garden of of a change they can uh offer a good uh uh that alternative to centralized exchanges uh valid data set they have are like very different in in uh in design because uh and in quality they can be big they can be small they can be like consist of one operator which is like uh the same the protocol operators basically um and they um that's because like the managed protocol set is the valid data set is basically the major part of the product here and that's where they give her very much um it can be good it can be bad it like depends on the protocol uh bonded protocol uh also non-custodial they manage slash the risk by acquiring validator bonds uh that makes them Capital efficient because validators like the good value like the uh not operators Community they don't usually have a lot of money and when they are required to provide bonds this is limited by basically the amount of capital of operators or the amount of debt they are willing to take from outside sources um and uh the value data set management is left to the market like basically if you have Capital uh you can participate as an uh operator you can provide your own validation and that's the only thing that's required which I think at scale delivers centralized for later sets because capital is centralized uh like if you take a look at uh Genie coefficient of ethereum for example which is like one of the best ones it's it's really high like most of the wells have worldwide like a few dozens of whales um at when the protocol is at scale that they are either providing a loan or their operating cells at scale and uh take the majority of the what is data set um this option of hyper compliant one is not uh um very different than Tech side from risk management it's different approach because like it's uh seven point and Main feature is that the valid data set is extensively vacated and um certified and regulated and they are likely to not deliver well it just said that the protocol Community want um and I don't think there will be much liquid usable because like usability and defy requires uh like they they made clients are people who I have like very scary or regulations I think that's like selling for lawyers type of things [Music] that are averse to participate in much of the device so and the last type is Marketplace is when there is there are multiple options for staking in one place uh different risk profiles features and costs and when they do a liquid stake in token they have to fund it in some way like uh risk either they do risk management on options like total to to make a fungible basket of different uh options in the marketplace or do the bond type or just do a naive like assuming every race profile is the same um current state on ethereum is that risk management is the largest protocol like it's Lido it's risk management type the second by size is custodial but it will very quickly jump to one by one when withdrawals are possible and every other on every any exchange can be staked more safely than right now and the third type is bonded it's rocket pole it's a third third position uh and by growth speeds right now coinbase uh liquids taken token grows the fastest um lidoor has the second place and uh rocket pole is the third so this is the current trend um I think that the only non-custodial trust minimized options can be designed with the condo evil principle in mind so liquid sticking protocols that [Music] um are sufficiently limited uh in what they can do though like those tax or valid data set selection to uh uh to force or like uh entice operators to operate in certain way when they are limited in that uh they can be entirely harmless for the protocol and not a threat uh custodial Solutions can do that because like they can act like with the values but they are extremely susceptible to uh to regulations which can be not aligned with companies value I think that only risk management based protocols can deliver good value data set at scale because at scale the like the main thing that you deliver for a protocol is a good valid data set and if you don't have an opinionated uh uh selection algorithm that says that like the good wallet data set should be defined like survey diverse should be diverse in jurisdiction in um should be pretty flat and distribution of stake should be diverse geographically and like um in in cloud and on-premise operations etc etc [Music] that's that's essentially what like Risk Management is your monetary for the protocol as well um so I think there are two possible outcomes for the future of idiom is one is that like most of the stake is in the risk management protocol that provides a good quality asset um minority isn't custodial and one that is like the uh on the third place and the beta outcome is vice versa when most of the stake is custodial and the rest is in protocols um um so anyway whatever I think on that uh it doesn't matter much because I'm not the one who decides who will win and like who who will lose and like what will be the best uh the the the largest options it's a stakers who decide that outcome um like not not operators uh they are agents uh they operate like either very small amounts of their own stake or like large amounts of other people's money they do not decide like who who is going to be the winner it's not stake aggregators like protocols or custodies because users stakers actually decide which uh which aggregated to use uh it's not protocol researchers or developers because they design like a neutral protocol that can be used by other people which has takers to to have the desired outcome it's not uh voices on crypto krita Twitter or like protocol governance it's it's going to be less takers Uh current state of ethereum stake increase the direct result of stakes making the choice in the past like they why is lighter big because people sticks with lighter why is like a coinbase big because people decide to stick with coinbase uh the future will be a result of stakers making the decision going forward so what I'm asking you folks is to select the best state based on your ethos your needs your capabilities like if you can if you want and you can run your own order on your own node if you see a good option for staking the protocol like stick with the protocol or with the not operator you trust or something like that um because like status will be deciding the future of uh validator set on the theorem like how the uh ethereum will be operating in the future um at the bonus thing I uh like I I made a few predictions but there are a few curveballs that can invalidate all of that uh very like very unexpectedly um one thing that like is obviously can be can change the cables very much is uh regulations uh like Regulators can force most of them stakers and most of like a lot of ethereum is like in regulated uh jurisdictions a lot of ADA is uh holders are in regulated addictions to comply to local Rex and if vocal Rex say them to stake in a specific way they will likely to comply uh the funds the like the cost studies etc etc they will have to um the second curveball is uh risk taken uh shout out to Angela um it's basically using the same stake on multiple protocols um the the main idea is like you can stake either in uh in the living room protocol and then can use the vowel chat of the text Data like stacked at the token or like a error is token or something as a stake in a different protocol uh that does something different and it's subject to to additional slashings if something goes wrong that leads to a combinator explosion in potential risk and rewards profiles so right now it's pretty easily it's pretty easy to funch than fungible the staking positions like you manage the risk and rewards and that you get can get liquid token out of it like oh make it bonded or something when there is a lot of options for getting additional rewards for taking additional risks which is going to happen if any glass takes off uh that makes uh the the space very very diverse and for possibilities uh of using your other in different ways and it's become we're becoming much harder to funch than fungible um and it makes risk management based protocol harder to design and Marketplace is uh more uh more suitable to the to the state when there is a lot of differentiation in different options for staking marketplaces are better suited to that than uh risk management and the Elephant of the room in the room is a second order effects of Mev uh because like that's a very uh it filled with emergent rules uh we like we don't understand how it works until it works in specific way usually we can predict some things but not all things uh and it's hard to see the future clearly and it clearly has a lot of requirement for latency and benefits a lot from ecls which can force centralization somewhere in some place and it can happen that it will force centralization like on protocol management like on Pro non-stake Management level or like on stake and layer or um like wherever we don't know yet like at least I don't know I'm uh I I I I don't I don't quite understand how it will end up and I think that we we will see it when we'll see it not before um I think the best way to counter that on staking level will be to transform validators and protocol to thumb pipes that don't make any decisions basically or make as as like uh can opt out of making decisions at least something like PBS design VCR lists for example but like as I said it's curable I I'm not completely sure with how it's going to play out um so that's it thank you for coming I like I'm really hyped with scenes that's such a good crowd hello are you sorry you mentioned in light offs there is a reference of elastis how is this related to the insurance of Lido in relation to the TBL um I don't quite get the question uh I'm going to answer as best as I can so uh Lido is a protocol that takes uh stake as ever and it distributes to a valid data set in a specific way this Valley data set is selected in a way to the risk the stake that holders so like are you slashing risks and to make the validator set of ethereum beta as well so like we try to deceive it in a way that will be increase the diversity of validators and like the stake distribution make better stack distribution uh we don't require operators to bond the capital to to operate and that makes uh scaling for lighter really easy because all the operators need to do is to upload some more keys into lidoor and like accept mistake and that's why when there was a lot of demand was taken uh in in the ecosystem it went to Lido and not say to coinbase when the growth is limited by by not operators having enough capital or having enough like cheap launch options or something like that uh it's not like it's not being able to uh to ride these waves of like staking demands uh so I guess like the tvl of Lido is a direct uh results of the design okay I was wondering um like one of the curveballs that maybe could happen is what if it becomes dramatically easier to operate notes like it's pretty complex to like spin up your own like Beacon currently but what if it was much much easier how would that impact the overall Market um so I think that um it's not going to become dramatically easy for a long time the reason is like before protocol classification it's really hard to maintain the the notes in like in a good State because there are a lot of grades and like hot fixes and stuff but imagine it it is becoming dramatically easier then um on like on liquid stake and I think it will result will be that there will be more solo operators in it like every product like every protocol will uh that that will be a big enough will conversion like on some hybrid model of having most of the stake and risk management and less taken bonded solution for permission separatus uh just to promote the uh solo stickers and um the removing of barriers will lead to more solo stickers and like a bit more importance for uh door to hand this feature uh that's my guess hello it's really nice to meet you I have two questions why actually first of all first one I would like to understand what you see as the biggest risk for the legalist taking industry are they is taking industry as a whole right now and second one what do you see as the biggest risk for later right now um I think the answer to both smart contract risk uh like defy protocols uh are like very robust I think it's the most like the most box free for code in the world like right now like better than Aerospace better than medical code etc etc but it's like existing in a very toxic environment where any like any mistakes gets exploited like very fast um so smart contract risk is probably them they're like the the major risk and uh on a more like economical side I think uh like I'm really um thinking that uh exchanges wallet got lack of sify are really a like a very strong competitor to uh protocol based liquids taken because centralization is uh more like it's cheaper and people care a lot about APR so so I have some statistics um on the library tokens emission is kind of like outdated but it's um something to me nice so the token incentives that the emissions in the last seven days is five millions in terms of tvl while the rifle news is only 600k do you think it's that people actually value the governance of Lido itself as a electric sticker or it's kind of like being overvalued do you see any attack factors or governance if it referred to like it's if it kind of like go down if people don't value it as much as right now um or let me rephrase and say if I understood it right so you're saying that uh we have a lot of incentives and Lidos tvl is probably because of incentives and not because of like people because of the fact that people wants it right okay why would the token incentive is five minutes uh so the incentives are not that Beacon uh in the overall uh protocol um like compared to overall protocol Revenue and they are needed to maintain a good liquid pools for liquidations to happen that's the only reason they exist the staking rewards are the main reason people people have sticked it there is like uh of over like four million of weather in Lido I think about between two hundred thousand and six hundred thousand obsteta is locked in uh maybe 700 I don't know it's locked in in in into in centralized pools uh so I think that when I was wrong side like are in uh that will be completely unnecessary and uh will change everything like uh the incentives will be slow but the protocol will be just as useful