# Staking Legos as a complementary layer to DeFi - Alon Muroch - Speakers: Alon Muroch - Channel: [ETH Warsaw](https://streameth.org/eth-warsaw) - Date: 2025-10-07 - Duration: 22:32 - Watch: https://streameth.org/watch/yt-Qb7riv_tvrw - YouTube: https://www.youtube.com/watch?v=Qb7riv_tvrw ## Description Similar to the DeFi Legos, the Staking Legos have forever changed the ETH staking landscape by promoting participation in Ethereum’s consensus layer, improving capital efficiency, yield, and the network’s overall health. In this talk, we dive into how composable staking technologies like SSV, LSPs/LRTs, and Restaking Protocols like Karak & Eigenlayer complement the DeFi ecosystem - a macroeconomic view. By improving the accessibility and profitability of staking, the DeFi ecosystem stands to benefit from the next wave of stakers that want to use DeFi protocols (for lending, borrowing, etc.) while simultaneously supporting the Ethereum network’s overall health. 🧜🏻‍♀️ ETHWarsaw is a series of educational and entertaining events for an active community of blockchain builders, developers and enthusiasts with focus on Ethereum-related tech. Once a year, we organize a large conference and hackathon for the community in the center of the Polish capital with speakers from the best web3 projects and participants from all over the world. Follow ETHWarsaw on social media for the latest updates! X (Twitter): https://twitter.com/ETHWarsaw LinkedIn: https://www.linkedin.com/company/ethwarsaw Telegram chat: https://t.me/joinethwarsaw See you all at our events in Warsaw 🙌🏻 ## Transcript hi everyone can you hear me well right you with that okay perfect uh so good morning uh my name is Alan I'm the CEO of SSV Labs um we are developing a distributed validators network uh for the theorum ecosystem um SSV is launched uh just at the beginning of this year um just uh what is it like eight or nine months ago uh managing 1.4 million eth at stake with close to a th000 operators offering um distributed way of running validators with higher Awards um and really what uh picks our interest is not just providing infrastructure but also the potential of uh ethereum validators to do more um this concept of staking Legos the the idea that validators can do more and earn more is something that really um obviously uh a lot of people are interested about and and want to explore um and I want to introduce you guys to A New Concept which is actually taking the validator the validator keys not just the capital behind the validator but the validator keys and making an asset out of it and in my in my opinion the next 12 to to 24 months we'll see a significant increase in what validators can do and earn uh as rewards um in my opinion one to 3x what they do today um above what uh the kind of Baseline ethereum staking is um and that's quite significant it changes the economics of staking uh but in order to kind of understand how this is even possible and where things are headed I wanted to maybe dive into what is uh kind of staking in general so staking in general is a is a game of tradeoffs right we're um trading off uh the mobility um of our the tradability of our assets locking them and in return getting uh participation rights in some protocol um if we are participating well we get rewards if we are uh dishonest or even malicious we get penalties uh but all in all all of those uh rights uh the sum of all of those rights ultimately represented in what is known as a validator this validator is an entity that uh participates obviously we know this participates in L1 security but it can do more and if we generalize that uh or maybe more specifically for ethereum uh ethereum offers a bunch of different duties every validator needs to do uh but there's three duties that actually reward the validator on ethereum today uh when the validator attests to blocks when it proposes blocks and participates in syn committees um those rights are what gives the rewards ultimately to the validator and if we generalize this idea um it's really kind of the set of opportunities the validator has to participate in some protocol or protocols um and the way they decide in which protocols to participate and it's interesting because a validator as a concept can do more than just secure an L1 it can do actually more because it has um really a bunch of Assets in it so we have the capital of the validator it's something everyone knows about but it's not only that the validator also has the validation Keys those are um a type of asset and it has reputation right every validator has a history and uh the performance on the network is its history and some proxy to uh reputation all of those three assets are um within this this entity called the validator uh we usually talk about Capital behind the validator but it's not just the capital and so we have this validation key and we have the withdrawal credentials on ethereum withdrawal credentials represent the capital the validation Keys represent the validator that's what participates in the actual protocol with the capital we know what's possible with do to do with capital right uh we can trade it we can restake it we can uh put it into defi protocols so the capital side of a validator is pretty well used and continues to be used that's something we are uh ever evolving but the validation Keys only do one thing today which is security theorem L1 uh and I'm here to say that um it can do actually more um the validation keys are assets in of themselves and it's an it's a very interesting assets with a with a bunch of different interesting properties um not less than the actual capital behind the validator and so one those validation Keys uh and them being active on an L1 securing it is something which is very hard to forge um nobody really can create an L1 validator without having the actual Capital being deposited locked and activated on an L1 which is a really interesting property it draws security from ethereum itself right ethereum has some security assumptions for example that less than a third of the validator set is malicious um the way validators are distributed between different uh entities uh etc etc every single validator key is run in some kind of software right so there's technical expertise behind the validation Keys um and really because nobody looks at it as an asset it doesn't really have any cost so the capital side of a validator has cost but the validation keys are don't have really have a cost because nobody's using them besides uh an secure the L1 and and so it turns out that they are underutilized and so if we look at this um this uh graph to again we have ethereum ethereum you deposit 32 to ethereum ethereum gives you participation rights with which you exercise with your validation Keys what I'm saying that those validation keys can do more those validation keys can actually secure other what I call outof protocol services those outof protocol services are different services and protocols that are outside of the L1 but give value and services to the L1 users uh so for example oracles and bridges and l2s etc etc if we extend what the validation keys can do and participate to other protocols that's a very interesting way to provide security and security if we can provide it also provides extra rewards now why is that interesting well um it's interesting because the validation Keys have a bunch of different properties more specifically the way they work or the way we can um actually extend them to use and do more is by changing the Tex stack that we are currently using So currently we're using AER node an M uh boost client um and the validation client or validator client right that's the current tax Tech we have if we change that tax stch with uh and more specifically the meev boost to something else uh for example commit boost which is an open source project which extends what a validator can do or rather standardizing what a validor can do all of a sudden that validor can can actually opt in to other modules and participate in them right those other modules could can be anything we want and all works with the same validation Keys we already use today and that's a very interesting change that's already happening it's already happening for actually different reasons but nonetheless very applicable to what we're talking about and so how does a validator key which is not really Capital it's just a validation key which is not slash can actually provide security to other protocols well when we're talking about security we're really talking about two concepts we're talking about security budget which is how much capital is actually securing some kind of a protocol uh or rather in different words how much Capital do I need to actually attack a certain service and the cost of attack so if I actually get that amount of of assets and actually attack the network how much it's going to cost me right and so most of the times almost all of the times the security budget is the main component of security so if you take as a benchmark ethereum for example when you deposit a 32 e validator into ethereum and and accidentally get it slashed the individual validator will only get be slashed by one if so it's around 3% of the actual valid value the rest of it the 31 if are actually just security budget that's what uh with which you actually secure ethereum so those are the differences with in security the budget is the main component and the slash capital is really the cost of attack which is the um the the more minor uh component of security Now if we stack them both together and do the obvious comparison between using a validator validation keys or validator an asset to secure some kind of a protocol and use uh for example reaking to secure a protocol with reaking every eth or every dollar you put into restating that dollar needs to be first of all needs to be Capital it needs to be locked and the security budget is exactly equal to the slashing Capital you have so it's one to one ratio uh with if we use the validation keys or the validator an asset to secure other protocols all of a sudden obious the validation keys are not Capital they're not slash but obviously you'll add some kind of a slash component to them but in a much lower rate so for example 5 to 10% so the difference in required capital is quite significant uh between raking and using the validation key as an asset to secure other protocols there's another way to look at it which is really the cost right when we are talking about security it's mostly about cost so with risk taking there's quite significant cost in securing other protocols the reason why is because we're locking Capital if we are locking capital and and and and I'm sure some of you are doing that first of all the fact that we're locking the capital has some Associated cost with it right if we're if we I'm willingly to uh willingly uh locking Capital I'm expecting somebody to pay it for for it U second is that every locked Capital has loss in terms of uh alternative investment opportunities and third when you you are locking capital in Risk taking there's always a chance you get slashed and there's always a chance that the the smart contracts get compromised and so there's also slashing or losing the capital Factor so the the initial cost of locking capital for reaking is quite High uh and as a result you'll get less security with validators an asset the validator itself is not Capital it's an asset but it's not Capital doesn't cost anything um what does cost is maybe slash of capital but that's again 5 to 10% of the actual Val and so the using the validation keys to secure other protocols really has zero cost for the validation keys because again not slash it's not really Capital if we kind of stack them together and try to make the comparison so staking for example has you lock 100% of the of the assets right you need to lock 32 e um you have some quite significant missed opportunity cost because you're locking e instead of doing something else with it although with lsts and lrts you potentially can gain some of that cost back um slashing cost is actually quite low as we said before it's around 3% um it's very much ethylin obviously because it secures ethereum and the rewards rate are pretty low right reaking on the other hand you still lock 100% of the assets so the missed opportunity cost and slashing cost are pretty high it's not entirely aligned with ethereum again because it has quite significant impact on ethereum once SL flashing happen and but the rewards rate are pretty high right that's what excites everyone about free sing but if we use the validator keys as capital or rather sorry for security as an asset then we don't lock quite as much Capital we're locking maybe five to 10% amount of capital there's no Miss um um opportunity cost because the validation keys are not Capital at all so if I'm using them it's not like I'm uh cannot do any other Investments slashing cost is really really low because again the validation keys in of themselves are not slash um it's very ethline because we're argumenting what a validat on ethereum can do and it's not slash doesn't have any real impact on ethereum even if things go wrong but the rewards rates are still very high because we're still in the realm of actually securing other protocols and so that comparison is quite interesting and it's an alternative way to look at how validators on ethereum and in specifically um out of protocol Services can draw security from ethereum itself in a different way which is much much less expensive so what are the different use cases for this well one is shared security right this is the raking part shared security requires um um um bootstrapping security for other protocols that's something most of you probably are aware of and definitely can be used with the validation Keys um as as a as a way to uh uh participate and earn more rewards but there's another whole category being developed which is uh extending validator commitments so if we go back and and and look at what validators do on ethereum they attest they propose blocks and they do sync committees as uh rights that give them rewards but they actually can do more um with stuff like pre-confirmation base sequencing shared sequencing etc those are actually Services which are for the L1 using the actual ual validor because it has participation rights in ethereum so for example we'll dive into each each one of them more specifically and in the future you'll have more categories because validators are very flexible and very Dynamic and can do a bunch of different things and so there's a whole category or whole Marketplace of different use cases that need security that need the participation of an L1 validator and by using the validator as an asset class of itself this it's a different approach which is much cheaper and much more aligned to ethereum to exercise those types of needs and so if we'll dive into for example pre-confirmation prec confirmations is really a type of service that valers can do which is to preconiran-food.com Arbitrage um um exploitation or just you want to make sure that you your transaction is included whatever the reason is uh pre-confirmation is something super new uh but uh actively developed and led by the ethereum foundation um and the reason why it works is because block proposals on ethereum are predictable block proposals are proposed by validators because they have participation rights in ethereum and so all It Go all goes back to the actual validator Keys it has nothing to do with capital of the validator but rather the validation Keys themselves and so that's for example pre-confirmation base sequencing is another example so we all know what L2 sequencing is the problem with L2 sequencing is it's very centralized and so there's another development Happening Here Again led by the ethereum foundation uh to actually use the Val validators for L1 for the actual ethereum validators to be the sequencers for l2s the idea there is that you can descend caliz and draw security the security properties from ethereum liveness and security from ethereum to actually secure l2s uh which is quite interesting um it also creates a lot of rewards back to the l1s because SE sequencing rewards are pretty high currently in L2 and it's decentralizing l2s it makes them more aligned with ethereum less acceptible for censorship etc etc um and it's actively being developed um and I would imagine in the next 6 to 12 months you you'll start to see major l2s adopting this type of um tax tech for sequen and lastly it's something we all know which is shared security right reaking uh what we uh is more known for shared security is basically the idea that you can use or rather bootstrap security for other protocols with existing bigger protocols or rather L1 protocols and So currently with they with uh kind of we touched about it before currently reaking really talks about the capital side right it's not even restating anymore because you can actually do quote unquote reaking with any asset doesn't have to really be ethereum staking anymore um but shared security is a classical kind of example for using your validation Keys uh as an L1 validator because you can not just provide security you can provide it at much lower cost and it can also provide better security because L1 valid have properties that reaking operators don't really have because they again they're part of a bigger validator set with different rules uh and much more robust rules and so Shar security is another type of example for what you can do with uh validators as an asset class uh which is quite exciting and so all of those things and more in the future um really comes back to staking uh Legos the idea that you can build more and more those simple building blocks box on your validator and ultimately uh and it's my prediction in the next 12 to 24 months we'll see significant increase in what validator rewards are um specifically for those categories and more specifically by utilizing better the validator themselves um thank you I don't know if we have time for questions if anyone has any hello okay um so isn't theable Capital measure of the security that can be provided so not directly so we tend to think that it is but in fact if we're talking about security there's again two two um categories for or rather two factors for security so one is the budget you're securing with so how much Capital basically participate in a certain protocol right that Capital uh is not necessarily slash that's just a capital participate and then there's the cost of attack so if I do have let's say I have a a protocol which has security worth 100 e and I want to attack it with a 51% attack I need to gather somehow 100 each right I can attack the protocol but potentially not get slashed if there's no slashing rules so the cost of attack is zero the budget is 100 if uh so cost of attack is what I do I lose if I do attack the network right so in in other words slashing uh so if I take ethereum as a benchmark the individual although ethereum has you know Co coordinated kind of um increased penalties uh if you take the individual valider on ethereum and commit some kind of a double slash double signing or whatever and get slashed you slash about one e and actually post Spectra is going to be lower much lower and so if you translate that to the ratio between the budget or the 32 which is the validator and the slash Capital it's 3% so one e out of 32 is around 3 something per. and and that's really the cost of uh attack versus budget what I'm saying is that the validation Keys themselves because of the of their properties can provide the same amount of budget for security but with much less actual Capital locked for uh Slash for slash events that's the kind of the the difference in thinking so uh theoretically there could be someone who can bribe the validators in order to perform an attack and validators wouldn't be hurt sling too much the valers will not get hurt or get slashed because it's not a capital uh but each service will determine exactly what are their configurations or preferences so one service will say I want to have 5% slash capital for every validator that wants to participate another um um service will say um up to a certain amount of eth I will require 15% but post that some kind of a sublinear decretion right and so each service just defines what they want it's not about just that or just that it's the combination of the two the difference is the ratio got it thank you I I wanted to ask you about the term risk taking do you think it's a good term does it make sense now it's not really because so the original idea was actually reaking so you take your stake specific on ethereum and then apply it again and again and again to other protocols now what's happening is that um it's really recapitalization of assets because it's it's detached completely from restake from staking so both igen layer and others already are open to any type of asset so it's really about the value of the asset not what is behind it uh and so I would imagine that risk taking should be branded to recapitalization or something along those lines um ra instead of reaking yeah um but nonetheless the the the ultimate goal is the same so you provide security for or bootstrapping security for other services thank you everyone