All Stake, No Substance - Jordan Sutcliffe

Transcript

[Music] All right. Um, yeah. So, thanks for joining me everybody. Uh, so I gave a talk two years ago at ETH Prague called how the future of ETH staking is going to be modular. And a couple of years later, we have the main liquid staking providers out there, Lido, Stake Wise, and a few others all adopting this this modular architecture. And I bring this up for kind of two reasons. One is I kind of see this talk as a follow-up. It's like a part two to that initial talk advancing from just ETH staking to looking at staking universally and how a modular architecture is super important

to create the bespoke staking systems necessary for each of the different use cases. And the second reason is that if these talks have any form of predictive power whatsoever uh which I kind of hope they do then we have the potential to be working in and transacting in a much safer environment in a couple of years time and the reason for the title is the term staking is become very diluted and it becomes uh almost meaningless uh for what it truly uh for what the origins of staking was and I'll come to this shortly uh and I'd love for us to kind of take it back to its true meaning uh of where it came from. And so where did it come from? Uh obviously staking came

from proof of stake. This was an incredible uh invention so to speak. The ability for a someone who's capable of running a validator to permissionlessly join a network to per to perform the validation services uh whilst also getting rewarded for that without having to trust any other validator in the network. That is incredible. the ability for like users to be able to transact without relying on a centralized intermediary uh who can trust the economic uh guarantees of the network that their transaction will be executed following the same rules as everybody else. This is a fantastic system. It has enabled tens of billions of dollars or

hundreds of billions of dollars to be stored on chain safely. Um and you know this is something which is incredible. The Ethereum network is highly decentralized. It's highly secure. It has been running for 24/7 365 days a year because of proof of stake. It is a fantastic system um that you know I think everyone kind of takes for granted today. And there's an argument that because a lot of the the tokconomics on POS systems are currently inflationary that um you know that they're not sustainable. I'm telling you now that there is no mathematical reason why a POS blockchain cannot be highly profitable. The there is just a massive

competition for block space right now. There's a lot of scaling going on and it may this may happen for another decade. But I'm telling you now that in the future, blockchains will be able to monetize their block space sustainably and proof of stake will still be in place when that comes. And so what does staking actually mean today across the industry? And it's kind of become this catchual term for any form of depositing an asset. Um, you know, you can go to any random protocol UI and you'll probably have a tab that says staking. uh and under the hood there'll be you know some unique mechanism for that protocol to reward users with protocol emissions uh like

token emissions maybe it has some form of active governance uh and if you're lucky there'll be some maybe some revenue sharing going on under the hood but the key thing that's often missing is this link between staking and providing economic security that has existed uh where in in POS for over a decade now And um you know so we end up with a system that is decentralized at the L1 but still incredibly centralized above that. You know we have multi-igs that control billions of dollars across the ecosystem both storing that value and transporting that value crosschain.

the systems that do and as I said rarely use stake for economic security there is often no actual enforcement for those economic security rules. Those systems are often controlled also by a centralized entity and so there is no guarantee that if a actor did uh behave maliciously that stake would be slashed that those uh staking rules will be enforced. And so staking has kind of become this like marketing tool for projects to help their tokens perform. And I almost don't blame them because most token uh most projects issue a token a year or two into their existence. Uh and this is both like a blessing and a disguise. It's a blessing

because it gives developers it gives early backers liquidity for these assets and it gives the projects a lot of flexibility on help like bootstrapping users, issuing grants, etc., etc. They're an incredibly powerful tool. But on the flip side, it means you have an asset trading against a protocol where that protocol is like well most likely pre PMF and almost definitely pre actually having any revenues flowing to the tokens. And so assets uh you know protocols use staking as a way to kind of get the best of both worlds. Still have the liquidity but also trying to lock up as much of these assets as possible to kind of reduce sale pressure and and add utility for these tokens which is fine. As I said, we're still very early in this space, but the one

thing that's missing is that a lot of these staked assets are just costing the protocols because they have to they have to incentivize that stake with more tokens. And these staked assets are rarely used and often never used for providing economic security. And this is the step that I want protocols to to think about. They can continue to lock up their liquid assets. they can continue to incentivize and bootstrap users, but at the same time use those state assets that are just sat there dormant in most situations to actually help secure the protocols themselves.

And so the idea is this, it is taking the POS system that has been running for several years now very successfully at the L1 level and applying that universally. It is very simple. At the end of the day, you just need a node operator set, a set of infrastructure providers that can perform uh some duties and there is economic stake backed against each of these providers. That's all it is. That's all that happens on the ETH L1 and that's all that needs to happen when you apply this uh this theory or this system uh to any protocol built uh in the space. It will allow protocols to align token holders with both the safety and security of

their platform. It will help them reduce uh thirdparty risks. Most platforms use RPCs. Every platform uses an RPC. Most platform has like Oracle providers. There are third party risks that uh protocols can mitigate by implementing staking for economic security. So, it's all about taking staking back to its what its core roots are and making the whole ecosystem safer. Like like how amazing would it be if we had these echo economic security guarantees not just at the L1 but across everything in the uh in the space. And this kind of like dystopian future is not something that's decades away because we need to wait for the technology. It is legitimately here today. Uh and it's packaged in the form

of symbiotic. Um and so Symbotic at a a very high level is this modular framework that allows any protocol, any business um any L1, L2, whatever it may be to we call them networks as a whole to kind of construct their optimal POS system for their architecture and the symbotic protocol provides all the framework to enforce whatever rule set they define on chain. Um so the at a very high level we have three key entities within this this protocol networks as I said these are the entities that are consuming the economic stake. These are the ones that define the rule sets for their custom

POSOS systems. We then have operators. These are exactly what they say on the tin. They are just infrastructure providers running whatever service the network needs. And then lastly we have stakers. Their capital is held in in vaults. Vaults are run by curators. They are like specialized risk managers that can determine the risks of you know a network's own uh POS system and they are the ones who decide how capital is is delegated across the ecosystem. Each of these entities are very well defined. They are unique um and each one can control their exposure to others in the ecosystem. And so the symbolic protocol is feature complete. It has been from

day one. We are live on mainet. been on live a minute for several months now and we have slashing, we have rewards, we have multiasset staking, whatever you got, whatever networks require for their um POS, it is live and available today and this is not just some like v1 slashing or v1 rewards. You know, you can today you can build some highly complex um you know slashing mechanisms on top of symbiotic. I'm still yet to find a network that cannot build their optimal POS on top of this system. And the important thing as well is that the core protocol is immutable.

We speak to massive projects in the space, what people would class as like the tier ones, and what they all say is they would never implement staking, a really vital part of their protocol, on top of a of of a solution that has any form of governance control or multisig. They want to make sure that they are fully sovereign, that they are the only ones that control their staking solution. And that is exactly why we've made symbiotic core protocol uh immutable. And then lastly, it is vertical agnostic. And I probably also should have put chain agnostic here as well because there are, you know, and so many different verticals in the space.

L1's, L2s, oracles, DAS, like whatever it may be, we are working with protocols across the the stack. Um, and so this this protocol can, you know, symbolic the framework can be applied uh universally. And so you know historically decentralization was hard. I would my argument here is that this is no longer true. It was it was very difficult to kind of bootstrap security to bootstrap enough um stake to in in a meaningful manner. You know when when you know Ethereum was was very new when ETH token was super mature it was highly risky for them to launch decentralized. You know

obviously I had P back then but any new POSOS that kind of launches it's highly risky because the token is fairly illquid it's very immature and in order to bootstrap a lot of you know capital or security for the system is very costly and so we solve this by having billions of dollars of TVL that are in assets like ST uh mature assets like LBTC etc etc that allow projects to borrow security from these assets uh in a very cost-ffective manner and something that's going to be much more cost- effective than trying to bootstrap significant sums in their native tokens.

We still encourage them to use their native tokens from day one where possible. Um but it's a fine balance between getting some early token utility um versus actually bootstrapping a cost-ffective uh economic security. The the other piece of this is that symbiotic is a shared security protocol and what this means is that you can use the same capital to kind of economically secure multiple networks. Um and this can also be slashable stake as well. There are various frameworks we have in place to kind of make this uh possible. But the key thing here is that you can have a the capital efficiency of shared security that is slashable uh and it makes this even more cost effective uh for networks. And the last thing to

flag here is because of the modularity of the system, networks can decide which assets they use for this economic security. They can add and remove assets as and when they please. So that kind of solves the the capital intensiveness that was an issue for bootstrapping decentralization. The second part is is operators. You know, you need a good quality set of operators that can perform the duties you require as a network. And again, we have hundreds of operators that are kind of on hand and ready to step in and help networks uh build and grow their solution. And we're also permissionless to operators as well. And so if networks want to introduce some form of permissionless operators system, that's also uh absolutely fine. And then lastly, you know, designing slashing uh incentive

mechanisms uh and staking mechanisms is is difficult. You know, it's complex. Uh and this is something that we also help uh protocols with as well. Um, and so I wanted to kind of show give an example of what this kind of universal staking idea looks like in production. And I chose Hyperlane for this because they are an interoperability protocol. Uh, and you know, historically crosschain bridging and messaging was one of the most centralized systems uh, in the in the space and arguably it still is. And so I won't go into too much detail into their stack, but the two important pieces of information here is that Hyperlane enables protocols to launch what they call warp routes. This is how an asset can be bridged from one chain to

another. And as part of these warp routes, they have uh interchange security modules. These ISMs are the really critical piece that effectively verify the transactions within a warp route. They're the ones that provide the crypto uh and economic guarantees. Um that's you know x amount of assets from chain A have been burned and ex you know the same amount of assets on chain Y have been minted. Um and this is the key piece as I said where the staking fits in to kind of help secure their their protocol. And so what does this kind of look like for Hyperlane? So Hyperlane has a vault on Symbiotic. It is the main hyper vault for their assets. Uh

Hyperlane controls this vault. They are the ones that decide where capital is delegated, where the hyper capital is delegated. And this vault provides hyper with a liquid staking token. So users who stake their hyper can still get liquidity for their assets even once it is staked. The the you know when hyperlane evolves into a into a fullyfledged DAO, the hyperstakers will still get governance control. So if I stake my hyper into symbolic into a symbolic vault, I can still vote with the power of that hyper. And then the other part as well is obviously they they this allows hyperlane to issue uh rewards to users. So often protocols kind of stop there. That is the blocker for most most

people because um it's very easy to kind of issue uh like smart contracts that can reward uh users. What's very difficult is to provide onchain guarantees of penalties and this is where Symbotic comes in. Um this allows Hyperlane to actually use those state hyper for economic security. All of their ISMs are backed uh and the operators that perform the duties with those ISMs are backed by staked hyper and other assets which I'll come on to in a second. And so this allows this historically was a very centralized piece. It could be done by a single entity that is just trusted. But Hyperlane have taken one step further.

They wanted to decentralize and secure their protocol further. And so they're using economic security from their own native token staking to provide this. And then lastly, this system is future proof. They can change their assets that are used for staking at any point in time. They can upgrade their rewards flow, their slashing flow. they effectively have a uh the plumbing in place now for anyone to stake an asset and for them to reward and penalize that asset and this is a very flexible framework that means hyperlane as I mentioned is fully sovereign they control this uh or the DAO will control this in the future um and you know they can upgrade this system as and when they please uh without any risk of like

breaking changes from the symbiotic side and so this is kind of roughly what their architecture looks like they have a main ISM that is controlled by the hyperlane team. They are the ones who decide who the operators are, which assets are used for staking. And this is a good example of how I said in order to bootstrap a lot of uh security, it's wise to use assets outside of the native token. And so they're using SE, they're using LBTC to kind of make sure they're bootstrapping enough economic security to guarantee um that that uh main ISM module while still using some native token uh staking as part of that as well. And this is where the modularity really comes into the system because as

well as having a default ISM, clients of Hyperlane can actually decide to build custom ISMs where they actually decide who the operators are. they get to decide which assets are used for staking. And so if I'm a DeFi protocol who's looking to go crosschain with my assets, I would be able to actually introduce native token staking of my own assets within this uh Hyperlane uh system. And it's a nice way actually for Hyperplane to kind of pitch their product to to clients because it gives their clients potential control over their their the security of their their crosschain assets whilst also adding native token staking under the hood. And so my kind of last pitch is

this to builders in the room. I want you to kind of take a leaf out of Hyperlane's book. Think about where staking can be used in your protocol not just to lock up tokens but actually to secure your protocol and secure the users of your protocols. Um yeah it's a you know POSOS is a fantastic system that has been proven. Let's apply this universally. And my kind of rule of thumb here is wherever there is a dependency on a third party or wherever there is a critical role within your protocol that is being done by a single entity, remove that single entity, put in a decentralized node operator set and economically back that that operator set with stake. That will

protect you guys as a protocol from livveness issues. Uh and it will also help protect your users uh of the protocol. The technology is ready to be used today. We just need people to adopt it. Thank you very much. [Applause] Thanks a lot, Jordan, for your nice presentation. And now you have the time to ask questions if you have any questions. So please feel free to ask. I'll I'll also be waiting outside if people wanted to chat afterwards. Yeah.

So maybe I can ask you one question. So can you please tell me what's the road map looks like for the symbiote in the next few years? Sure. So as I mentioned when we launched symbiotic on mainet back in January it had all the features that are necessary for like a foundational uh staking framework slashing rewards etc. So we are now in a position to kind of make the on boarding to Symbotic as easy as possible. So we have the core framework built. We're now building the tooling to make sure that the in to integrate with symbiotic to kind of embed this framework within your architecture is as easy as possible. And so that is our number one goal right now. Um you know we've got a a major SDK upgrade coming.

There's some really exciting uh upgrades just generally in the in the road map that that we'll be announcing soon and it's all around the idea of making the integration as simple as possible with with this technology so that we can just on board developers in mass basically and projects in mass. you know, we don't want it to take months uh and for developers and projects to have to dedicate, you know, major resources to kind of embed this technology. The easier we make it, the quicker they can on board it and the more uh, you know, the safer we can make the ecosystem as a whole. That sounds wonderful. I wish you a great success. Thank you. Thank you everyone.

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