Can liquid staking solve stake centralization? by Mohak Agarwal (@mohakagr)

Transcript

this time most of you saw me I had both legs intact uh will be will be fixed soon a quick background about me um I'm the founder of clay stack which is a liquid sticking protocol my background is in computer science and finance I've been running violated nodes for around last five years most recently I started clay stack as I said which is a liquid sticking protocol so let's okay now let's talk about what's what is liquid sticking very very quickly so when he was taking any of your asset uh ethereum polka dot Solana Whatever Whenever you take these assets one is it's complex you have to know which validator you want to take to how much commission they are charging uh are they

changing the commissions overnight uh how what is their slashing history how much uptime they have maintained and then once you stake your assets are locked anytime you want them back you have to wait for unbonding periods which creates a disincentive to stake at the first place what liquids taking solves is uh one you can stake any amount that you want like for example if you want to stake ethereum evaluator node you have to take 30 to eat versus liquids taking you can just take any amount that you want then you get instant liquidity because for for your for for all the stake that you put in liquid sticking you get a receipt token or a derivative position out of it which is completely fungible and transferable and then you don't have to run a validator node now okay but even though liquid sticking solves a lot of thing the current shape

of liquid sticking does not solve everything uh the current shape of liquid sticking has been becoming very very centralized this is the current analysis of ethereum liquids taking um around 58. uh 58 is staked via centralized entities whether it's exchanges solo stakers staking as service companies uh only a mere less than two percent are staked wire decentralized liquid staking and when he was taking on centralized exchanges you don't even know if the yield is coming from actual staking or it's coming from lending which is given to like unhealthy um uh creditors uh you have seen you must have seen what happened recently with Kraken where SCC said that you cannot even do staking and that can

happen to any other staking provider out there the other problem is the ofs essential uh if tomorrow ofse comes in and sanctions some of the validators then it's gone uh the suddenly like the network holds all together so yeah these are the risks that I quickly talked about uh and the other problem is when one entity grows too large in terms of stake it it brings it brings the systematic risk on ethereum itself imagine a low market cap protocol having uh having or giving you 10 times more government's power on ethereum itself and that leads to like so much centralization that it's gonna like just make things very very difficult now what needs to be done one is we need to diversify stake across geographies

across validators uh across solo stickers so and then we have to provide like a very very simple user experience right now um like if you don't believe me just go home and try how to stake any asset that you have and you will see like these taking dashboards are difficult to find the data is hard to collect um it's it's just like um I mean it makes a it becomes a mess the second is the liquidity fragmentation uh once like there are so many liquid sticking applications now out there or protocols out there the one challenge that every liquid sticking protocol is facing is um illiquity in the sense that you created all these liquidity pools on balance curve different different protocols but for every liquid state

asset there's a different pool out there and every protocol relies on one thing to create those that liquidity and that is liquidy mining incentives which eventually will run out and cannot last forever and yeah so you have to create a healthy mechanism to be able to build that liquidity how we are helping uh one is uh we have been like working on distributed validated technology which is DBT uh for decentralization of validator set what we believe is that we have to take a combination of solo stickers like homesteakers as well as professional validators so that if tomorrow a homesteaker or solo sticker lose internet at his home still the network is like functioning or the node is functioning the cluster is functioning uh or at the same time if uh the centralized taker is like sanctioned

or something still the cluster is working the other is like user experience that we want to make sure that the user experience is very very simplified as I was saying that a lot of protocols that have been developed in D5 they're not built by people who have mass consumer products experience it's built by Engineers who think that every engineer is going to use that product so that needs to be solved at the fundamental level itself so the other product that we have launched uh this last week it's called Sonic which is the engine for liquid sticking what what that means is Imagine uh once you let's say you wanna you wanna unstake any of your liquid state asset whether it's ethereum or whatever and also like ethereum you cannot stick

today but after Shanghai let's say you want to on stake some of the people have misconception that one after Shanghai you will be unstable you will be able to unstake these assets immediately which is not the case uh there will be a unstaking cue which can be pretty darn long so what Sonic allows you to do is um you are able to transfer that unsteaking receipt let's say you stayed unstaked today via Sonic 15 days later you decided you don't want to unstake anymore and there is still 45 days left for that unsticking you cannot cancel that position anywhere else anywhere here you can go and uh you can transfer that unsticking position to someone else then you can provide liquidity for all the liquid state versions whether it's sde

or any other liquid state protocol in one pool itself uh that can be that can be like bit by market makers the the other thing that it solves is when you're staking imagine if you were able to present or if you were presented all the liquid state Solutions at the one place itself and then you're able to diversify your stake across multiple liquids taking players uh you are able to calculate the risk there itself we are able to show you risk for example if we talk about the two two extreme ends of liquids taking one is completely centralized which puts all the risk in the system that I just mentioned the other is extremely decentralized which has other risk uh for example when you have like the system completely

decentralized one problem is when you want to unstake these assets how will you exit these valuators there is no way like for validators it's a healthy economy that they want to like keep reaping benefits off now you cannot just say okay 30 violators we want to kick you out you cannot there's a decentralized so that's what like this unified experience solves so that's about it for a quick presentation today uh if any any one of you like to learn more about liquid stickings taking clay stack Sonic feel free to reach out to me I'm available on Twitter at mohak AGR thank you