Staking Infrastructure: Custody, Yield, and Compliance for ETH

Transcript

Hello. I'm the moderator of this session, Youngseok Yang, CEO of Nodeinfra. Nodeinfra builds and operates digital asset software for institutions. Today, we'll talk about Ethereum staking from three perspectives: custody compliance and the Korean market. I'll be mixing Korean and English as we go. Joining us today are Byeongyun Seo, Co-CEO of DSRV, Kent from Optimum, and Sam from Lido. Hello everyone, I'm Youngseok from Nodeinfra.

Nodeinfra is a company that builds and operates digital asset software for institutions. Today we'll look at Ethereum staking through three lenses: custody compliance and yield. We'll be switching between Korean and English. And the panelists we have today are Byeongyun Seo from DSRV, Sam from Lido, and Kent from Optimum. First, I'd like to ask Mr. Seo. First, please introduce yourself and what your DSRV team does, and what you're building in the Ethereum staking stack.

Yes, I'm Byeongyun Seo, Co-CEO of DSRV. DSRV was founded in 2019, and we started out as a validator from day one. Since Ethereum's transition to proof of stake, we contributed technically, received stake delegations, and have grown as an Ethereum validator ever since. Today, in the Ethereum ecosystem, including the Lido ecosystem, which Sam here represents, we play a major role, and in Asia we rank first in Ethereum validation share.

Building on that, we obtained a custody license in Korea two years ago and run that business, plus stablecoin infrastructure, and with the World Bank we're using blockchain to build digital information systems in Africa. We're building financial infrastructure through blockchain. That's who we are. Sam and Kent, could you introduce yourselves, your team, and tell us a little bit about which part of the Ethereum staking stack you're working on?

Hi everyone. My name is Kent. I want to share one line of Korean I've learned in the past two days. Hello. My name is Kent. So I'm one of the co-founders of Optimum. We're building a data acceleration network for blockchains. In short, we make data move fast on any blockchain. The first chain we're supporting is Ethereum. We went live on Ethereum mainnet after 12 months of testing with a lot of large Ethereum node operators. About 12 weeks ago, we went live on Ethereum mainnet.

At this moment, we have about $3 billion of staked ETH already connected to our network. We help our node operator partners send and receive Ethereum blocks and attestations faster than before, which translates into performance improvement and staking yield improvement for them. We work with a lot of the large institutional Ethereum node operators globally, and also a few locally in Korea. And we're very excited to also work with some of the largest staking pools in Ethereum as our partners, and very excited to be on this panel today.

Hey guys, my name is Samuel. I'm the head of APAC Institutional Relations at the Lido Ecosystem Foundation. Lido is the largest Ethereum liquid staking protocol by TVL today, at 26 billion US dollars. Where it sits is between ETH holders and the node operators. So holders who have ETH and want to stake it go through a liquid staking protocol, and then it programmatically gets allocated to the node operators who run the staking hardware. hardware.

So users receive an ERC-20 liquid staking token, which captures the staking rewards automatically every 24 hours. stETH can be used as collateral efficiently across many DeFi apps and exchanges. It can be redeemed one-to-one for native ETH via the Lido protocol, and it also has very deep secondary market liquidity for rapid withdrawals. Now, a question for Mr. Seo.

When institutions start staking Ethereum, it mostly begins with custody conversations. I'm curious what conditions institutions need to start staking Ethereum, and whether those conditions are being met today, or whether there are still gaps. I'd like to hear your perspective. Yes. When we obtained our custody license two years ago, what we envisioned was institutions entering the Ethereum ecosystem, entrusting their holdings to custody, and, through staking services,

earning yield on those deposits. That's the ecosystem we pictured. In fact, yield matters when institutions come in, but what matters more than yield is this: going beyond acquiring and custodying a digital asset called Ethereum to actually staking it means taking on one more layer of risk. That's how institutions feel about it. So if a problem arises, for example, if slashing occurs at the validator level, who takes responsibility for it?

Is there anything that might conflict with regulations? And when I talk with institutions, accounting is also a big issue. We run validators ourselves, and staking rewards flow into our wallet second by second. How do we recognize these for accounting purposes, and produce audit reports that institutions can submit without issues? In Korea, these standards haven't been concretely established yet, and are only now being discussed.

But since even the Basic Act hasn't passed yet — still, as institutions enter this market in earnest, and interest keeps growing, as today's turnout shows, so that we're thoroughly prepared for that, I can say we're preparing staking services for institutions. Thank you. Yes, thank you. So obviously compliance plays a very big role when it comes to institutional staking.

However compliance especially from the institutional side, could be seen as not very well aligned with permissionless validation, decentralization, you know, the Web3 sort of spirit. And I'm just curious if you're seeing that tension, and where do you think the tension rises the sharpest? And do you think the tension is something that's being managed right now, or is it just there, something fundamentally hard to address? Yeah.

So on a day-to-day basis, I speak to a lot of institutions across APAC, and two of the most common questions or observations that arise would be, number one... sorry, the two friction points. Number one, can they interact with smart contracts to start with? Number two would be, can they use a permissionless validator set for staking? Right, the first point has to be dealt with gradually. You can't rush it. You have to continuously engage with the regulators, support them in their regulatory submissions, and then it's a gradual education process in general over time.

And the second solution, the second friction point, sorry, has a more technical solution. Either they can go with native staking with a dedicated node operator, or they can use one of Lido's institutional products called stVaults, where they can still choose their own node operators, choose their own custodians, have a very highly customized staking infrastructure setup, and at the same time still enjoy the benefits of liquid staking. And how this works is that they are able to decide who the node operator is, they can determine whether they want to comply with OFAC sanctions for transaction validation, and they can also choose how much Lido stETH to mint against the ETH TVL.

And in this way, the fee structure can be a lot more flexible. In other words, when you mint more stETH, you pay more; you mint less stETH, you pay less. So I guess in a nutshell, there is both the hard problem to solve, which is: can they interact with smart contracts at all? And then the more technical problem has a more direct solution. And the first problem, even though it's hard to solve, the conversations will get easier over time. Thank you. I would like to touch on yield, which is one of the topics of today.

So, a question for Sam and Kent, I guess. On yield, to make it interesting, let's imagine that the yield of Ethereum staking goes to zero. Will there be anyone left willing to lock up their ETH, operate validators, and monitor their infrastructure 24/7? And if no one's going to be left to do the work with the yield going to zero, would you say that Ethereum staking is a financial product, or pure infrastructure that's securing the network?

I wanted to hear your perspectives on this. Yeah. I think that's a beautiful question, right? And this kind of thought experiment pushed us to think further about what Ethereum really is. So I think there are two parts to this question. You know, what really is staking? Is it an infrastructure or is it a financial product? And what if, just as a thought experiment, staking yield goes to zero? What will happen? Will people still be around? I think, first of all, Ethereum staking is an infrastructure with a financial product as a wrapper. At the end of it, Ethereum runs on proof of stake.

And it is the technical design, it's a technical product, and staking is required for Ethereum to function as it is today. And so to that end, it is an infrastructure. But it has yield. And yield has made Ethereum the way it is today, and there are a lot of discussions around it. It is the lifeline of a lot of the node operator infrastructure companies. If you cut the yield, node operators will scream and shout. And it's also a lifeline of staking pools. They will also have a lot to say.

So will there be people still staking if Ethereum yield is at zero? My answer is absolutely yes. But it will be a very, very tricky world to live in. Who will still be running these nodes? People who need to run the nodes anyway, right? One, your Ethereum explorers, you know, those people need to tap into the Ethereum on-chain state. They're probably running the nodes anyway. Two, there are other Ethereum ecosystem players, like different parts of the block building and MEV ecosystem.

The traders, the trading houses, they try to get an edge over other trading houses on Ethereum, they'll probably still be running some sort of nodes. And you will always have all those solo stakers and Ethereum lovers. I'm pretty sure Vitalik will continue to run a node on Ethereum even if Ethereum's yield goes to zero. But I think that's not enough. I think all these are not enough to keep Ethereum going. But without talking further, I'll actually pass the second part to Sam.

Sure. I'm one of those solo stakers who will still continue running my validators. But I think, in my opinion, the yield won't go to zero overnight. What will happen is that it gradually decreases as more stakers come into the network. And then when the yield is low enough, other stakers will unstake, and then we'll reach a market equilibrium at some point. Imagine if the yield really goes to zero overnight, then there will be a wave of unstakers, and then it will reach this equilibrium again. Yeah, so personally I don't think staking is a financial product at all, but it's more like because you are doing work, you're participating in Ethereum consensus, right? And then you're processing the transactions,

you're settling the transactions, and in return you're getting some staking rewards. So it's akin to working for a salary. You wouldn't say that getting a salary is a financial product, but on a salary stream, you can compose additional financial products on top of it, like mortgages, car loans, DCA, endowment plans, etc. So that's how I view it, and I guess even if yield goes to zero tomorrow, there are guys who will still run their validators, other than the block explorers etc., and it's basically the Ethereum protocols, the institutional guys who are building products on Ethereum today, because they're settling billions of dollars of their own assets and their

customers' and clients' assets on top of the Ethereum network, so they would want to retain a kind of voting power on the Ethereum network, even if it doesn't pay any yield, because it directly affects the product that they are building, right? And just to put some colour on how much value there is today, right? I think stablecoin TVL on Ethereum today is 160, 170 billion. DeFi TVL is another 100 billion, and then you have RWAs at 20 to 25 billion USD. So around 300 billion USD worth of assets are currently settled on the Ethereum network.

There are builders who are advocating for this. There are protocols that are facilitating all this. So it is in their interest, I guess, to continue having a say in the transaction validation process, even if yield goes to zero. Thank you. One last question for Mr. Seo. Korea has many talented developers, and there are assets and liquidity in Web3, but compared to certain countries, there seems to be regulatory uncertainty.

Given all that, in the long run, can we run Ethereum staking infrastructure sovereignly on our own, or, say, 10 years from now, will we depend heavily on outside players? I'd like your view. That's a very important and difficult question. … … There's been a lot of discussion in Korea about sovereign AI, and in connection with that, many people have been talking about sovereign blockchains.

So I've given it a lot of thought. Actually, most of the public blockchains we use, like Ethereum and Solana, have now established themselves as global networks on par with the internet. We don't ask why Korea doesn't build a new internet. Instead, we build new industries: internet services, internet infrastructure, and so on.

In the same way, on existing public blockchains, there are many areas where we can capture value. For example, we run an RPC node provider called All That Node. Through it, Korean companies... I often describe it as similar to Amazon Web Services. That's one area for value capture, and stablecoins also function as a service on top of this. And making existing finance more efficient with tokenized assets is also an area with plenty of room for value capture.

Yet in Korea, the focus is more on token prices, crypto as an investment asset, and the discussion drifts toward 'we should build our own blockchain network too.' I'm wary of that. That said, whether Korea should have its own network isn't the key issue, I think. But if Korea builds a blockchain that solves problems existing public blockchains can't, I think that would be a great thing.

But I don't think a sovereign blockchain is essential. Thank you, Sam and Kent, for sharing your insights today. Thank you to all three of you for sharing such valuable insights today. Please give a big hand to the three panelists. Thank you.