Isidoros Passadis: Lido DAO – Staking Decentralisation for Ethereum and LSTs in DeFi. Ep. 528

Transcript

this episode is brought to you by nosis nosis builds decentralized infrastructure for the ethereum ecosystem with a rich history dating back to 2015 and products like safe cow swap or nosis chain nosis combines needs-driven development with deep technical expertise this year marks the launch of nosis pay the world's first decentralized payment network with agnosis card you can spend self- custody cryto crypto at any Visa accepting Merchant around the world if you're an individual looking to live more onchain or a business looking to wh label the stack visit nosis pay.com there are lots of ways you can

join the nosis journey drop in the nosis Dow governance form become a nosis validator with a single gno token and lowcost Hardware or deploy your product on the evm compatible and highly decentralized nosis chain get started today at nosis doio cars one is one of the biggest node operators globally and help you stake your tokens on 45 plus networks like ethereum Cosmos C lasta and dydx more than 100,000 delegators stake with corus one including institutions like bitgo and Ledger staking with corus one not only gets you the highest years but also the most robust security

practices and infrastructure that are usually exclusive for institutions you can stti directly to cors one's public note from your wallet set up a white label note or use the recently launched product Opus to stake up to 8,000 eth in a single transaction you can even offer high yield staking to your own customers using their API your assets always remain in your custody so you can have complete Peace of Mind start sing today at chorus. one welcome to the show which talks about the Technologies projects and people driving decentralization and the blockchain revolution I'm Brian Crane and I'm here with my co-host Felix luch and today we're going to speak with Izzy

padis he is the master of validators great title uh at Lio Lio do of course Lio project probably pretty much everyone listening here is familiar with they're the most successful liquid Sak protocol in total and most successful stating protocol on ethereum definitely one of the biggest things in staking uh and you do a lot of interesting stuff and yeah I'm really excited to uh to talk with Izzy about that okay cool well thanks so much for coming on E it's really great really excited to speak with you uh of course Lia something uh I think both Felix and I have been you know deeply involved in

since the very beginning and it's been a you know very impactful project for crypto so I'm really excited to talk with you and talk about Lio but maybe just to start off tell us a little bit about your background like how did you get into crypto and how did that end up with you uh working on lier yeah definitely so first of all thanks for having me uh pleasure to be on here I I know that Constantine and Vil have also previously done episodes and they spoke really highly of their experience here so um I'm glad to be included um so how did I like what's my or story um so my background is very very non- crypto very kind of like traditional uh corporate um so I studied econ in international relations uh then

I ended up at a big four firm for approximately six six and a half years uh and then as we stay in that industry I rotated into the industry so I was working at um some large retail companies doing like finance and risk management um and most recently uh approximately five years ago I I was working at Nike uh at the European headquarters doing Financial controls and risk management um kind of like building up the the European processes there and at that time like Co hit uh and I had a lot of free time and I was trying to find something that interested me a little bit more in terms of like where I'd be allocating my time um I'd been involved in crypto since around 2016 and by that

I mean like losing money trying to trade um and I started reading more about crypto like all of the basic mechanisms and it was like um a couple months earlier I think had just been the Genesis of the beacon chain uh so I was reading a lot about staking a lot about like Game Theory and me uh so I was like writing some I don't want know if you want to call them like articles like posts around the time around the possible centralizing effects of me on validator sets and what staking Solutions and sticking protocols in in general can do to Stave off like the the centralization effects there and especially worded about how centralized um exchanges primarily but centralized taking Solutions in general would use

things like user lifetime value to be able to like offset cost of staking um to capture users and and centralized markets even further uh and somehow one of these articles uh ended up in the hands of uh vasil I think um and around that time even like Felix was was the involved in this process I think they they gave me a Lego Grant be like hey this article is pretty cool uh do you want to come write another one for for Lio uh looking at these problems specifically through the prism of Lido and what Lio as as a DA and as a protocol can do to kind of alleviate some of these pricious effects of of like staking in general and economies of scale than me uh and like a month after I started writing the second iteration of the

article I just get a DM um actually at the recent Li connect I I found this DM I put it on the screen because it looks like a scam it B basically says like in half broken English hey do you still want a job in crypto um and and that's that's how I ended up at Lio so I I started the job part-time I think in August of 21 uh working at both uh Nike and as a contributor to the lid odal and then I realized that that wasn't viable or sustainable um and so I decided to to try it full-time and see how it would work and it's been two and a half years since then it's it's really really awesome ride really really crazy what what was it about Lio that you found so exciting um I think it was like three

three kind of interseting Concepts which also have a lot to do with with the principles behind Lido and the value so the one was the like very matter of fact and programmatic approach which um the the founders and the first people working on on the protocol kind of took into designing mechanisms um and they really apt I I guess at that point maybe you could call it a guess or or um a an inkling that they had about what the market would look like in in one to two years right and positioning themselves in such a way uh based on these assumptions to Stave off the centralized players which like if you look at I think staking distribution in early 2021 it was something like over 50

or 60% was with centralized staking providers uh in Aggregate and and how to basically move the stake share away from centralized scking providers and move it towards decentralized protocols now obviously there's like a huge debate U with regards to like what constitutes decentralized and you know you have this whole spectrum between um per permissionless at the Staker level and at the not operator level we can get to that in in more details later um but at least starting with a solution which is practical uh and usable at a mass scale in the beginning in order to Stave off the centralizing effects um and then really really do the work in terms of like being leaders and researchers in decentralizing the protocol like Lido itself um but also the effects that it

has on the network as much as possible throughout the further growth of the protocol and I found that really appealing uh because I believe that in general as we see more adoption of of crypto and blockchain you're going to have to find this meeting point between ideology and kind of like the the virtues and and the values of of the chain and around like the people that started the chain and where it meets kind of like the practice reality of Market forces and trying to find the right balance between uh those two things and I think Lio does a really really great job of that all right so you mentioned right like the the main kind of danger of of Li not being there is the centralized

exchanges now in recent months especially since Lio sort of broke this 33% threshold of like market share in staking ethereum actually like Lio has been getting much more of the sort of hate let's say or like sort of backlash from the ethereum community around like the centralizing effects of Li now I think what we sort of wanted to talk about since that's like kind of also your role in in Lio is you know what what Lio is doing to um actually be decentralized so sort of highlighting you know where are the centralizing vectors and what what's actually like sort of the the things Lio does um to to decentralize so maybe yeah can you go

into some of these points I think the the first one would be probably like your your actual job at in terms of like node operator selection so maybe we can kind of start that can you tell us a little bit how that works just so guests have a overview yeah definitely and I'll take maybe just like one really quick step back um to set the context a little bit around like what do we mean when we say Li because Lio means a lot of different things so I I'll try to be a little bit more specific as as as I use or as I mention uh these different aspects of of Lido uh in the rest of the cast so Lio is um at its core a set of smart contracts so basically like software scripts if you want to think about it

right that reside on the ethereum blockchain um and this software is essentially a middleware that helps to Aggregate and allocate stake across a variety of different node operators and the the kind of like counterbalance to the action is this creation of a liquid staking token um which represents this staked ether and the the rewards that it AC Cruise the other facet of Lio is the Dao so the Dao is uh an organization and Lio is probably one of like the fewer the few like what I call Pure Play Dows like there's no legal entity um that wraps the light out out and the Dow essentially is a guardian of the protocol let's say uh for now and does a

lot of work being done in order to determine and understand how can we reduce this guardianship over the protocol and eventually at some point uh minimize it and maybe even remove it completely um and so like why does a protocol need a guardian a protocol needs a guardian because at least currently ethereum is still changing so in order for the protocol to change to meet the base layer as it's improving and upgrading and evolving like adding new functionality for example withdrawals were only added to ethereum uh in in the last hard Fork um you know in in May of the of yeah of this year and if the protocol was ownerless and non upgradable in the beginning it wouldn't have been able to have withdrawals at it you can make an argument that you can perhaps like

migrate the protocol from one version to another but from a usability perspective that's really really terrible and to be honest it's unsustainable given the amount of evolution that ethereum is still going to make from a from a staking Bas layer perspective um and the other reason that you need a kind of Guardian is to for the moment control like a couple of the levers um that protocols need while they're in this nent stage uh and these levers can be a bunch of different things there might be things like curating a node operator set in the beginning right so how do you create a a robust um allocation protocol you need to find node operators one way to find node operators is by having a permissionless mechanism for any anybody to become a node operator which rocket

pool did very very well um from its Inception but it it took rocket pool like a little bit over a year I would say like from when it intended to launch until when it actually launched in order to be able to deliver on this on this promise and so ligher wanted to launch as early as possible so the concession that you needed to make there is that you needed a curated operator set so you needed some sort of mechanism uh and this mechanism is Dow controlled which means it's it's controlled by the ldo holders to select these node operators to review them and to figure out um like if they're any good at their job so my role within the now uh as master of validators I basically lead a team of contributors um in a a team or a

Woodstream that we call node operator mechanisms and the point of this work stream is to kind of act as a leaon in between the Dow and the node operators um it takes how the protocol works and translates it into like mechanisms and processes and incentive alignment mechanisms to a identify node operators that would work well with the protocol to B determine um and make suggestions to the Dow as to how to allocate stake between these node operators and then C to figure out like strategies about how do we improve this this node operator set in the future so liot started with one module which we call the curated operator module which you guys also know because you were one of the the founding

like like node operators right within the Set uh from from the chus one perspective um and so so like the remit for the first couple years was grow the node operator so it grew from five initial node operators to currently um 37 and the next remit was to evolve the lighter protocol so that it's not only limited to one set of node operators so in the V2 upgrade that came out in in May right after the chappella upgrade um the core architecture of the protocol was was changed and from like a single module it turned into kind of like a hub and spoke model where each new module that we that the Dow adds um essentially avails the protocol of a new of node operators and validators that could be permissioned or

permissionless um using DVT or not using DVT or using some other technology um and it essentially turns Lio um well not yet but it will eventually turn Lio into not only like a staking aggregator and allocator but also Marketplace between all of these different node operator sets right so yeah I think there's like a lot to talk about there with the staken router and the modules I think also like more recently you already like announced two of the newer or like two of the newer mod modules were uh kind of presented so um can you maybe like explain them a bit and why like these were the first two to to uh come out yeah absolutely so as I mentioned

earlier the the current module is the curated operator registry it has 100% of the current stake allocated to lier so all of the stake that's currently in in lier which is like around 32% of all of ethereum Sak right now is allocated across these 37 node operators um the idea behind the two uh modules that were first developed was the following it was a how do we grow the node operator set as fast as possible by introducing as many new independent node operators as possible and two how do we deliver um on an intent that was always there from the beginning which was introduce a permissionless element to becoming a node operator on the lier protocol uh so both of the the first modules that

have been um kind of discussed about and proposed to the Dow so one of them simple DVT which I'll go into a little bit of detail on uh was approved by the da already and the second one which is called the community staking module which is basically a permissionless uh module geared towards primarily geared towards solo stickers but really anybody can use it um is currently being voted on right now so if you're curious about that you can go to the Lio forums um or the lighter snapshot and check out the proposal around the lighter commity saking module uh the CSM so the CSM and simple DVT work quite differently simple DVT leverages the existing technical Shell let's say of the curat operator registry so from a technical perspective it works exactly the same the great

thing about that is that you can just reuse the code uh how it works very differently is the actual oper operationalization of the the atomic level in the node operator registry which is like in the Q rated module it's it's a node operator but in simple DVD it's actually a cluster so clusters are sets of node operators or groups that work together to run validators in tandem um so whereas before validator Duties are all uh basically operated by one note operator with Technologies like distributed validator technology of which um obal Network and SSV network are the two that are currently being utilized in the simple DVT test net you can have validators run by multiple operators at the same time this gives

you increased operational robustness um reduced techn risk and also reduced kind of like Geographic and jurisdictional risk all at the same time what it does add is a little bit of overhead offchain from a coordination perspective so like you need to get all of these operators together you need to basically battle Harden the DVT Technologies which are still quite new and and nent but the idea is that by utilizing the Lio protocol we can actually run hundreds of these validators on mayet hopefully within the end of q224 um and that'll really give us the the the opportunity to push these Technologies and and see how well they work um from a practical perspective maybe it's wor if you just give like a TW minute uh summary of like

what DVT is because I don't think this is like something that everyone is going to be familiar with definitely so DVT stands for distributed validator technology um and so normally like a validator is somebody running the server and the software um by themselves uh but in this case you Felix and I uh and ideally one more person you you kind of want like a threshold configuration um and so they tend to be like three out of four or five out of seven or or seven out of 10 um where we can co-run a validator so the private key itself is actually split amongst the three of us and you need some sort of consensus between um that M of n that we were

talking about like three of four or five of seven to put enough of those key shares together to to make a full key uh likewise in terms of operating a validator you need that consensus threshold when performing validator activities like attesting or proposing blocks or participating on sync committees in order to to actually send like a valid message to to the network so when you when you split the share uh the one thing that you really really drastically reduce is like the risk of this key somehow being compromised um instead of it only being compromised in one place and now needs to be comp compromised in in multiple places so the risk of key theft or or key loss is drastically reduced because of the threshold mechanism uh it also means that some portion of this group of

operators that's co-running a validator can actually be offline and the validator itself keeps running so you really offset also operational and a technical risk that is associated with with running validators um and the other thing that you can do is also like even one operator for example might choose to use DVT if they want to distribute distribute the technical risk of running a validator right so they might want to split one key um across multiple nodes that they might be running in different geographies or different jurisdictions or even using different clients um because in ethereum like client diversity is also really really important so if you're splitting your key across multiple NOS that run different clients uh you reduce the risk of of client bugs affecting your your validator

activities maybe can you talk a little bit about the the governance aspect as well I know there's like dual governance which has been a big uh a big thing that's been explored by Lio can you explain like what dual governance is and like what you're trying to address with dual governance yeah absolutely so dual governance at its core um is an attempt to solve what is well known as the principal agent problem um and it's basically the conundrum of what happens when the people who get to decide about something do not have aligned uh expectations preferences or ideal outcomes with the people whose decisions they affect um in defi protocols that's

basically when governance token holders so in L's case ldo holders do may not necessarily have the same desired outcome um as stakers s folders uh in Lido's case there's actually like quite a large overlap between these two segments of users or or audiences let's say but there is a big discrepancy in terms of um the the power equality let's say between them right so you might have a lot of stakers that might also have a lot of a little bit of ldo but obviously they're largely affected um to the extent that SD is a portion of their portfolio like by larger token holders so what dual governance allows you to do is have the second set of the second

subset of users let's say so SD holders have a say in the governance proceedings around uh light out doubt controlling the protocol and then therefore stakers um its purpose within Lio is kind of like twofold one is to more closely align the incentives between these two groups so like the mechanism existing in the first place is kind of like a a deterrent for one group doing something that the other group doesn't want just just by itself and the other thing is to make sure that if for example there's something that goes wrong with the governance mechanism like um somebody ends up holding a of ldo and their desires are not in line with what's good for stakers or other ldo holders then

steth holders can basically veto votes that they think are are not good for them or might be bad for the network so this allows stakers to more directly represent their interests by not having to have exposure to the ldo Token um and the other kind of benefit here is that if they disagree with like votes that ldo holders might be having um to give them time to exit the protocol right so at at its core dual governance is like a foot voting mechanism which means that like you take your money and you move it elsewhere so you have to give these stakers enough time to be able to take that money and move elsewhere if they disagree with with the direction of a vote or or the effect of a vote um and this basically does that by putting the the protocol in in kind of like a a

limbo state so if ldo holders like get captured or um by somebody that has like malicious intents for the protocols right like wants to upgrade it to do something that's bad for stakers stakers can basically put the uh the protocol into this limbo State um and then it allows for more stakers to come in to decide if they are actually against this Vote or not and if they are they can put the protocol um into a mode that's called like local settlement which is basically all stakers who are voting vetoing uh the current proposals will be allowed to withdraw their stake um and so that also reduces the actual power that the uh the lighter protocol would have on the network so this is one way

for stakers not only to protect themselves but also to protect the underlying Network would this also allow people who have Stak e that's locked up in some kind of defi protocol to participate or or you will need to have to State e kind of you know just like liquid in a wallet so that's kind of like a implementation detail that's that's not ired out actually if um I don't if we can attach links later but there's like an ongoing discussion on the forums about stuff exactly like that I think in its current iteration it would be very very difficult um to have s that is used in DFI protocols to actually be used to veto because basically you would need to create like a wrapped version of it for

every D5 protocol that supports sth and then you also have to deal with like what if it's bridged to other like l2s or even other l1s um but what uh in lie of that the current mechanism is the following there's kind of like multiple veto thresholds the first veto threshold is is quite low so if you get um some small amount of Ste e sckers and like I I don't recall what the threshold is right now but I think it's like below like the 5% they can extend the window during which more SD stakers have time to come in and veto The Proposal so basically like if all three of us agree that hey this proposal is a bad idea but

you two guys are a Define you need 20 days to exit but my Ste is is in my wallet I can go and veto the proposal and that gives you guys enough time to pull your Ste out of Defi and then come and also put it into into the veto uh aggregation mechanism yeah so we're talking a lot about like sth in defi I think yeah one one thing that we wanted to also you know uh hear more about is yeah how like is pretty huge R like 20 billion market cap and like obviously one of the core promises of liquid staking is sort of you can utilize your collateral in Define now um yeah we wanted to ask sort of around you know how is it being how

is e currently used and you know how do you see the usage evolve in the future like so there's kind of like an interesting Dynamic that we've observed together with um like the the timings of the actual market right like if we're in a bull or or a bar Market in general in Bull markets you you to see people are more let me say adventurous I guess with their SD um and and bare markets less so uh however actually we see more uh SD like plane holders than than we were initially expecting um that's said though sth is basically like one of the biggest drivers of most D5 protocols right now so if you look at like a uh or

or or maker and you look at like the Vault utilization rates or or um the amount of capital that has been provided uh in terms of like lending uh St eth is up there with eth and in some cases surpassing it um and that also kind of makes sense from an economic perspective because at some point the the rates between these two tokens like the The Lending rates especially because some people will lend EST e to borrow eth to restake it uh kind of find an equilibrium right so at some point it doesn't make sense to necessarily go and lend out all of your s um because the rates that you get on it are are either not worth the addition risk that you might be taking on it from a a smart contract or from a protocol perspective or just because you prefer the immediate

liquidity as opposed to having to unwind all of those positions so do you know so what's the percentage right now that is being used in Defi and like what are kind of the top uh usage pattern that you're seeing so I think that the current usage is somewhere between 35 to 45% of s Ethan in defi um but actually that's probably like a couple of months old since that's the last time I I saw it however um the other real difficulty here is like tracking this across l2s and then also tracking it across l1s uh so a lot of the times what we see is that there's like St and it's on a bridging contract um and it's difficult then to like kind

of like Pierce the Veil and go into like salana right and see exactly how it's used on salana or um even on osmosis and and neutron now since the recent uh bridging kind of capabilities there um so the most common usage is actually in from a lending perspective leverage staking um it's it's kind of like reaking if you think about it like you're you're taking out east and then reaking it but reaking me something different now the leverage staking um wasn't and still is like the largest use case of it but we actually also see a lot of people that are uh lending their St and borrowing stapes against it uh and this is beneficial because you kind of have the built-in rewards rate of SE

while you're lending it as well as a quite beneficial uh lending rate that's offsetting the the the borrow rate that you have to pay on on the Stables so in bare markets when there's like a lot of volatility it's a little bit more dangerous it means you just have to be much more care careful about the health factors of their vaults um but in the last couple months when the markets have been like relatively more stable um you see a lot more of this kind of usage and it makes sense uh because Staples are generally like the easiest way to get exposure to other secondary or or tertiary tokens especially if you want to easily hop across different networks because they there it's there's a lot of liquidity there um but also in terms of being able to take these stables and

then go to centralized exchanges where you might want more like exotic options like perss and stuff like that yeah and while we're talking about bridging and you know bringing s to different networks I I think that's also like been a a huge topic in recent weeks and months right so you mentioned already Neutron and and some other ones that EST is available now uh can you talk a little bit about how it works and I guess most importantly probably like explain to us a little bit the scenario that that happened with like layer zero and like how rap s was supposed to be brought to BNB from them but it wasn't like going through the governance

process so I think there has been like a bunch of discussion how you know uh SCE can be bridged uh across to other ecosystems and yeah maybe you can just kind of shine some light on on this whole like story and and you know how how s will be bridg going forward and and the role of the Lio da in it I'll I'll do my best here because this isn't really my my area but I I can give you guys kind of like uh my understanding and also from a a general process perspective um so the tricky thing about bridging and like in general with with defi tokens is that they're permissionless in terms of how they're used right so technically anybody can take uh s rabbit and Bridget if they

want to the question is um how do you kind of like Focus the activity so that you don't fragment liquidity too much because if there's like five different bridg versions of a token uh on the destination whatever chain L2 uh even maybe L3 at some point um you really really decrease the usability of the token itself from a user perspective uh so you you want to take an approach that is like coordinated from the perspective of providing the best possible liquidity and experience to a user um the way that Lio Dow contributors and and the Lio Dow itself in terms of like the things that it's ratified uh have put together a process around this is that there's a team of contributors um that's called

it's dubbed new network expansion working group or work group I think uh is what it stands for and basically they're there kind of like uh node operator mechanisms is from a node operator a perspective to coordinate the efforts between um host and Target chains but also the actual bridging protocols themselves around a making sure that kind of like the right process is followed and the right process basically means hey are we sure that this is like the best user experience for the user on the target chain B um is kind of like are like the risks around the bridging mechanism the the minimum that they could be are there improvements that could be made or other mechanisms that might make more sense uh

see what is the interplay between the token uh that ends up on the network and like the D5 protocols that exist on on on the target chain because you want something that is immediately usable uh by what the defi environment is is on that side you don't want to like end up creating a token that then needs to be rewrapped into another token because again you face um liquidity fragmentation and then D is is there a way to take a consistent approach with as many of these Bridges as possible uh and that's why if if you look at the the layer zero post um and the kind of like governance carfuffle I guess let's say that happened um when that was posted is that there was kind of a a set strategy especially with regards to layer 2 deployments um in the sense that like

native or canonical Bridges should be used whenever possible uh but in this case this was kind of um an alternative to that uh that hadn't necessarily been uh reviewed by the the new team yet so why thing we also wanted to talk about here is you know ethereum is still there's in a lot of evolution right and there are a lot of uh I mean it it evolves kind of slowly in some way but there's a lot of thinking always right from etherum researchers around you know protocol changes and things they want to ways they want to evolve ethereum and of course some of those also uh affect lios I'm

curious uh about you thinking on that like what if feel are the most important uh things on the etherum road map that are coming in the future and how do you see them affecting lighter yeah that's a great question so hopefully um sometime in the the next hard Fork which I'm trying to remember like the nickname for it now I think it's Petra uh but basically prag Electra um the the kind of discussion happening now is whether eips have 002 will be included or not that is the ethereum Improvement proposal around triggerable exits uh and basically right now the only way to exit a validator uh is by

using the validator key on the consensus layer uh and what this proposal would allow for is a way for uh users and node operators to exit validators using the execution layer so basically sending a signal from the withdrawal credentials of a validator um to the consensus layer to exit the validator from a staking solution perspective and this applies not only to liquid staking protocols um but like centralized staking Solutions and even solo stakers this is something really really useful um it means that if for some reason you lose the validator key you have a way to exit the validator and recoup the the capital uh and pending rewards that are still on that validator but it also means that protocols uh that want to be

decentralized and therefore should have permissionless ways for node operators to join the node operator set have a defense measure against node operators that go Rogue or do something malicious um or like even in the best of cases you know just go inactive for long periods of time so like let's say I'm a solo sticker um and I and I join a permission list liquid staking protocol but something happens and like I'm offline for nine months should all of those penalties be socialized to all of the the liquid staking token holders every protocol might might approach the decision a little bit differently but what this does allow is for the protocols to make create like let's say a rule around this and how protocols uh protect themselves going forward so at

the same time yes it kind of changes the balance of power between the protocols and node operators because you no longer need node operators to like let's say Aces uh to a validator being exited but that's why for Lio something like dual governance is really really important because you can Shield those kinds of decisions so for example under which cases like what are the rules and criteria under which validators exits may be triggered from the execution layer um and also even if you want to make the actual exits themselves objectionable let's say by through the Dual governance process um to limit the risk of that that functionality that feature being abused by by a protocol or by a dow um and the other uh EIP that's being discussed now that would have a

very very large effect on uh a lot of liquid staking protocols is the one around changing the maximum eff of balance of a validator So currently all validators on ethereum basically have a a minimum uh in order to be active and effective which is 32 eth or to be activated uh technically you can go below that number once the validor has been activated and and still be active um and a maximum which is again 32 e which is why we have hundreds of thousands of validators on the network currently and what that doing is that it's congesting the peer-to-peer network of of ethereum um and although in general the network is performing all right right now uh people are afraid that if the number of validators doubles or or eventually even triples the

network will either stop running well or perhaps not even run properly at all um so there was a test net that was done a couple of months ago uh and basically they tried to run ethereum with I think like 2 point something million validators or no sorry like 1.7 million and it didn't run properly a lot of improvements have been made to clients since then but another way to do it is to increase the amount of stake that can actually be allocated to one validator and that's what the max effect of balance uh EIP would allow you to do so you could see large node operators um so for example the node operators that in lios Q rated set or coinbase and Kraken and and other centralized uh saking Solutions or even like large node operators for the validators that they

sell to customers directly obviously like chus one begin to consolidate their validators so instead of running like let's say 100 validators of 32 e um on a specific machine on a specific like validator client you might just have 3,000 200 uh worth of stake on a specific validator although I think currently the proposal is to go up to 248 but like the the general concept is is the same um so you reduce the amount of stress that's on the peer-to-peer network uh and that gives you better like performance which eventually potentially lays the groundwork for something like uh single slot finality which which needs block times to be like relatively

performant so in that scenario areio so so maybe just expanding on a little bit on this so here the I I mean I presume right the taking rewards would also scale proportionally with the amount of e in there and and is it also the chance of being selected as a proposer would then also be like let's say if you have 320 E1 a validator instead of 32 you'd also be like 10 times as likely to be selected for the different kinds of uh roles you know that like kind of read to I mean in proposer I guess mainly that leads to like you know additional rewards yeah that that's correct so basically the the allocation mechanism for like if you're selected to do

something will be based on stake weight as opposed to this idea that there's like a nominal value which is just you know number of validators or one right if if they're all 32 uh with regards to the weight between How likely you are to be selected to do something although technically it has to do with the effect of balance right so not the maximum um but what the current effect of balance of of the validator is and the other interesting thing here from uh potentially even from like a small stake or perspective is what this means from uh compounding of rewards so like let's say that you're a solo Staker and you only have 32 e so you can only run one validator right now um it's very difficult to then compound those rewards because anything above 32 e on a

validator doesn't get rewards so you have the IAL rewards mechanism that allows you to take these rewards out and you can do something with them potentially you know get a liquid staking token um but it doesn't allow you to directly restake it if if you want to do it like restake it not not reaking in ular sense so what what this max effective balance allows you to do is potentially start a validator with 32 eth um because the maximum balance isn't necessarily the balance required to activate the validator it'll probably stay at 32 and then that means that the rewards can accumulate on that validator and you will compound your rewards until you reach reach whatever the new Max that you've selected so might be 64 it might be 128 um it might be 2048 at which point the partial rewards

mechanism will kick in again and everything will be skimmed off the top I think another solution to this problem right is that that's been often discussed as sort of to like lower the staking rewards so that like less people participate in staking which is is that correct or like what's your thoughts on that yeah this is pretty controversial I I guess as a as an idea even within the light out contributors so I think in general the idea of minimum viable issuance is correct right you do not ever want to overpay for something if you can afford not to um but I think the the biggest question here is like what is what are

staking rewards actually paying for and is the economic security from a technical perspective as in like what the network needs to run the only thing that matters or are we minimizing the importance of a lot of other things when we only look at it through through that prism and and to be honest I think we do so there's there's a couple of of things that play here and part of them is is also like convention or or history if you set saking rewards to a certain number to a certain extent it doesn't really matter what that number is but then you go and change it you almost break a set of expectations that the users of the protocol have with the protocol itself um now you can argue and

I think it's a convincing argument that like there's no actual set of expectations it's it's it's code if people agree to do something else with a code and that's basically what a blockchain is they're free to do so and so those those expectations are are null and void um but expectations build culture and they also build community so and and we can even see this kind of like with uh the recent kind of proposal that happened in Cosmos right uh with the change to uh staking rewards on on atom so you you you risk a potentially having like a Schism in the community and even like a fork where some people will go one way and and some people will go another way um and then you also basically risk having negative

externalities so negative effects as a result of this decision that maybe you don't account for so if we reduce the issuance of of ethereum right now I I think what you effectively do is price out a lot of solo stickers it will no longer make sense for you to run a validator at home because the amount of rewards that you get like is drastically reduced and unfortunately what matters for solo stickers is absolute rewards in Fiat terms because that's what their their like costs are are are basically framed as um If eventually we we live in a world where like eth is is the stable coin right um and that'd be great then it matters less uh but right now it's not the the difficulties that users transact in in like local fiat currency

they pay their taxes in local fiat currency and so it needs to be economically appealing for them to to remain as stickers of the network um and I don't think you achieve that by uh minimizing issuance even further the other thing that you do is you essentially trigger a uh centralization race because the more you push um issuance downwards the more you compress margins when you compress margins you make node operators like compete even more on well margins right so they will do things to cut costs this means centralizing the way that they run validators um I think you will see probably a lot of node operators go out of business and then like a consolidation effect in terms of the overall landscape of how many node

operators are out there how Diversified they are um from an infrastructure and an operations perspective and perhaps even from a geographic and jurisdictional perspective so those are are the the kind of counterweights that one has to think about um in terms of like what what is a minimum issuance uh useful for is it only useful for economically protecting the technical aspect of the network or do you want to protect things like you know um the cultural uh aspects of it the the the inclusiveness of it in terms of allowing solo stickers to participate um and also the robustness of it from a infrastructure and diversity perspective yeah I mean it also seems like a very flawed it like if the goal

is to reduce the number of validator then this seems like a very flawed approach also because is that even going to work right because if you do use for example liquid staking tokens like Stak e as a sort of you know the money thing and the nominator that use in defi then well that's kind of attractive to do if you earn 4% and it's still kind of attractive if you earn 2% right so like uh it's not really like I mean I could totally imagine one does that one does that thing and it doesn't really drive down the number of vators in the long run yeah it if if it doesn't drive them down in in absolute

terms um I think it does definitely doesn't help the the concentration risk let's put it that way so if like one of the things you're trying to do is is minimize centralization or saturation within certain types of staking Solutions or staking entities then I don't think does that yeah and I guess the big challenge too is I mean at least in Cosmos right you do have this governance process right so you can ask the Adam rers and okay it ended up being like a close vote but still it's like a majority was like okay in favor of this and so in the end I think it's like people okay with it and they can accept it right but on in the ethereum case right you don't really have that kind of mechanism and then in the end and I think that's always been

like one of the big you know criticism and challenges of of this whole kind of etherum governance process that it's something that's very intransparent I mean it's m forums it's in different places and you know a bunch of researchers and community members have all these discussions and and maybe they think about what the community wants but it's like really hard to gauge it and then decision happens like that and for most people they will just sort of they will not feel they have a say in this yeah that's that's a really really good point and like to be honest I I like the ethereum governance approach even though I I'm often uh at odds with it at least in my position like as a as a lier doubt contributor because of like the the Brun of the criticism that uh lier receives

as a protocol um but I think there's like you make concessions when you choose that kind of governance mechanism um when you have Unchained governance that's very like you're saying transparent and clear and like it's obvious what the effects of what what you do will be um and you give people the ability ility to uh like accept that or not then it's much easier to have those kinds of discussions and those kinds of votes it's kind of like how uh you know in Switzerland you have the cantons that have direct referendums whenever they want they want to do things that really really impact the populaces and they do it all the time because this mechanism exists but in networks where the the governance mechanism is a lot softer it's a lot more nuanced it's a lot more intricate

and to a certain extent it's also less accessible by the people that it impacts being like the users and um Mike ner at the EF did this really really great analysis where he's looking at uh like the sets of users that participate on on ethereum but blocks in general um how they intersect and what kind of representation you want of these different sets um from a usage and from a governance perspective um it's it's difficult to both like think about all of these things but then also kind of figure out ways for people to express their their opinion um about what they want to see in a way that is like visible to everybody so it's kind of like what you said so the the researchers that are thinking about

these things and honestly doing a really really good job about thinking about them maybe don't see things from the prism of like a def user or from um like a solo Staker or from uh you know a large staking solution because that's kind of like outside their their current field of view so I think protocols or or communities basically like Lio um have to take bigger role in not necessarily like representing users because I don't think like you know Lio is like a union of users but trying to think about like the economic impact of um eips uh and offer not necessarily deferring points of view but at least like other points of view uh about what

the effects of these things might be whether it's something that users want or not um and if it's something that is is desirable in general from an end state from an ethereum perspective and we're seeing it also not only for staking but also for a lot of other sectors so obviously like igen L is doing this a lot from a reaking perspective um but reaking is not only like about staking it's also about incentive alignment between networks like settlement layers data availability layers um tokenomics and if if you want like sustainable flywheels or not you're seeing it with D5 protocols um if you look at kind of like how Unis swap as a DA has has has evolved like kind of like their user educ ation strategy if you want to put it that way um and obviously

a as well so as users take on a more important role on the network like not only as as people that kind of like interact with a protocol which is like a little bit indirect and and maybe not so not so serious but like inhabitants of a protocol like people that live there right because um like you might have most of your life savings on ethereum and so therefore what happens to it is actually of V vital importance to you so you you will see that users start to express these preferences the ways that they can and those ways might be um through the protocols that they choose to interact with versus um participating directly in governance and then you you you would say these protocols basically interact

in the forums or like talk to the researchers I guess that's kind of what's Happening a bit more now like for example you know like Justin Drake also being at these lier events you having like some panel with them is is this sort of the path that's happening now or could there maybe be I guess some evolution of this with a bit more direct representation or is is there something that yeah I don't know I guess there there could be that I mean that's a really good question I I don't know if there will be like direct representation you know like a AO Ambassador on the the the allcore developers calls or something like that like I I don't think that makes sense to be honest um it breaks the the Paradigm of uh the way that governance works on

ethereum too much and I don't necessarily know that that's that's desirable either but what is desirable is is is like you mentioned um better communication and interaction between uh protocols and researchers and client developers uh to a certain extent I think the existence of the L protocol has already actually helped that a lot there's node operators on the LI Q rated set that are client teams right the the issues that have been Unearthed from a technical perspective uh having client teams run thousands and thousands of validators and the tunings that have resulted in in the clients and the improvements that have been made um in terms of like how clients interact with

meev Boost and relays and and things like that have been really really important um the the input and the interaction that client teams and their representatives bring in governance discussions and Lio about what are not what are mechanisms that work well for node operators in order to ensure that you know we we continue to run robust and diversified setups and we're not having a centralizing effect on on node operators um like all of those things are very very valuable and basically you only get that value by creating venues for these these parties to come together um so like the lighter connect event like like you mentioned where it was like a half day conference um where we went into like a little bit of a more nuanced take on on a bunch of kind of topics around staking and and defi uh

and a bunch of other conferences in in this vein you know like the staking Summit I think are things that we'll see more of going forward um and the willingness of EF researchers and client teams to participate in like in in these discussions which is like very very high to be honest like the the discussions are very open of really good caliber and even though they're like like testy at times I think it's for for the best of reasons from both sides uh mostly because people just really believe what like what whatever Viewpoint they're espousing and it's not kind of like uh like because of animus um and so I think that only good things can come from like constructive uh engagement like that yeah I guess also another big

player in this is is like sort of flashboards and MV do you how I guess and also like as we record this right in uh we we have seen like other like sort of liquid sing players very big likeo with muv and the liquid staking story now I guess my my question is more yeah how how does Lio I guess engage also with me is this something like um you like you're working with flashboards I guess right now most of the curated uh validator set runs M boost now I think there's also like a bunch of changes coming in terms of like me architecture in ethereum but yeah I guess General how is Lio

approaching um me actually this is a a good segue into a discussion we were having earlier about eips that might affect liquid sticking protocols so the two that we didn't get to talk about um are epbs enshrined proposal Builder separation so basically building something like me boost into ethereum um and me burn which is basically like smoothing out me across all blocks as opposed to having very volatile rewards um so rewinding just a little bit from those eips a protocol the the size of Lio I think has kind of like has to take into account that a it should never play King maker um with things like this so it

shouldn't necessarily like be very very specific and say we will only use one relay um because in general you want like diversity in these kinds of things because diversity breeds um like like excellence and and evolution which this in this part of the industry really really needs um so if you look at what uh Lio DA has done around this there's like a block proposal rewards policy the way that the policy was crafted was to give node operators the maximum amount of optionality possible to a make sure that they're compliant with local laws and Regulatory uh concerns if they have any so if for example they feel like they need to use filtering relays that

they're able to do that but the protocol as a whole looks at the effect that it has on the network so um Lego which is the grants organization within within Lio like a couple months after um the merge and me boost was live and and we were kind of looking at uh censorship on the network and there was kind of like a a lot of um concern around how much was going through relays that were quote unquote censoring uh we like the the Lego commissioned a bunch of like studies I guess if you want to call it that or analyses about actual censorship that was happening on the network and and then to try to use that to inform hey should the Dow or the protocol do more here to decrease censorship or is that at an okay level or or should we

keep continuing so one of the things that came out of that process was that um in the update to the block proposal rewards policy a couple months after the merge node operators were allowed to use minbid um so minbid is basically like a setting on on the the in M boost or on the consensus L client if you will because you can connect to relays directly now that allows you to say that if the bid that I get from the MB Boost network is not over a certain value I'll just always build locally uh and always building locally basically like if you're using stock standard clients uh you know we'll just build like whatever is in the me pool ordered by priority fees so this optionality that node operators get um is something that actually really

really helps from a credible neutrality perspective for the network and there's a lot of other uh large liquid staking protocols that basically like don't take this approach and then the other thing that we're looking at is so there's like a vetting process for relays that node operators are allowed to use but currently all relays that have applied um have been bted and are able to be used by n operators so it's more like is the relay and the team that's running the relay like technically competent um Can it handle you know thousands or hundreds of thousands of validators uh being registered at the same time and are there any issues with regards to like the timeliness of of blocks and things like that and it fulfills all of those conditions you know purely from an operational perspective there's no reason not to include the relay in in

the list of relays that operators are allowed to use the only real concern here is from a Staker perspective to make sure that node operators aren't somehow engaging in M theft in the cated set it's not that much of a current concern to be honest because like it'd be very obvious and um the node operators in the curate said have a lot to lose in terms of potential future revenues and reputation where it gets tricky is in like the community staking module that allows for permission permissionless entry so then the question becomes like how do you monitor things like that what are the protocols that rules that you put in place um to combat that happening um and if it happens like how do you deal with it you know do you do you eject the validators using something like EIP 7002 do you use

some sort of other mechanism so some liquid sticking protocols may use like pre-signed except messages basically like node operators need to sign something and like put it in an envelope that says like open later in case of emergency where where somebody can exit their validators um or or do come up with other mechanisms like you know recouping or calling back like a portion of a of a bond uh so like all of those things are design considerations that are going into into the CSM right now sorry and to go back to your question like who does the Lio da work with here um or at least the contributors and basically like the answer is is everyone so uh obviously there's a relationship with flash Bots uh especially because like hu who is um with flash Bots is

also a strategic adviser to the Lido now uh but also because they were kind of like the thought leaders in the space but we're also closely working with other relay operators um and uh meev researchers as well to make sure that the tools that are being provided to node operators um aren't ones that like harm the network ultimately um and also that give them the the amount of optionality that they need in order to operate uh in in the manner that they see for it but so this is also like I guess do you see this changing I I mean I guess you kind of touched upon it but if it were more permissionless potentially I guess this optionality might mean you know less rewards for certain operators that like

let's say use some filtering relay I guess is there some Force there that would like force people to like accept all relays if it's more permissionless and and is in that sense the curated set maybe like actually a good idea or like how do you how do you think about that since I guess like permissionless might mean like profit maximizing in at least in my mind somehow yeah no that's that's that's a really really good question um so I I think what you need there is more tools to look at that like the actual effect on the network so um Tony who like recently joined the EF do doing researcher like Nero eth I think on Twitter has this really great site

called censorship. piix um which kind of like lets you see uh what the actual effect of like censorship on chain through me boost This and like really like the problem right now is mostly Builders um and and the less so validators and relays um I think as we have more and more tools like this that then we will Empower Dows to make more apt um kind of like decisions and pulling like those protocol levers that we were talking about earlier in terms of what they want the protocol to look like so if you have like a really large liquid scking protocol uh which in my opinion needs needs to enforce credible neutrality uh otherwise it like it's too much of a

harm to the network um you could put in things so for example using like the lighter staking router that say that if a certain node operator is only using filtering relays then there's like a maximum am amount of state that they can receive uh and the state goes somewhere else so like right now that functionality doesn't exist um I think it's important to build that functionality like piece by piece first of all you need a way to be able to reason about that on chain and the reason about it in a verifiable manner the truth is like these mechanisms don't yet exist to take this data from offchain bring It onchain analyze it and utilize it onchain it's like super laborious and super super gas intensive or expensive basically to do this but eventually there will be ways to do this

um like on l2s and submit proofs of the calculation back to the L1 and do something with it that'll be um like easy to do it uh and so you can combine that together with with additional modules like the CSM or eventually like DVT modules that are permissionless to make better staking allocation decisions between between these modules and you'll be able to look at node operators not only within each module but also across modules so if I want to look at uh like node operator I don't know I'll just say Bob right um maybe Bob has 1% of of total stake through the Q rated module and so they've they've reached their theoretical like soft cap within Lio but they're also running a lot of permissionless no nodes um maybe you

want to reduce the amount of Q rated stake they have that to to kind of like counterbalance that or you see that like Bob is actually running really really Diversified because they're like in 30 different countries and they're all in bare metal um and you want to diversify stake away from public cloud like AWS and Google cloud and obh together and so you stake you allocate a little bit more stake to Bob until other node operators can prove that they're also running um their infrastructure you know like in local data centers and then that state can be rebalanced away so so you create not only kind of like restrictions but also opportunities for different types of competition um by having robust reallocation mechanisms well let's talk about reaking

and I layer I mean this is one of the the areas that's very hot at the moment now and uh in the blockchain world what so again maybe just briefly for those who aren't quite clued in to what we staking is can you explain what reaking is and how do you what do you see the significance of reaking for Lio so reaking is essentially um the ability to use the same Capital uh that you've staked for for one reason uh to stake it for something else so when you stake 32 eth uh into a validator for ethereum the risk of all of that 32 eth

being like let's say slashed right on the network is so close to zero that you're basically not optimally using that Capital um so you can make an econom an economic argument that uh some amount of this eth let's say four let's say eight let's say 16 um in order to have like the utmost amount of capital efficiency on it should be reutilized you can it's kind of like rehypothecation but not exactly um should be reutilized or can be reutilized for additional Rewards uh and what IG layer wants to do is say that okay um this amount of extra eth can be restak for either like another blockchain or a data availability layer

or some other protocol that somehow wants to secure the transactions that are happening on that Network um by utilizing the economic security properties of ethereum in lie of doing it themselves now why would a protocol want to do this well one it saves them a lot of costs um maintaining a node operator set finding people that uh want to run nodes and and validate a network is actually very very expensive and it's like actually the largest like cost item if you think about it when you create an ul1 in terms of where tokens are going because you need to have issuance and then you need to issue those tokens to node operators or validators um and then the reality is if if if the protocol is not sustainable in the long term they're probably just going to be selling it to

recoup their costs um so a this removes downward press pressure on a native token B it takes away the operational complexity of having to worry about these things in the first place and C it also creates like a cultural alignment between whatever product it is that you're creating whether it's a network or data availability layer um or another chain with ethereum itself so it kind of allows one to to Hitch itself to like the wagon of of ethereum and say that hey we're aligned um and that's really really important from a from a user uh perspective the the difficulty uh with reaking is that in in in my perspective at least I think that liquid staking

adds like let's say a multiplicative risk uh on top of like the the normal stti that you have so if you're using it in defi right depending on how many layers deep you're going in defi but reaking I think adds exponential risk because you can not only like take the restake token um and put it in D5 but then you can spread it across multiple networks and the issue is that the collateral which is like way at the bottom of this this giant kind of like like Tower um of of reaking can be like Lean by a protocol that's way at the top that has very very different let's say security guarantees technical

considerations requirements and thoroughness than the other different layers um and the difficulty there is that it's very very difficult to actually accurately price this risk um I think it's already difficult for example people saying that like staking is risk-free like I don't think staking is risk-free um and I definitely don't think that like a liquid staking token is is risk-free either um so the the difficulty though is that like aprs all look the same they're just like a couple of numbers uh and they say a percentage and then the thing is you don't know what's what's what's behind that number um so just because something that says that gives you like 5% APR and something else gives you 5% APR it doesn't mean that the risk of the APR is the same and

markets are very very bad about reasoning about this this risk um and the the inherent kind of like challenge with something like igen layer and the the node operators that will be offering reaking rewards to to users is how to come up with this like Risk adjusted rate if you want to think about that way um or risk adjusted uh like like reward for for users because like one of the biggest problems we have in defi right now is that it's very difficult to to properly educate users about like all of the risks like you can write it all down on a on an FAQ like next to the sing widget it doesn't mean that they'll read it um and it's also like actually difficult to to understand to a certain

extent so when we introduce additional layers uh it just makes it much more more complex that said I think like igen layer in general the mechanism design uh makes sense um in reaking is kind of like liquid staking in the sense that it's kind of something that's going to happen regardless of whether we want it to or not because money wants it to happen like Capital will always find a way to do like the most optimal effect for its allocation so the question is how how how to accomplish uh doing this in the the safest way for for users yeah and I mean I guess one thing one could do right is to say oh there's like you know 20 billion worth of e uh

that's backing that stake E when you know lier could say oh we we we are going to now use that to also secure some other things and then we can pay like you know a higher APR for this eve but of course you're absolutely right right you're adding a lot of complexity and risk and and I guess it's also seems to go kind of counter the lier strategy at least my understanding of lier strategy which has been to basically try to make the protocol pretty minimal and neutral right he's also trying to address this whole thing with people saying like oh but Li is too big well I think the more the more neutral it is right and the more non-offensive the

governance minimized it is the the less people will be upset about it although I guess people still upset about the size of Li so I I don't know how well that strategy is working but uh but it probably is working to some extent cuz I think if now Lio would would be doing also yeah use that Eve to you know um also secure a bunch of other speculative things happening somewhere else I I do think there would be a lot of backlash there right so I guess this whole thing of having people built that thing on top independent of Lio um it does make sense and that that's kind of the strategy you know that's so Li basically says okay we we we are staying out of this and people

can build it on top so like I mean technically Lido hasn't said that because only the da can say things and that the Dow hasn't had a vote on this um but I think that is definitely one of the the concerns um or at least one of the concerns around doing it too early because like as you aptly pointed out we're talking about I mean at current like eth prices in terms of USD like 20 billion right so how much of that 20 billion would need to be restak in order to have an appreciable effect on the rewards rate right which is currently like between 3.8 to 4% a lot of it like probably more than I don't know 70 to 75% are there enough protocols out there that are robust enough to support like

let's say 15 billion worth of capital being restak into them where that's like a good bet I mean personally I would say no so until those protocols exist um the the way that like Lio thinks about reaking needs to be I believe like compartmentalized a little it you can't offer it for all sth holders um because you need to basically like restake almost all of sth and that's like that's a very very difficult proposition right now right like what exists that will give you that enough issuance in order to be able to move the needle on that um and so the cool thing is that through the staking router it might be possible to build modules where

the stake that is staked into these modules is explicitly restak and then you can kind of create like in protocol mechanisms um like like tranching for example where you get exposure to this module but uh the rest of the STD holders don't and then like you know this kind of like a counterbalance in between where where the exposure is um the the difficulty there is like prioritization what do you want to focus on first do you want to focus on like reaking do you want to focus on like permissionless um node operators being able to join the set and like kind of like building out the market around the staking router you want to do everything at the same time um I think the latter like everything at the same time isn't currently possible it it might be um if

if like the contributor set grows but right now the the impetus and like the value alignment in in in terms of like what contributors have been thinking about honestly for the last two years is growing the node operator set making it more decentralized allowing anybody to be a node operator and then um like reaking and and and other stuff uh is like a problem for like a little bit further down the road so talking about prioritization um you know Lio of course almost everyone knows yeah Lio ethereum but of course Lio has made and and Lio was also originally very much you know designed around ethereum liquid Stak game the ldo was used a lot right to

incentivize uh State e adoption especially in the beginning I guess now I think these liquidity incentives my understanding is Maybe less or I think it's almost only in sth now um basically it's more sustainable once you have the the rewards to give rewards in the same token as the rewards as opposed to uh the treasury yeah yeah exactly but now of course there was or there have been attempts also by Lio to expand to other the networks I mean of course one we were pretty involved in the LI salana thing or kind of initially built that so there was L salana uh there was uh poodll there was a whole bunch of other effort s um Lio salana right recently was there was a decision to kind of close it down

I think polka dot thing was also posted down uh we had cheito now which is one of the competitors uh in salana that um you know launched their own token that has you know very high market cap Cosmos for a long time right there was a lot of discussion about AO coming to Cosmos now we again have I think a native protocol there stride that has has done you know has been doing pretty well I'm curious what is is what's the thinking sort of in the LI of community around expanding to other networks is that still something that's um kind of an intention or and and do you think it's something

that Lio can see that or is it just the case that you have such a huge Advantage if you you have a governance token that's you know specific to a particular ecosystem Community can be used there fully focused on that um and that you know it's actually a hard thing for lier to go and win in you know in these other ecosystems that's that's a really really great question um and it's I think it's also one that there's no clear alignment on between like within the Dow itself and even across contributors um if there was clear alignment you would probably see more action let's say in One Direction or or another um I think the recent things that that You' pointed out kind

of like the sunsetting of of polka dot and kusama um and salana as well is indicative of a the the realization that in order to in order for light on ethereum to become like the best version of itself it's going to require most of contributor's attention um if that attention is split across uh like other Li on X protocol initiatives right now it's very difficult to have that kind of focused sense of purpose uh and to make sure that like all of the things that are that are being said from a value and a principles perspective are are stuck to um and it it also makes it very very difficult to fight those battles if you

want from a Market's perspective like what you said is really really apt every token that like natively Launches on another chain means that it has like its whole treasury to to fight that battle right um Lido with only one treasury which like was funded you know like two bull markets ago um means that like if you spend it once then like it's gone and then was it worth it in the end or not so even though I think a multi-chain strategy from like an endstate perspective I don't know you know I'm talking like 10 to 15 years in the future when it's clear that um there's a couple of chains that have like withstood the test of time uh and when you're thinking about Capital allocation

at a very large level you know from like an Institutional perspective they will want something like like a basket you know of of State tokens or basket of bonds right like you know you have like like World indices that are like treasuries from specific markets um you you will try to want to have at least like I say in all of those different uh products but right now the the best strategy is is to focus on where you think you can create the most impact um and where you think you can create the most value and like personally I believe that that that's in ethereum for Lio right for other protocols like obviously Cheeto has made tremendous success um in in Solana and the kind of like vertical integration aspect of it has been

interesting you know like first they came out with uh an Mev client and then they partay that into liquid staking on ethereum I think it would be much more difficult to do something like that because culturally it's like I I don't know if something like that like that would fly like there there are attempts to do something like that you know there's like MTH um but I think it's up against like much more headwinds from a from a values perspective uh in ethereum now I was also like I guess the interesting one here is again like sort of the reaking story maybe where you are sort of expanding but it's still within the ethereum like sort of narrative or alignment type thing because it's like

still using so I guess that seems to me much more aligned there or more needing to worry about that because I guess if someone St Soul right it doesn't like directly attack the value proposition of of St eth versus reaking where it kind of does yeah I agree with that and I think that's why like steth as a like a base Lego um makes a lot of sense which is kind of what Brian was saying earlier right like if you give this optionality to users like so I layer has supported being able to wrap uh Stak te into their protocol from the beginning um then like the protocol has done 90% of its job the drawback there is that none of those rewards are

tricking back into the protocol um but from a a usability proposition for stakers that's like you you've already done 90% of of what you need to do so then the question only becomes like the other 10% um when is the best time to do it in order for you to get exposure to to that value I think there will be a time um I just don't know when it is and I think that the reaking space needs to like I don't want to say mature but like develop itself a little bit more so that some things become a little bit clearer um because like uh like igen lay is forging a path right now and it would be like honestly stupid to try to compete with what igen lay is doing right now um

because it it would require a a refocus of of resources and uh attention that like it doesn't make sense um so as that kind of like ecosystem develops the what the Dow in my opinion should do is like keep an eye on it and and see what would make sense to to integrate with and how but also the best way to do it in in a way that ensures that like users have the optionality and the the access that they need um but doesn't sacrifice like safety or or security of the protocol in any way one more thing I out uh I wanted to ask about so liquid staking has been I think one of the areas that has had a lot of

interest right I mean I think Li of success is you know the primary reason for that and uh and including on ethereum right there's been a lot of new protocols coming uh of course none of them have had anywhere near the success of Lio but it's clearly an area of a lot of investment and interest I'm curious like how do you think about liquid staking competitors on ethereum and are there particular protocols or approaches that you think are interesting or like taking you know different approaches that yeah you feel like are Innovative and cool or like yeah how how do you feel about sort of the competitive landscape on ethereum so I I think the competitive

landscape is actually pretty healthy right now so like a lot of people are saying Lio is a monopoly and like Lio has dominance and like to be honest I don't think that's true I mean the Monopoly thing is kind of like false on its on its face if you can take the share that Lio has and multip and find another three actors with the same share and there's still room for them in the market like I don't think that makes a monopoly uh and then the second thing is like okay so you can have monopolies where something doesn't have like over 50 or 70% share of something as long as the power that is afforded to a protocol um or a group or an entity or whatever by virtue of having that share allows it to do monopolistic things and then I think

again that argument fails um so at 32% Lio can not really do anything monopolistic at over 33% you know which is the the first technical threshold that a lot of people are are talking about the thing that it can do is if it's somehow like it being the Dow right um or if the protocol itself had a way to force all node operators to like turn off their validators which it can't because like um there's no requirement for all light on node operators to use common software right uh the only thing that he could do was stop finality on the network and the the validators that would bear the penalties for that are the ones that would be offline so essentially the argument is that

somebody would might pay the Dow more money than it and node operators would lose like even said setting aside kind of like the reputational component and the future revenues component and the fact that like some of these node operators are actually like client teams and that's not a mistake like there's a reason that their voices were chosen to be like part of this milu um to turn off the network for I don't know like a couple hours because that's how long it's going to last until the amount of money lost is uh like crazy high so that doesn't make sense the next threshold is like 50% so at 50% if there was a way for somehow the light for the Dow or the protocol to enforce that enough node operators to

like cross the amount of 50% to run a client that like accepted another Fork which is not like a legitimate or conical Fork of ethereum and then change the history of ethereum um that that would be bad for the network I agree that would be terrible for the network the reality of doing that is well first of all you're not going to find enough node operators to convinced to do that um especially if by then you know you have additional modules and it's not just a curated set and you have permission not operators which like in in my mind that's like a given that that's what it'll look like uh within within a year or two but even if you did the threat of the user activated soft workk is there right so the only thing that the network would do is basically like find all the people that were

involved in this and then Fork them out um because like that is the ultimate defense mechanism and that also happens at 67% the only thing that changes there is that at 51% if you take over Network you will wait for some people to kind of like leak out and then at 67% you could slash them right away um so what changes there is like how fast you would be able to execute an attack uh the amount of money like in terms of stake required to be able to execute those attacks is like I don't know if there's any one entity in in the the world that has that amount of money unless you know like Powell hits print on the machine and it's just there like smacking the button every day um but from a practical perspective I just think it's also like like it

doesn't make sense so of course there are like like that's a concern and that doesn't mean that we should ignore it I just think the risk from a practical perspective is really really small smart contract risks of course uh uh exist um like malicious kind of takeover of a dow exists and things like dual governance and eventual alific and stuff like that like those will those are like the right answers to the to the problem it just takes time for it to happen and like that's unfortunate but it took ethereum like one and a half years to have drawals after staking um it's it took like another one and a half years to eventually potentially have triggerable exits so being able to exit your validator from your your Rewards address uh and like to a certain extent like

protocols evolve and then that's that's something natural for them um some don't I guess because they don't want to evolve anymore uh looking at you Bitcoin and if that's your selling proposition like that's okay but ethereum's proposition has always been that it adapts to uh its environment and like the and where the future is and I think it's fair to treat the protocols that live on ethereum in a similar way yeah know I yeah I appreciate you explaining that cuz yeah I think often these like scenarios is just like are so implausible right like all yeah I think and that's the beautiful thing about proof of stake right it's actually like very very resilient in a way that proof of work is not where like in the end the

the the losses for someone to attack a network by like using their tokens to do something is just like so catastrophically high that be literally never seen it right there's not been a single proof of not even small proof of stake networks you know with like $20 million market cap right we've never seen something like that and it it it absolutely makes sense right because okay maybe it takes you then 10 million to attack this small network but you know what can you gain and then you still risk of losing this 10 million and and so it's just I think the economics the game theoretic properties of proof stake which just really fantastic and I think that's still the case even with Lio and even that scale yeah and that's

why something like dual governance is is kind of great because it almost Co codifies that into the into the protocol right so why do you not want to attack a like a proof of stake Network by buying a lot of tokens because they're going to be worth nothing after the attack right either because everybody's going to leave the network or because you'll be forked out um so dual governance kind of a lishes the same thing if I take over ldo to try to change the withdrawal address like to my you know my metamask call wallet um Felix will just go start the veto process then you'll join then everybody else will join you'll withdraw and then okay like maybe the process takes six months and then you have enough ldo for the vote to pass but there's zero like stake left in the protocol so you're going to get nothing

um and that's that's the really cool thing about like like mechanisms like that cool well thanks so much easy it was really great to have you on I think we covered quite a lot and uh and I know there's like so much going on still in eorum and with all the changes coming and a lot of going on in Lia too right a lot of innovation there and a lot of great people working on it and so yeah it's been it's been great to talk about it and I'm sure there will be time for for another Lio episode in the future where I'm sure there will be a lot of new exciting things to talk about so thanks so much for joining us thanks for having me and I've also seen that you're like pretty involved in herbit now so you ever want to talk about herbit let

me know oh yeah definitely May happy to talk aboutbit thanks is it thanks guys cool well thanks so much and thanks everyone for listening in if you want to support the show leave an iTunes review for us or just let us know what you think share the podcast on Twitter and thanks so much we look forward being back next week