Restaking Realities: Risks, Rewards, and the Road Ahead

Transcript

all right everyone welcome to the reaking panel we'll be talking about a lot of fun things today again risks rewards and the road ahead my name is Ben Rodriguez and I'm a senior protocol specialist at coinbase I cover multiple ecosystems and different Primitives including reaking all right so um let my panelists introduce themselves why don't we start with you I'm Lucas Brer co-founder and CEO jto labs and a contributor to the jeto network jeto Builds Me infrastructure and liquid staking and reaking on salana sweet thank you vas uh I'm Vias uh one of the founding members of igen layer now over at the igen

foundation primarily focused on um growth ecosystem token governance Etc Misha hey my name is Misha I'm co-founder symbiotic uh shared security protocol that aims to uh democratize decentralization optimize it and make it available day one for every Network yeah awesome so as you all know reaking has exploded in the past 18 months right so I think maybe the first question that we can discuss is you know um what's the goal of reaking and re-shared security right what value does it bring to the ecosystems okay anybody can start yeah

uh the the the goal is simple uh we want to U take the Journey of decentralization and make it shorter safer and cheaper uh we want to remove this barrier that takes like six to 16 months currently uh and uh basically creates an incentive to launch centralized or launch like with proof of Authority or other um like suboptimal solution and dangerous Solutions and uh to make it that attractive that that networks launch decentralized from the

start yeah um I think it's about uh enabling projects to bootstrap themselves much faster in a much more safer stable manner like uh Misha just said I think we observed a lot of you know projects that had their own Security in their own token in their own native asset and when you needed security the most is when it would fail you because you know you would end up in the death spiral during moments of vulnerability so it's really about um reaking as a mechanism to you know establish the infrastructure for projects to be able to come into the space and innovate and focus on what they're doing best which is you know

often some specific technical or you know business logic or component and not focus on all the other attributes that are involved with launching a token yeah not much to add there I think um you know you it it provides a method for projects that maybe are more decentralized or centralized to decentralize faster and uh I do think there's there's a lot of projects that have their own tokens and I think uh by taking some of these already staked assets like eth or solar whatever it is and uh adding it to the uh Network you can create more secure services and uh

decentralized protocols yeah so we let's go into the many different actors in this space we have like The Operators right we have the protocols that are being built on top of it the stakers SL rakers right so the thing that I want to try to get into is the real value of the protocols being built on top of it because like we're trying to say that like resters are going to earn more yield and stuff like that right so these protocols or avss however you want to call it will need to bring some value so let's talk a little bit about you know what kind of value is being brought in anybody want to sh yeah well some

protocols and some networks they it's almost impossible for them to launch without RIS taking uh so like I'll start with that so like pre pre-confirmation say if your if your commitment uh and like slash part needs to be like two ethereum per one proposer it's like billions of dollars that your protocol needs and with raken can get optimized to almost nothing uh this is like the the Corner case of it other cases are on a spectrum like some of them really benefit from Capital efficiency because they need like the risks are huge and the actual uh like uh the the fees are really

minimal uh and yeah some protocols will not benefit from it at all so it's not like one siiz fol fol but if you understand is staking as like in a lot of ways it's insurance like you insurance companies would not exist if they have to have a deposit for every human that they Ure uh for protocols like it doesn't make any sense like for you to hold all this stake if it can be used somewhere else mhm so yeah look at it as insurance it's a capital efficiency that can be like ecosystem building um yeah I would uh I agree with

everything Misha just said I would say um it's about creating a platform for these protocols to essentially come up with what I look at as almost like decentralized SAS Services these are all like different modules that fit into like a far more elastic a far more like rapid rate of innovation and the reality is we are you know the predominant majority of these protocols and services that we're working with is um infrastructure heavy and they're the projects that need this Economic Security the most um but you know as we move further and further into the

ecosystem we start looking at um what is the dent in the total addressable Market that we can have and that goes Downstream to these infrastructure providers to the projects building on top of them and try trying to make sure that they're actively um you know making an impact on on boarding the next generation of onchain users with actual you know consumer adoption which I still think we're you know a bit early in the cycle for that but yeah I I think it's really important for us to you know eventually get to a future where most of the infrastructure is abstracted away from the consumers and users are you know interacting with crypto

applications um purely as the backend rails and you know you don't really pay attention to which SAS modules are integrated into your web 2 application when you're using you know normal consumer applications and eventually we're going to see a very similar Paradigm in crypto applications as well yeah awesome Lucas you have anything to add there the the thing that I look for a lot is uh protocols with actual users or uh um reaking is it's going to be nothing without protocols that have real users using them and generating fees and economic activity and there's a lot of

hype around reaking you know insane tvls and uh but I think the the protocol side is like slowly catching up and that's something that we're pretty excited about um there's you know on salana and the Jeter reaking there's some cool protocols that already have thousands of users and a bunch of tvl and uh you know the restak is letting them do things that they couldn't do before that adds better features I think uh if your product if the main pitch of your product is like the reaking or we're using like symbiotic or Ian there like no one really cares about that it's like what what does this enable that you can't do

before absolutely um you know we talking a lot about reaking but I want to you know zoom out one level and go back to liquid staking and some of the value props that that really brought you know obviously like being able to have a liquid position is nice but one of the most important things that often gets overlooked is it dramatically reduced the entry cost of capital right um it takes 32 eth to run an ethereum validator and when ethereum was just starting out and a low token price then 32 e was a lot more access ible but liquid staking really enabled people to be able to participate with a much much lower um entry cost of capital I could

just deposit $1,000 worth of USD convert it and be able to be a participant in the system versus you know this High barrier to entry so you go Downstream of that and reaking just expands on the capital efficiency and the yield generation for those um you know participants of these systems let's actually get into yield generation right so everybody's smiling at me right now it's great um so the thing about is that like uh we mentioned before that you know reaking will like you know generate additional yield right and let's talk about like you know on the ethereum side of things right you know we could talk

about Solano as well but you know the idea here is that when staking yields go down because more and more people stake right staking yields will go go down right we're going to people are going to be looking towards potentially reaking and other ways to generate more yield right so let's talk about the risks around this right because like you know I would do you see a world in which reaking is going to be the primary yield for example right because like let's think about this and you know please if I'm thinking about this the wrong way please let me know right so staking yields go down right more and more people may want to restake and stuff like that so then they're going to it could be native reaking it could just be

LS restak stuff like that but more and more of the network is going to get locked up more and more people want more yield and then you're going to have a lot more of the network locked up and then reaking is going to potentially be the primary yield is the way I'm thinking about it right so let's talk a little bit about this yeah I I almost want to like position it to the alternative right which would be if these participants wanted to go and ACR that yield as you know staking yields go down the alternative would be to go and deploy that capital on other protocols right and you go and deposit the capital and you start participating in a new ecosystem rather than that where the value gets extracted away out of the ethereum ecosystem this comes up with a

positive value acral mechanism to ethereum right and so as ethereum staking yields go down people want to supplement that with alternative sources of income and instead of going and deposit in that and fragmenting that into you know a plethora of different protocols who come up with a more you know positive incentive mechanism that exists inside the ethereum ecosystem I would say like yes are there some risks obviously but the alternative risk is you know that Capital completely exiting and so you know I I don't really um risk management is a huge factor of like what we all look at what we all work on and it's a very real um threat to any form

of reaking or staking for that matter but again the the negative altern alternative reality seems far worse than um what we're trying to accomplish here yeah let's let's not use Economic Security yes let's use trust and centralized systems that that's much better but yeah like I don't expect um like all ethereum to be used used up by reaking anytime soon because first uh like we don't have that much like decentralized networks right now sure even if they're like if there the the number will grow like one order of

magnitude there is that this thing that we expect protocol networks to have in their timeline it's like basically graduating from using ethereum like once your token is strong enough like once your token is like available enough you might start to proportion it more in terms of like actual stake that you're going to be using so etherum might be like we don't know like restak and consar security like they they were never done successfully before like we don't have anything yet but we can reasonably understand expect that like Protocols are going to be using their tokens as well or neighboring protocols tokens to align so

risk are like it's it's really important when we start the new industry is for us not to use ever one size fits all because like that's how we get like one point of failure uh so I think like different risk profiles different like there's going to be like risky LRT that R takes like a lot of times and there's going to be like really conservative like institutional great lrts that probably restake just once look got anything to add no great I mean I think maybe also we could continue down this kind of like Risk profile kind of thing right but before we get into that let's actually talk about other like Risk like there when

people think about reaking they think about many different things right they think about like we're not going to mention specific bad words here but you know right but can you can what you can I can all right well so rehypothecation right or all of a sudden maybe nbs's or something like that right so you know I want to know I want to separate reality from like you know the the like on like the hype of like you know specific risk so let's talk a little bit about that let me even start with like smart contract risk or something like that yeah absolutely right um I think it's very uh you know if I was a betting man which

I am um I would you know suspect that we're in crypto we're all betting people yeah exactly we're in crypto um but you know I think at some point for one of the many projects that are using any of the reaking services to go through a smart contract vulnerability or you know something like that is a very likely outcome and it's about containerizing the risk and making sure that it's not cascading across other protocols and it's you know isolated and there's ways to do that but the reality is like if us as reaking protocols were to go and be part of the auditing process of every single one of these protocols like we would be banging our heads against the

wall constantly right it's just not practical for us to focus on all of that so there is a high level of like diligence that's required from these protocols and it's our responsibility to point them to the right resources right whether it's Auditors or you know high quality of Engineers or things like that but you know it um again it goes back to like that same smart contract vulnerability could have happened on their own trust Network and could have led to like a far more calamitous situation so the tradeoffs are ones that you're willing to make essentially I think it it's important to uh make the protocol the raking protocol as flexible as possible and take uh

there's definitely areas where it makes sense to take opinionated stance uh like you know maybe it's um there's like withdraw Caps or or uh slashing limits or things like that and um my opinion is kind of you just like let the market decide um you can let the the lrts or vrts figure out who they want to stake to and you know maybe some of the networks are like they don't take certain asset assets because they're too risky and um you know kind of and I'm sure there there's going to be people that kind of specialize in these things you're kind of seeing this already like I know gauntlets doing a lot of work in this area on like uh measuring risk and

you know they're doing all their crazy uh uh symbol math and whatnot that I don't fully follow but uh yeah there's uh I think there's a lot of people like looking at risk different layers and I think uh you know every every layer needs to have some type of uh like guard rail associated with it makes sense Misha you got anything yeah like if we if somehow made decentralization sexy I'll take it like that it's good like we we are like exciting people and like working on fundamentals for the industry as well like I think there is no like

there is nothing controversial about it like we we it's like in coincidence or like maybe M Market like un unrealized market demand brought us here like and we can actually work on something that will like enable us going forward to be safe mhm yeah like it doesn't like in my mind if we're doing something useful and we are uh it's doesn't matter like how we came came here like as long as like the the the the path is through it's going to be great yeah so then let's actually talk a little bit more about like like going further into this because we're just talking about

risk and everything like that so talk about slashing right and specifically around like you know uh for subjective and verifiable punishments right we know we have the igen token inter subjective work token and all that fun stuff right we'll get into that in just a second right but I would like to get like you know the thoughts on everyone here about how we're thinking about slashing risk on um reaking anybody can start yeah that's a a big one um I don't think anyone I guess I feel confident saying that I don't think anyone's figured out the right answer here uh I do think that you want to try to make the as like a designer of a protocol and a platform that you want others to use I

think flexibility is important here so you want there to be ways for uh like the vaults or the lrts or networks to Define different slashing parameters ideally there's a way for them to claw things back if there's a bug um um it's something we're thinking a lot about still um I kind of like the uh I like the approach of symbiotic where you kind of have these like resolvers and maybe there's a delay so like you could have a 7day delay and uh configure things in such a way that uh it can be clawed back or uh whatnot um and I think as far as like what do you do with Slash assets I

think that's also an open question uh we're actually just talking like backstage like what if uh you know CB BTC is used and you end up slashing CB BTC like coinbase would be pretty happy about that I think uh Circle would probably be pretty happy about that too uh just earning yield on that forever um so yeah there's still kind of a question like what do you do and um I think my current stance is like you let the market decide and just build it so that it's flexible and see what people end up doing yeah the reality is like slashing isn't you know isn't designed to be like a constant part of the system it's more

of like a a disaster recovery mechanism to be honest um and I don't think we can have it both ways in the sense like we want to make sure that honest parties are protected and if there's some sort of malicious behavior then like we need to have a mechanism by which we protect assets and honest parties so slashing needs to be a healthy part of the system um you know the withdrawal mechanism is something great that we're working on um The veto committees which is like hey like we have a back stop to slashing right these are all um solutions to an open design problem like you said right

I don't think any of us have like cracked the puzzle but we're all taking like as many different Innovative approaches to it it's more so um how do we ensure that when there are these slashing events um we have back stops in place to make sure the honest minority is the one that is protected and we can get into that with the whole inter subjective thing later as well yeah slashing is hard uh We've designed like a big big part of our protocol around that uh and yeah like just never never do one size withit all always always try to isolate risks so

like if you have up a bit in in in one one primitive that you've designed or like one part of the system or one mechanism that you really like it does not affect the others uh so like if you have like subjective or verifiable uh slashing like you have you need to have completely different pip PLS for that because like they're they're going to be functioning in a completely different Manner and yeah how what to do with tokens that are like unup and somewhere uh it it's it's a nice question to be asked and to be answered sometime after we launch I think or like after the the protocols are actually

like become become experts in in analyzing this stuff uh some person like some founder of the protocol told me that like you just take it like symbiotic would be really really rich but yeah like uh you can't actually do that um and yeah I think we got like a really good idea as an industry what what how to approach that and there are a lot of there is a lot of like fear monger and like oh yeah we going to restake like 100 billion e in ethereum and then it's going to be immediately slashed like we'll have to like for ethereum or do something else I I don't think that like

we are anywhere close to that yeah 100 billion USD in ethereum it's like 100,000 networks Pro like around 100,000 networks like we don't like it will take us decades with the current pace for us ever use this sort of stake and like this zero graduation as well so let's like do basic and like not be afraid but be ready U yeah it's uh important that at least in uh my opinion that the like reaking protocols have some safeguards in them to avoid Mass slashing and so uh that

can be like a a cap per whatever the epoch is or you know pick your flavor of some Safeguard so that you uh don't end up just like Bur ear a bunch of money um and that that can be something that is like it evolves over time but I think this is going to be one of those things where you want to start small and kind of work your way up instead of like diving into it let's go into igen the Ian token specifically and how you think an inter subjective work token in terms of you know sub subjective like you know uh uh slashing and stuff like that like how are you thinking about that can you explain the U you know the the concept behind uh the inter subjective War token

for those in the audience please yeah absolutely um I mean Misha just touched on this with like you know it's not a oniz spits all and they're subjective and objective and you know to some extent I question like how much of the subjectivity like even needs to get resolved sometimes right like subjective questions could be something like what's your favorite restaurant in Singapore right like we're all going to have our own take and based on our own preferences and like does it matter if we come to a social consensus like maybe if we're going out to dinner tonight like sure but like like I'm sure we would be fine with like some tradeoffs there right something objective would be more like uh hey here's a piece of code and it's meant to Output a specific result and if it doesn't perform to the

right function um then you know you can easily verify that on the flip side you have these um inter subjective moments throughout protocols um an example of which is like the data withholding problem for data availability where you know uh a node operator was supposed to send data um a retriever was supposed to receive it there's no Clarity on which party was actually at fault so now you have to go to this layer of resolving this inter subjective problem um and the reason why we designed the token um that way is you know twofold one uh we don't want to overload ethereum consensus so

escalation to the base layer would be a high degree of bloat on the ecosystem um and you know to get a little spicy here not your token can't be the only product so having the token be a product and coupling that was like an active Des design Choice from us and so like it's not just something about hey like the token is the product and so like you can you know buy and sell and trade but rather hey we're going to add some functionality and some utility very specific that's baked in and so we can resolve some of these consensus problems in our native ecosystem and then if it still needs an escalation method then we

escalate to ethereum sweet I just wanted to get that in there because there's different ways of thinking about how uh about this right so wanted to get all your thoughts on around this so um you know speaking of like more assets right you know we talked about the I token and you know what how how it plays into the ecosystem but like uh I Larry you just you just announced multi asset reaking right and like you know that's a thing that's going to happen in in uh GTO as well it's in biotic right I want to know and I think a lot of folks want to know like what's the what's the inherent like incremental value of having multi-asset reaking um because like you know I think people first started thinking about like this kind of like the shared security concept that we started out with right

suddenly this like you know with like for example usdc or anything like that right like it kind of maybe violates the mental model just a little bit or maybe um I think you know I'd like to understand like you know what the the logic is behind there and you know what the incremental value is yeah uh yeah there there are a lot of misconceptions about adding new to like using different token groups people think that like oh I'm going to get like a billion dollar in subai and like our network is going to be super super secure no like actually uh the I think the efficiency here here is uh like secondary to

alignment like we have like around 10 protocols right now that are like Bitcoin adjacent so they're like they're parts of the ecosystem of Bitcoin and they don't want to use ethereum like at all as like if as a as a token I mean you know because like they're not aligned with that they they have Bitcoin they want to use flavors of Bitcoin to to secure the systems uh some ecosystems have like uh on a smaller side say like a big defy protocol with a lot of of chain Parts uh they'll like each of these parts like Oracle Network keeper Network some like runners interop or like maybe up chain in the future they

can all be aligned with the one token their token so that they're not as interested to use ethereum they already have like billions of dollar of their own Economic Security uh that's why like that that's a job like and we're like moved in that direction uh that's a job of like shared security platform uh or like raken protocol to to to like facilitate that to to get as much of alignments like of possible alignments as as they need so I I I expect as our industry like is created and matures I expect that protocols will be using networks are going to be using baskets

of tokens so they like like one part of it is like some form of stable coin that's like the Never Never uh wavering uh balance of something or like optimized that the stake can fall but like you'll still have like an active set of validators that is going to be great for but like the next like the Vol like asset and then there's like alignment asset or like V token that they can use to uh like lock their stake in the native tokens so not to not create a pressure on the price so like a lot of different inte mechanics can be used yeah yeah I think we should maybe rename this panel um reaking is not one siiz

fits all you're probably going to hear that from us throughout this but um yeah I think it's about increasing optionality for the stakers as well as the protocol right I think that's what Misha is like you know nailing here in terms of we need to enable protocols to be able to take and receive whatever assets they want to be able to as well as like stakers should be able to participate in the system however they want to now you know we talked about this offstage but like there's this agility versus stability trade-off in blockchains right build fast and Brake or like you know create a functioning flywheel that then you can

introduce more variables to Downstream so you know we both took a similar strategy there of like starting off with eth starting off with a far more stable asset kickstarting the flywheel um establishing that and then you move to multi-asset staking so yeah I think it's just a natural um like you know destination of on the path of where we're all headed we got anything that Lucas yeah we I knew I I knew that this should have had or the jetto reaking should have uh multi-asset support from the beginning Protocols are the heart of

reaking networks and uh every basically every protocol that's going to use these already has a token or uh we'll have a token at some point and uh to your point earlier like the token is not the product the uh you know you have a product that maybe you can um tie in the token to help support the security or something like that and so um making making it flexible so that maybe you can start out with one asset and migrate to the other uh or you know get alignment with other protocol tokens is pretty important um as a contributor to jto uh we're building a few networks on top of the the jeta restak platform and you

know that's something that if you have a token you think about how to uh tied in to provide more security or decentralization sweet yeah so let's get like quickly into like just kind of like you know you said one one size doesn't fit all right I think we've talked about this the entire panel right um you know but sudden and like in a lot of people's minds and even sometimes my mind is like you know and Misha we talked about this like you know in the back um reaking fragmentation because like the smile on his face it's great um so we have different protocols here we have another Proto uh GTO which is salana right we have other ones in ethereum for example

KAC we have Babylon Bitcoin whatever right so there's multiple reaking protocols the expectation is that there's going to be a lot of these protocols like avss or whatever you want to call them that are going to be built on top of it in addition enabling multi-asset reaking for a lot of extra optionality right so there is a lot of optionality but also it seems like it fragments like you know kind of like the reaking ecosystem all it's like 18 months and we're already thinking about all this stuff right so you know I'd like to like you know get a conversation on that going Misha I want you to actually start on this one so yeah like I what what what's the fragmentation about like networks we don't have like any before like we we we like networks

are not not like launched yet like they're not product C action uh so we're not FR fragmenting that and even if they like we have like 40 reaking protocols like it's a registry like in a lot of ways yeah like we we have like different designs and like some of us are arguably safer than others but uh it's a registry like you have your key and you have your balance of stake like for the registry you can use multiple like sources and like roots of truth or they call they called for by some researchers so like fragmentation is like in in the future

it can be easily solved even if it materializes in the current state like we don't have anything yet so like that we don't have fragmentation so yeah like I heard this argument a lot but it's like I don't I'm not sure that I understand it okay yeah yeah is it fragmentation or is it like you know asset balancing across a port pfolio like why is it that in trafi we're very comfortable with like making sure that our portfolios are like not overly correlated and we're looking at beta coefficients and yet here it becomes fragmentation like we have to be looking at this from a very similar Paradigm of like Risk Management and you can't have it both ways so like I I agree with Misha I don't know if

like we can call it fragmentation but like if we want to increase optionality if we want to like increase like the Liberties of stakers and operators and services then like we need to make sure that it's not overly correlated and like highly intertwined so these two things need to exist yeah Lucas uh I think I don't I don't think people need to worry about fragmentation I think it's like no one cares about that it's uh it's like a uh a solution in search of a problem or you know whatever you say I don't think people care yeah all right fair enough so um going to wrap up right now now what do you call that so this actually if you

notice right you see the the couches over here they're all wearing white the couches are white I'm wearing black we obviously plan this right no but um you know thank you for re uh joining us on this panel I almost said re uh repanel almost instead of reaking this reaking panel right uh hope you um you know uh learned a lot from this I and hope you enjoyed it as much as we enjoyed uh talking about it thank you all for joining us I've been Ben Rodriguez Lucas vs um also I want to say thank you to everyone who stuck around didn't just like leave go to lunch thank you guys for hanging around and listening to us and Yap about reaking for 30 minutes thank you for sticking around I really appreciate it yeah