Solving the Liquid Staking Trilemma: ClayStack

Transcript

good morning everyone I hope everyone is doing well I'm Mohawk I'm the founder of clay stack which is a liquids taking protocol uh before we jump on to the liquid sticking trilever uh let me give you a quick refresher on what is liquid sticking so in our traditional world when you stake your assets your assets are locked anytime you want these assets back you have to wait for unbonding periods which creates a disincentive to stake at the first place uh with liquid sticking what happens is when you stake your assets you get a derivative position out of it so let's say you stake eat you get CSE out of it which is completely tradable fungible and transferable uh then you can use it in D5 to earn additional yields and so on

and uh liquid sticking has been one of the hottest space this year uh you must have already seen like other protocols growing very well Lido rocket pool facts uh and bunch of others however there is a big challenge in liquid sticking which is creating systematic risk for ethereum itself uh vitalik coined this term called blockchain trelema a couple of years back which was that no blockchain can be um can be secure scalable and decentralized at the same time a few blockchains tried to nail one at most two but no one was able to nail all three and same is the Dilemma that we are getting in liquid staking now just

to see the data you can see the current uh distribution of staked assets across multiple liquids taking protocols right now the tvl is around 20 billion dollars and more than 70 is being staked to one liquid sticking protocol which is definitely not healthy uh every protocol has been trying to increase their stake but it hasn't been easy so let's talk about each of the points in the trilemma security comes first I'm not gonna talk about smart contract risk uh because that is something which is an inherent risk in overall defy and the only way to overcome that risk is like making the protocol stable for a couple

of years insurance and all of that so that remains uh now the governance attack that is an interesting one imagine if you are able to buy governance power on ethereum at much lower cost that is what you can do today uh if you are buying governance tokens of the biggest liquid sticking protocol out there uh so that creates again like systematic risk the other risk which is huge is slashing um what happens is most of the protocols are a couple of early protocols what they have tried is uh they try to keep the validator set very very small uh right now like glido has around 30 values out there uh the reason being that

if slashing happens if a non-isolated slashing event happens they think that it's much more controllable because it's just few values out there you can call them hey can you make me full but uh reality doesn't work like that uh once you and if you want to scale your valuator set to achieve decentralization then you take a hit on security because then you're like uh if I increase this validus if I'm giving the stake if the protocol is giving stake to random validators out there what happens if they run away what happens I mean when I say run away what happens if they don't perform well what happens if they get slashed what happens if they if they do double signing that's why a lot of protocols try to keep their valuator set very very small

the second comes scalability uh you should be able to stake any amount of stake you should be able to unstake any amount of stake this seems very simple uh like should be just some smart contract right a variable that you should be able to stake any amount but in liquid sticking it's way more complex than that uh what happens is um in a lot of protocols you cannot like for example uh when you try to make the protocol decentralized you cannot stake any amount of heat I'll give you an example so for example in rocket pool right now if you want to stake a lot of eth uh the problem is it's very difficult to find validators who are willing to put a teeth as a minimum Bond and buy RPL tokens so if suddenly there is a huge influx of stake

it's very difficult to find any valid validators to absorb that stake uh the unstaking that also is very interesting uh once you start decentralizing your value uh validator set how do you unstake uh because now the challenge is let's say you are a validator who is earning whatever like seven percent yield on ethereum five percent main yield and like let's say two percent more in commissions now suddenly the protocol has a lot of unstaking how do I which which valuator will exit every valid is earning that healthy yield they're like I'm not gonna exit the other evaluator is gonna say I'm not gonna exit and that makes protocol take hostage of people's ethereum which is again not very healthy uh right now we

feel that if you see this taking queue right now uh thus taking queue is 16 days if you stake your ethereum today it will take 16 days for the ethereum to get deposited on Beacon chain uh the unsteaking queue is five hours why because it's a bear Market in bull market that's not gonna happen uh in bull market the staking queue will be much shorter the unstaking queue will be much much longer because the liquidity pools are gonna dry up people would want the ability to unstake so that creates the challenge again like for uh some protocols then the Integrations in D5 this is not a major challenge anymore uh in the early implementations like Lido for example had the revisable token which is very difficult to integrate in

D5 but now most of the protocols use value accrual token now next Comes decentralization This is the biggest one which is making everyone's life nightmare uh the moment they try to decentralize uh one is client diversity uh which is again uh right now very very uh concentrated towards a few clients for example get still controls more than 80 percent uh everyone is trying to uh trying to diverse this set but it's not easy second is geography of node operators uh a lot of professional valuators are still based in us if of AC sanctions uh any of these valued us tomorrow then a lot of these values will not be able to sign any blocks or all your blocks which

are being signed will be sanctioned then again like the last one large set of operators as like like sometimes you'll see these points repetitive because all these three security scalability and decentralization they are coherently intermingled uh with each other so when you try to increase the uh operator set you achieve decentralization but then it becomes insecure because all these random validators who are coming or joining the set you don't know if they're going to perform if they're going to double sign uh how they're gonna like how they are gonna work and all of that so the solution that we propose is um or we are aiming to build is uh comprises of it's a modular DVD based architecture uh DVDs uh something again like without a coined this last year

which is distributed validated technology so in the current world what happens is every ethereum node is being validated by single operator what if the same node would be operated by multiple operators uh so the Clusters that we are using right now is four operator clusters so imagine if one operator is down uh the other three can take over so what we are doing is we are making clusters of Professional valueters Plus homesteakers if ofse sanctions the professional violate us tomorrow then the homesteakers can take it over if homesteakers lose internet or have any issues then the professional violators can take you take it over so it gives us very high fault tolerance uh because the modular architecture we are able to plug

in and plug out a lot of solutions so for example any boost right now there is no clear winner in Mev boost there are still multiple Solutions out there we don't know which one is gonna be the best so our architecture is comprised of a solution where we are able to absorb multiple protocols at the same time so for example for DVD we are partnered with SSV Network and obol and we are able to use both the third one is super interesting uh vfps so now when I say DVD we are doing uh there are a lot of other protocols also not lot but quite a few who are also doing DBT uh and the lowest Bond requirement in the industry right now is four Eid uh that any DVD solution has

been able to bring uh clay stack has been able to bring that to zeroeth uh using this concept called vfps so what we do is uh imagine someone who has Capital who want to decentralize ethereum but also want to make money now there is a validator who has been performing on ethereum bunch of other blockchains for years um doing good for the community very tax tech savvy but at the same time does not have enough Capital to do any self-bond what if there was a way to underwrite this Capital which can only be used for this Bond nothing else and that way our validator set becomes extremely extremely scalable because now we are

not confined to a minimum Bond of Foreigner can join they have been performing very high uh and last comes like this L2 Norm which is every valid performance is not being kept in Secure centralized servers or whatever uh we are we are passing this data to layer twos obviously for cheaper transaction V but the benefit of that is now any underwriter Capital underwriter which is vfp can easily see the performance of any node operator they can earn highest amount of eth that they're earning right now the maximum they can earn is five percent Anywhere But Here any evaluator would be have happy to borrow this at even seven percent so vfps make money uh and the users make money so that ways we are able to solve this dilemma uh and uh

looking forward to revolutionizing the decentralized uh liquids taking space any questions okay great thanks a lot uh it was great