The Staking Router + DVT: A Seismic Change for LSTs | Izzy (Lido) & Oisín (Obol)

Transcript

all right everyone welcome back to another episode of bell curve before we jump in quick disclaimer the views expressed by my co-hosts today are their personal views and they do not represent the views of any organization with which the co-hosts are associated with uh nothing in the episode is construed or relied upon as Financial technical tax legal or other advice you know the deal now let's jump into the episode [Music] hey everyone welcome back to another episode of bell curve we have a very special episode lined up for you today so we're going to be talking to Izzy who is a contributor to Lido doubt and master of validators what an interesting title we're also going to be talking to ashine who is one of the co-founders at opal Network they along with other folks like SSV are pushing forth this idea of

DVT which stands for distributed validator validator technology super interesting idea similarly to the haasu episode what we're going to start with is kind of from a high level about why self and solo stakers are so critical to ethereum the credible neutrality and decentralization of the network and then we're going to be talking about how DVT actually works in practice how it enables more solo and self-staking and what that could potentially look like in the future we got a very interesting timeline from him so stay tuned for that uh I thought the staking router I'm going to shout out Izzy here I thought he gave one of the most intricate detailed descriptions of how the staking router is going to work in practice that I've heard anywhere else and we really got into the nitty-gritty of what some of these modules might look like and the

idea of an internal fee Market within that staking router which I found fascinating all that to say I'm going to do a super clickbaity thing and tell you you got to stick around to the end of this episode we talked about the potential of a restaking module within the staking router and that was I'm still sort of thinking about the the consequences of that part of the discussion so definitely make sure you stick around for that all right guys that's enough for me talking into your ears here let's get on to the show all right everyone welcome back to another episode of bell curve I'm joined as always by my Fearless co-host miles O'Neal today we are lucky to be joined by ocean who is the co-founder at opal and today I'm also joined by Izzy who's a contributor to the Dow and master of validators at

the lighter down so guys welcome to the show thanks for having us um super excited about this guys and really want to get into I think the the meat of this podcast we're going to be focused on you know we've been very focused this this uh so far this season on this idea of decentralization as offense and want to specifically dig into this concept of DVT and how that's going to integrate with the staking router but before I think we even get into into that nitty-gritty it would make sense to start a little bit at a higher level and I'd like to just ask the open question to the both of you you know solo staking is something that's seen I think as being very critically important to ethereum and the decentralization of the network and just kind of a high level question I'd love to get a State of the Union as it as it

is on the state of solo staking how important is it what are some of the design decisions that ethereum is making so just want to communicate to listeners like what is the state of solo staking today and how are we encouraging that moving forward yeah I can have a go at that I think um the state is solo staking at the moment is in a pretty good place or at least in my perspective it's starting to like turn up the words and start to like kind of see in a lot of growth I think over the two plus years that the beacon chain has been running at the very beginning it was you know very solo stake dominated there was lots of you know True Believers that were in early from Genesis and then over the kind of the course of a year to a lot of the growth

and staking has been more in the like big product life staking the liquid staking protocols particularly when there was no withdrawals and stuff it was kind of more like safe to lean towards a liquid representation of steak and but now that we have the merge behind us and distributed validators are starting to grow we're starting to see lots of liquid staking protocols in particular really double down on getting more and more solo stickers involved and um that's probably where I see things at the moment is There's A Renewed interest in getting more Solace takers involved and getting a lot more for client diversity in there than we currently are at so I maybe want to like toss it over to Izzy and see how he sees it from largest perspective but I'm relatively optimistic at the moment I think it's busy this has been any number of years

yeah I think actually makes makes a good point that we kind of started off with um all of like the the protocol diehards are like the people that really believed in this effort um who had also had the technical Acumen uh and that's kind of like the Genesis validator set which consisted uh majorly of solo stickers um and then we kind of saw a transition you know like as as proof of work ethereum and proofers they get here and we're running in parallel where let's say larger organizations or at least more professional staking organizations started to get um their their presence on the network largely because of like the technical Acumen and so it's much easier to start for example validating on a new network if you already know more or less how to

validate whereas for solo stickers it's kind of like a natural ceiling of how many people are technically able and willing to take a certain amount of like technical risk involved and with regards to running validators and also um putting that much ethereum at sake and I think there's like a couple of events that have happened since the Genesis of the beacon chain back in in December of 2020 that have really made it a lot easier for solo stickers to participate so um two of those are obviously two of the large ethereum upgrades that have happened so the merge itself and also the introduction of withdrawals that have like meaningfully reduced the technical barriers and risk surface area that solo stickers would need to kind of like be wary of um there are also like more minor upgrades throughout about this so for example like we started with Oxo

withdrawal credentials so like the so-called BLS withdrawal keys and now validators are spun up with ox01 smart contract withdrawal credentials that are a lot easier to reason about um and a lot easier to to secure and things like that so I think that has also made solo sticking easier and then of course we've seen a lot of maturity in terms of like the tooling and client software that exists around running validators um arguably in the beginning uh decline diversity wasn't so great because there was obviously a few clients that were more mature than others but since then we've seen not only new clients um enter the space but also like the the really really amazing Evolution and growth of a lot of the other clients so there's at least four or five clients that are almost at parity I would say both in

terms of features and in terms of how easy they are to use but we also have tooling that rests on top of or to the side of these of these clients you know it might be like Docker installations that you can use or front ends that allow you to kind of like set up your value later however you want to set it up with things like avato or dab node so all of these kinds of things coming together are culminating in what I would say is kind of like a reintroduction of of a new set of solo stickers to the protocol so people that have been learning about ethereum and proof of stake over the last two and a half years but also now that have much more tooling and knowledge at their disposal to be able to like be feel safe enough and competent enough to to dip

their toes in so we see that liquid staking Protocols are taking protocols in general are also meeting this kind of like renewed demand for solo participation which I think is vital to a network like ethereum um by adding new ways for people to participate yeah I think that's really well said and you see I think you touched on a critical component which is just reducing the complexity overall for solo stickers and maybe we can get into almost a setup of what a solo sticker requires today but I would love to also get a sense of you know sriram who miles and I are going to talk to on the next episode who's obviously the the founder at eigenlayer talks about Market forces actually you might have daps in the future that want and will actually pay a

premium for Block space that's more decentralized and perhaps run by solo stakers I think the idea here being that you know what I'm trying to get at a little bit is sort of the core reason why ethereum wants solo stickers which I'd always thought of as you want this to be a robust Network both and robust in in some senses mean it's geographically distributed and it's not easily shut down you know against some sort of government intervention I mean how do you guys think about the the sort of need overall for ethereum to be decentralized in the key role of solo stickers is that about right or are there other components that I'm missing there so maybe I can take a first stab at this and ocean can follow up um there was actually a recent podcast that Justin Drake was on where he had a take on this

that was perhaps a little bit spicy yeah that was good yeah so he basically said like the two most important things for um or I mean paraphrasing or at least the way that I understood it just so to make sure that he doesn't get mad at me um like the two most important things for like a truly decentralized um and robust like blockchain are censorship resistance and credible neutrality um and decentralization is basically the most Surefire way to get those things right but it's not absolutely necessary if you somehow find a way to get those in another way um to a certain extent I think that's true but I think um the fact that decentralization is so important and like baked into the ethos of a lot of these kind of initiatives and and projects that we're we're doing right to kind of like Revitalize Financial

infrastructure means that decentralization always needs to um exist at least in the form of the common person being able to participate in the network um as a buffer against credible neutrality or censorship resistance at some point being capturable or attackable um you kind of always need this uh security mechanism if you want to call it that or like perhaps in the parlance of like American constitutionalism like a Second Amendment right for for like a militia of people that are always going to be there to um uphold the values of of this kind of like digital sovereign and I think it also really ties into this idea of uh what we're trying to do uh with crypto right um the idea that everybody can

participate by helping disintermediate power and the best way to do that is by having as many people involved as possible um I know that that might sound a little bit contradictory coming from somebody that you know participates in the Lido dial but what we're trying to do um so like actually Mike I think this might have been a conversation that we're having a couple of weeks ago but there's this kind of like this idea like there is in Jurassic Park you know where there's this quote that life finds a way like money finds a way um so what all of these systems are trying to do um is ensure that there's like Risk Management and principled ways to let's say curb the most pernicious effects of the financialization of things while

empowering people to participate in these ecosystems to secure these ecosystems um and to have like a voice and power uh in everybody's Collective future and so I think to that extent that's why solo staking is is vitally important and why networks like ethereum that have to a large extent um bar some like hiccups let's say or technical design decisions that have been built around the idea that anybody should be able to run a node and that many many people should run a node uh is why they're so successful and have so much cultural mind share within uh blockchain ecosystems is he you just reminded me that I even secured your permission I love that quote so much money finds a way that that was going to be the title of this season and then I just forgot so I'm

glad we at least worked it into this episode because I like that idea so much of money finding a way and I wanted to start this conversation by just you did a great job uh just highlighting why solo staking is so important and I think one of the big the big hiccups to that are roadblocks if you will is just many there's a limited number of people who are competent out there to run the the sort of Hardware requirements and that's where I want to segue into DBT which is short for distributed validator technology if you hadn't heard about that before my guess is that you're going to continue to hear about that quite a bit in the coming months and years and Sheen you and Colin it at opal and other platforms like SSV have been pioneering this idea so can you kind of

just give us the broad Strokes of what distributed validator technology is and like how it actually accomplishes that problem of uh or that that solution of encouraging more solo staking yes happy to so distributed validators are the idea of running an ethereum or any other type of blockchain validator validator on more than one machine instead of them just being like one single server what's nice about this is you can then introduce fault tolerance where if you know one of your machine goes down you'll still be online and this is something we don't have in the web 3 and proof of stake space as of yet to my knowledge the vast majority of proof of stake chains your validator is you know one private key that signs messages and

you know different chains punishes downtime you know more and less severely but ethereum is one that will punish you if you're down for even kind of six minutes um so what distributed validators do most validators most servers machines die all of the time you know don't expect your server to stay on and not need an update and you know never need touching for years at a time um and if you're a solo sticker you're basically on call 24 7 365 and you know if you want to have up time like the professionals you need to have redundant Hardware usually ready to go if a drive dies or you want to be on call being able to be you know woken up in the middle of the night and if you go offline none of these are you know super

scalable for a one-man solo operator or something like it so when you have distributed validators and you're now working in group groups um if your node goes offline no big deal the other three will keep it up and keep it on this is useful you know just generally for having better up time the example I can give is I've been running as a solo Staker and as partly as an Enterprise validator since Genesis the Enterprise nodes I've deployed of 99.9 uptime you know for the last two plus years whereas the solo node is at about 97 because you know machines die and I'm not always around but with TVs the goal is that you can get you know up towards three nines and more of uptime and you know a group of home stakers should be as effective as you know your

professional load operators and that's kind of what TVs aim to achieve and it's the goal is that you know solo staking you know your models never go down so long as if a group of people working with you or Squad staking is often being kind of picked up with the aiming for it yeah I think that's kind of short description of distributed validators that's really excellent I I want to actually get a little bit more in the weeds with you here and one of the one of the questions that I think Miles and I want to drive drive towards here is just exactly not even in the the current state but the future state of how low could we get the hardware requirements implementing something like DVT I mean is there a future here where uh solo stickers could be running some of this stuff basically on their their cell

phone but before we get there I actually want to just make this a little bit more concrete for what Opel the protocol looks like and I know there are sort of four main components here so you know you've kind of got the DBT Launchpad and user interface you've got a new custom middleware client uh called car on I believe I'm pronouncing that correctly opal managers and then Obel Obel test net so could you kind of just walk us through the you know the core components of the protocol and if I missed anything yeah I just want to give uh listeners a little bit more of a concrete sense of what this is going to look like in practice yeah absolutely so I'll start up at the high level with the user interface or what we call the distributed validator launch pad so this came out of a problem where you know you want to work with

other counter parties but you know you need to trust them or at least you need to you know figure out what you're going to do together you're going to make a proposal um you know what are we going to validate how many keys are we going to validate on what chain you know is this going to like point at a certain particular withdrawal address is it you know in Lido or otherwise um so we originally kind of did all of this on the command line you'd kind of prepare this look at like long bytes of strings and stuff but it's really difficult to kind of be confident that you're setting up what you expect to set up with you know other counterparties if you're just looking at kind of output on a terminal so we developed the distributed validator Launchpad which is a spiritual successor to the ethereum

Launchpad that was you know put in place by um the ethereum foundation consensus and others at Genesis and the idea behind it is it's meant to be user interface to walk you through the process of setting up a distributed validator and um to use it you log on one person makes the proposal so they might say that hey you know Mike miles Izzy and myself we're all going to run a distributed validator together I paid in I put in all of your ethereum addresses I say we're going to make you know 10 validators and it's going to be on mainnet and we're going to send them all to this you know no so safe address and then I send you all the link you guys can eyeball it you can you know click view on each scan you make sure I'm not trying to send this to my ledger or trying to kind of bait and switch you

guys with you know what we're supposed to be setting up and once everyone is kind of approved and signed off that they like are happy with the terms and conditions you then move over to the command line and into Caron which is the like software client um Caron um is a middleware it sits in between your consensus client and your validator so it more or less is just an extra piece of software that you put on your node kind of like how Mev Mev boost you can add-in and one of the jobs it does is it will facilitate the key creation for your validator meaning um what's special about a distributed validator is there is in the happy path or the way we encourage people to use it is there's no one human with access to the private key instead the four of us would all come together we'd run a bit

of software and it would spit out I call it four one-thirds of a private key it's not quite exactly how it works but everyone like each of us have a piece of the private key and we need three of us to you know put together the full private key um that even you know day one has you in a much safer place and when it comes to getting compromised or if someone like stealing your private key and getting you slashed um and at this point yeah you're now looking at like you have a deposit data you want to activate that validator maybe this validators you know working as part of a liquid staking protocol maybe it's not maybe it's just a custom one and the open manager smart contracts I alluded to these are splitter contracts for the most part we have a few different varieties in the The Works

that we're hoping to kind of show more of the world soon enough but this is the idea of you know do we guys want to split this 25 percent each way are we all contributing different amounts maybe we don't want an equal split maybe we're doing this on behalf of somebody else so that somebody else gets 90 and we're splitting 10. and that's kind of where the manager contracts come into play and then the test Nets is tooling related to letting people run this and you know ensure that this is going to work for them get them to kind of learn how to mine DVS and work with one another so that they can do this in production so that's kind of uh well I will say that this is a tour of kind of where we're at currently with our you know obal as a protocol one of the things that we

didn't mention here more broadly is in the kind of earlier versions of distributed validators you need to trust your counterparties you need to kind of work together if miles goes offline you have to kind of hit them up on telegram be like hey man your node's offline can you go sort that out please yeah if you leave it offline there's nothing a whole lot we can do to kind of Force anything to change and but in the future we're working on uh succinct proofs of who is online and who was offline and that eventually it's like okay if miles is off for a week he gets penalized and we get all the rewards so we're not as upset if he's offline but that to do that in an ungameable manner that you know you can't kind of cheat is quite difficult so that's why we kind of

refer to that as our distributed validator protocol or kind of our future version where we get this you know it's all in cryptography there's no human kind of social air consensus going on I think that's a great overview of kind of where we're at today and you know and I think about the barriers to I guess making uh self-staking more more prevalent I think about one the hardware requirements um to the actual Capital requirements right and you've already made great progress in bringing that down from 32e and then three just maybe the natural incentives for for folks that are not you know naturally passionate about this technology and and decentralization of the network um but just starting with those first

two you know if I could ask you to look forward into the future a few years um I'm very curious to get like a sense of how low we could get the hardware requirements and as well as the capital requirements you know it's just something that one day we could run on our phone like like the Solana phone um or some version of that or or you know if I have one eth at some point will I be able to you know maybe mint an LST from from the staking router so I would love to ask you to project forward a few years and and 100 I don't even think it's a few years more likely um so the first one of running on a phone I think you make a great point there this is something that distributed validators I think is you know very

beneficial for there's been lots of people that have worked on you know building clients to run on very low resource Hardware but you know you don't want to cut it too fine you might say or like at the very extremes particularly with mobile you know your internet is connecting disconnecting you're not going to be on 24 7 365. so we think running low powered validator nodes is much more suited to like running a distributed validator than to run you know something like full solo and particularly if you're a solo Staker trying to run this all yourself you're like I want fault tolerance but I you know don't really want to run some give it to someone else it's like cool I run on and you know my house my friend's house my phone and you know some other thing and that's kind of how you kind of have lots of fault tolerance and then on

the capital requirement side I think that is also something that can be mitigated by distributed validators because you don't have to have the same amount of bond if somebody isn't like you know God mode over this validator and have total control if they're just kind of you know one piece and you assume that even if they were offline malicious you know worst case scenario they're you know not harming the validator too broadly so long as there's not a few of them that are offline it really reduced the risk profile of actually bringing them in and delegating some other stake and I maybe want to throw it over to Izzy on that regards because collateral requirements for staking is a kind of a a big you know testy subject when it comes to like delegated staking and should validators be collateralized you know lighter

famously is not but they have you know plans both for collateralization and also for how solo stickers can get involved with and without collateralization um so they want to see how he thinks about TV reason its impact on hardware and collateral yeah absolutely so maybe even going back to like one of the original questions which is um what is the presence of you know solo stickers on the network right now what does that mean for the network what are the barriers for first for solos taking existing um because that ties into like the whole question around bonding requirements so uh apart from like the technical complexity and and the operational complexity um which is much reduced and also the technical like surface risk um which is also much reduced due to the the recent ethereum upgrades um we contend with the issue of like

Financial approachability of of the Enterprise of running of elevator right so obviously if you were solos taking um you needed to not only have uh 32 each in order to be able to run the validator but you needed to have it like in the beginning um so it's really hard to like borrow it and then run a validator um and so what a lot of liquids taking protocols basically did was allowed people um to participate in the grander let's say uh Collective Enterprise and not in the sense of a business sense but like a community effort of um securing the ethereum network without necessarily having the that minimum 32 each obviously distributed validators like like oval is working on or even like SSV is working on allows users to do this by putting their money together

so like you split the 32 each into multiple smaller pieces of a deposit depending on how many people participate in the cluster and then therefore you can have like Collective participation of one full node via more participants as opposed to you know one person needing all of that capital and then you also have like permissionless liquid staking models um like rocket pool which also has been very very successful in terms of adding net new node operators to the network and I think this should be lauded for that where basically you had a capital a collateral or Bond requirement where a node operator or at least a capital allocator associated with this node operator puts up a certain amount of money and then the remainder let's say of the balance on that validator can be can come in from inject injection sorry

from injection from stickers so normal people who would participate in in lsts in general when we started with and by we I mean like in in ethereum seeking as a whole uh with permissionless bonded validators this bonding requirement had to be very very high right um rocket pool started with 16 Eve and now we've seen that liquid staking particles have started to reduce this bonding requirement based on a number of different factors so one is obviously the maturation of protocols themselves but also the underlying Network layer the second thing is that there are upgrades in the works that will potentially make it so that if a node operator like disappears or is unrespondent or like loses access to their validator keys for some reason

um the network will be able to issue a command that is validator via the execution layer which means that liquid seeking protocols can do this via Smart contracts to eject these validators right and so we call this like triggerable exits and this isn't an EIP that will help fully calm sometime next year a couple of hard Forks perhaps after after dencoon or maybe even they meet at hard work after dencoon um and there are so so let that in concert with a lot of other things for example that historically we actually haven't seen that many slashings and slashings um it's very very difficult for them to ramp up to the amount of like slashing a full 16 not a full 16 but up to 60 needs on a validator has basically LED protocols to do like a risk adjusted uh implementation of what is the sizing that Bond should be so obviously like

the main thing that reducing bonds means is that you lower the barriers to entry for interested participants right um it also means that there's a corollary that the people that have already put up the bonds can basically just multiply the amount of validators that they have using the existing Capital by Rolling It Forward um but that's also not necessarily negative providing that these people are actually you know like independent node operators and smaller organizations and distributed validators adds like an even more kind of like interesting aspect to this um if we get to a point where risk analysis for example after we have eip7002 which is the triggerable exits uh functionality that we were discussing allows you to exit validators and this

happens let's say within a year and everybody collectively believes that this will happen within a year you can say that on a worst case scenario if a liquid sticking protocol were to launch with a very small amount of bond um like let's say for eth or less and that this upgrade happens within a year realistically speaking like it's very unlikely that such a large amount of node operators will go offline um that that amount of money or loss that the cost of the protocol will be so so substantial as to not take that risk to lower bond that much and DVS allow you to lower it even more so if you say that you have four if bond for another for a validator um you could split it across four participants for example like in a three or four model like ocean was saying or you can split it even more into like a

five or seven model but you can maybe even say that due to the fact that it's so much more difficult to get three four people let's say or three people because that's the consensus threshold to align on doing something nefarious we we lower it even more because this idea of you know like multi-party agreement needing for for something to happen it's a lot easier to make people agree for things that are like mutually beneficial and a lot more difficult for them to agree on something that's like malicious or nefarious um so that even unlocks another potential in in further reducing bonds and further increasing let's say the breadth of economic actors I.E solar stickers that will would be able to from a financial perspective and interested participate I think that's that's a great overview

um and you can see the direction we're going here but I think I've kind of one more question before we move on to the staking router and that is like once we get these barriers as as low as possible both on the hardware the capital um then it becomes a question of you know how do you like productize or package this in a way that it with a value prop that resonates with you know a larger population of users maybe Beyond this kind of crypto native um and and very passionate folks about ethereum right it's and I'm just kind of thinking out loud here but you know is there ways that you could make an app better if you are running a DB you know on your phone or something app something else like that or is you know it we've talked a lot about the principal agents

problems associated with you know lsts you could argue that you know you mitigate a lot of these problems by minting your own lsts you know as as part of a permissionless set and so yeah just curious to hear you know early thoughts on like how you plan to to Really frame this value prop to it to a larger set of users yeah I think I'll start with that one and maybe the first thing I would say is that the value prop to different Staker entities is quite different not everyone kind of sees the same you know pros and cons in DVS and we've talked a lot about the solo stake here so for those guys it's you know high up time for my own note if I'm so lucky that I have a full validator or a route into the liquid staking pools if they don't have you

know the ether the collateral to either have a follow-on or to have you know the bond for some of the other protocols so that's kind of the the solo stakers um benefit the benefit to the liquid staking protocols I'll touch on maybe lightly maybe as you can expand on but for those like protocols it's about de-risking you know the stake that they give to their operators right now they have to have like they're making of you know a big amount taking a huge amount of trust in like the operator that they like allocate you know millions of dollars of stake to and there's currently forces them to pick the like reputable big brand name you know Noah going nowhere type of node operator but they'd much rather push the kind of extremes that and go down the kind of to the more solo sticker but it's kind of hard to take that risk if they have

total control and then the one we haven't talked about is maybe the more centralized operator which you know does exist in this non-trivial part of the like stake in ethereum for these people distributed validators is more on the cost side and the other operational side is what they really gain um having cheap software-based fault tolerance um really can impact their operations particularly in how they've deployed a lot of decentralized providers because there's no safe way to run a backup have not moved towards more bare metal or on-premise machines and instead kind of stay closer to the cloud side because of the machine dies in the cloud you can kind of press a few commands and detach the the disk or the private keys and be

like cool I'm like back in charge of that private key whereas if it's on like a real machine and a real server somewhere and that thing dies you can't talk to it you can't get to it you need to like plug it out at the wall and so most of them haven't gone that way um but with distributed validators they can you know move to more on-prem they can kind of come out of the cloud they can keep all of their keys with separate people they don't have you know one human that has kind of the keys to the kingdom and even when they're like upgrading versions they don't have to take their software offline and they can you know do general maintenance the one I always talk about is you're not you know pinging your devops in the middle of the night to be like hey even how did

you need to get it within an hour for our SLA it's like oh we've lost one fix in the morning okay we've lost two hit the alarm get out of bed but for the most part yeah they can save Hardware they can save risk and they can save operational expenses with TVs um and that's you know generally the case with mostly others as well but yeah there's no one benefit for everyone I guess each each kind of type have the different kind of pro and Contour there's a really interesting point you brought up um to the end in terms of like we're gonna have to seriously reconsider like what kind of alerts wake us up in the morning um because if we're running a fleet of distributed validators and our alerts are still like uh you know the validator is has been down for 15-20 minutes that's like catastrophic it's not it

means like there's at least two people out of four you know that are that aren't doing their job or three people out of seven or something like that um so are we gonna really need to change how we do our monitoring and alerting but on the other hand it also means that we'll have to wake up a lot less than we do right now yeah that's the hope yeah nice that's a good goal as a lover of sleep I I Am pro that idea so I I wanna I wanna transition here into talking a little bit and just sort of set the stage for why we're talking about self-staking and DV technology within the context of the staking router and Lido and one key theme of the the season I think hasu Put It Best in the last episode is this idea of decentralization as offense especially for protocols like

widow or other liquid staking providers because lydo does something that's so core and close to the metal of ethereum that in order for it to continue to grow its market share and continue offering great services to folks that want a stake we want to make sure that it's as decentralized as possible and there are two key ideas I think we really want to dig into the staking router a little bit here but I also want to Izzy just poke at you for sort of a high level on Dual governance between Lido and and Steve as well hey everyone we've got a great episode here but before we do I just wanted to give a quick shout out to permissionless this is the biggest and best conference in all of defy it's the one that we do with bankless who's a great partner for us last year we had

almost 7 000 people there in West Palm Beach we are moving this year to Austin Texas from September 11th through the 13th and if you are a listener of bell curve any of these last five seasons this conference is basically custom made for you we're going to be talking about liquid staking the theme of this season we've got a bunch of great panels on Mev if you listen to the app chain thesis we've got a bunch of Cosmos folks out there in full force we're talking about the converging architecture of Solana the roll-up space in eth and Cosmos so I would love to see all of you there and to reward you for being such great listeners to bell curve you get a special 30 off code it's bell curve 30 that'll get you 30 off tickets click the link in the show notes and then head

over to the permissionless site and make sure that you get your ticket today again that is bell curve 30 click the link in the show notes but let's get into the nitty-gritty of the staking router and you know for context this actually went live so Lido V2 is you know the exact date but I think it went live a couple months ago and that introduced withdrawals and Design idea of the staking router and I actually before we even get into what that is and how that you know we've been sort of teasing the how that applies to DBT and having different modules I actually want to get a sense of how things worked before so we get a sense of what the original state for something like Lido was and then how the staking router is going to be a massive Improvement there and I've actually got for you here if you bear with me while I share my screen

a helpful diagram that maybe we can walk through and for folks who aren't listening I can try to describe a little bit about what this is but it's a it's a diagram of some of the core processes of of Lido and so easy if you wouldn't mind just sort of walking us through this diagram so we could understand how it used to work within Lido and then we can go through the shift that that has taken place with the introduction of the staking router and just explain what that is sure um so oh let me try to read through this diagram now uh basically the original version of the lighter one ethereum protocol uh was what we call now the curated operator Set uh it consists of a node operator registry that is made up of a list of curated IE permissioned by the

Lido dial meaning that they were proposed of the Dow and the dial ratifies the acceptance of these node operators joining uh as uh users basically they can use the protocol but on the validator side um and this node operator registry creates or the participants in the registry rather create validators um undeposited too so just the validator keys themselves and and the deposit slips they submit these to a Don chain software the the protocol through the node operator registry and this creates a buffer let's say of validators that are waiting for deposits when a user goes to the lighter smart contracts either via a friend and like Cloud identify or just by interacting with the contract directly they submit if to the

Lido on ethereum Smart contract and this eth goes to a buffer basically and whenever there is enough if in the buffer for it to constitute a certain increment let's say of a whole number of validators I.E like if you have eighties and you can't fund a validator with that you wait until there's multiples of 32. it gets deposited to the deposit contract on the execution layer side meaning like the ethereum 2.0 uh as it used to be called uh deposit contract where all of the stake teeth goes and actually it's this is really interesting like accounting uh thing with ethereum where all of the state data is just sitting there on a contract on the execution layer um and basically gets uh deposited at the same time or mapped

to a certain validator key um that has been input into this this buffer ahead of time uh by node operation or operator registry so there is a staking allocation mechanism that happens uh behind the scenes on chain like none of this is off chain whereby the node operator with the least amount of currently active Keys is always prioritized for news sake what this means is that operators that joined the protocol earlier so for example like when the protocol started uh back in December of 2020 or January 21 um if if say that they're all running a thousand each validators each right now and there's a new cohort of node operators that join the new node operators get all of the new eth provided that they have submitted validators to the buffer until they

catch up with the previous cohort and then it's like a round robin fashion um this was a design decision that was purposely made to basically distribute um stake if as fairly as possible across the entire node operator set so we find ourselves uh now you know on the 13th of July 2023 like two and a half years later uh the node operators uh the curator registry basically consists of 29 operators right now technically it's 30 but the two merged in a business or fiscal sense sometime after they joined as node operators and so the protocol treats them as one um and there is a really really good distribution of stake across the set so no one node operator has vastly more amounts of stake um being operated through them as a

result of you know like Lido State def demand then then other node operators and unless they've specifically for example chosen not to add more valid letters and there might be business decisions behind that are scaling decisions bad and that and Etc um and just one thing to note is that so after if it was submitted to the lighter contract and before it actually gets deposited um there's two kinds of like uh off-chain things that that happen one is a deposit security module um and the oracles these are off-chain mechanisms that end up having on-chain impact uh so the deposit security module is basically the bot that determines when to uh deposit new if to these validators it looks at a couple things like what's the current gas price so you know if gas is in the hundreds maybe it won't do deposits until the gas goes down a bit and it also double checks the

Integrity let's say and the correctness of the data that has been submitted by node operators so that's something incorrect isn't done and the oracles are responsible for reading obviously the balances of validators on the beacon chain and this is how the whole rebase mechanism for for sdeath Works um but from a uh staking perspective they're also responsible for making sure that the contract has updated information with regards to like how many validators each node operator is running in terms of how many are active so this was this was V1 and the the kind of like large Improvement that I would say that happened here as there was which is one of the two main components of uh Lido V2 which was the upgrade to the light on theorem protocol I think on the 15th of May so one was obviously adding the support for withdrawals and

the second one was the framework um for the functionality of the staking router so the sticking router itself is kind of like an architectural decision about how the lighter protocol should work it took what was previously happening in lighter V1 which is this curate node operator registry and it encapsulated it into the first of eventually I hope many modules um that might be built by lidocontributors might be built by Third parties it might be built by some um conjunction of the two or or collaboration of the two and basically transforms um Lido from like a very very specific thing into a thing that allows you to create plugins that attach to the main set of of light or smart contracts and then therefore allows Lido to work more

like a Marketplace of stake allocation rather than like a very specific thing so when a user goes and eventually let's say deposits eth into into Lido uh as it is right now the staking router will make allocation decisions for which modules the stake um should go to it'll do this at least in its first iteration once there are new modules right now there's only one module it's the current uh curated operator registry um it'll do it in a very similar fashion to how it it allocates stake between node operators within a module so let's say that there's a new module that's created tomorrow this module is running using distributed valid bidders and allows solo stickers to participate this module will have a

total maximum allocation threshold which is in terms of the total amount of stake that flows within the lighter protocol so let's say one percent of stake within Lido this threshold will be configurable and manageable by the Dow itself and so if the new module is created tomorrow and it has uh zero percent of Total light or stake in it and its maximum threshold is one percent all of the new stake that goes to uh that gets added to Lido basically will flow to this new module in this until it reaches that one percent once it reaches that one percent the curated Operator Operator registry which is like the Mainstay module will act as like like a a bucket and pick up any additional stake until the Dow either adds new modules or decides to change what the maximum threshold

um for the second module is and this process will repeat as more modules are added and um can even change it depending on um sorry if you add modules that work slightly differently but maybe we can get to that a bit later so the main change is that V2 brings the staking router and the staking router is a framework for designing validator sets that can attach to the lighter protocol so instead of saying we will have one Vault that works this way one Vault that works with permissioned uh node operators that do not postpon so one mod one Vault that works with non-permissioned operators uh with a strict Bond model we create the staking router which allows you to design your own vaults and then these vaults can be attached to the lighter protocol based on the Dow decision so the Dow would

need to do like a security assessment a risk assessment and probably some sort of like smart contract audit to figure out if it's safe it would then assess the economics and the tokenomics of these proposed modules and then once they're added it can manage what the stake allocation to these modules is that's is a super helpful question or explanation there and we're going to get into a whole bunch of different questions there one other way I think it was helpful for me to think about this and if you're a little bit more financially minded or comfortable looking at a balance sheet we're actually looking at a very high level illustrative sort of version of a balance sheet of Steve both before and after the staking router gets implemented this shout out to Adrian from Steakhouse Financial this comes from a blog post that he wrote but it sort of shows you this this idea of the

you know the assets and liabilities of Steve you know pre-staking router you see that it's the asset is all this this one big green block which is State either in the curated validator set or the whitelisted validator set that that lighter used to have the liabilities are Steve because that can be withdrawn and then there's a surplus which I guess is kind of like the Insurance Fund or maybe the treasury or something like that but there's some Surplus in the case of a slashing event or something like that now we've sort of seen a transition you know in Lido V2 as actually happened and with the the staking router instead of the the assets of steath being one big green block you can see there'll be multiple different blocks of different types of validator sets so you could have professional node operators maybe that's the the whitelisted set that we

have today but I actually want to the first question that I that I have for you guys is like if you had to take a a poke or a guess at some of the modules that we could expect right one is is DBT and this is finally how we're going to connect right this idea of the staking router and DVT because that feels like an obvious module there also could be I know in the um the blog post on hackmd that light out what they suggest there could be a community uh set as well dowels feel like another obvious fit uh perhaps uh even like in a more institutional set of validators something like that so I'd love to you know Izzy I I know this is all you know very new and you know there's probably some stuff that you might not be able to mention as your

position as master of validators but like could you kind of give us a sense in of of the diversity of what some of these modules might actually end up looking like in practice yeah that's that's a really great question so and like all of this is still to a certain extent up in the air because uh the way that it'll work from a governance perspective is that there basically needs to be a module design presented to the Dao uh it'll kind of look like a like a technical architecture design record probably with a company uh technical specs and maybe even like a business case and then the Dow decides whether these modules get get added or not but the the really kind of like important and the linchpin here is that although the diagram we're looking at kind of separates like you said like the assets column into

different node operator classes so professionals small groups Dallas solo stickers and things like that modules themselves get are more like like channels for node operators as opposed to segments of node operators like what do I mean by that so if for example um there are modules that use distributed validator infrastructure and I think there will be like a lot within the next 12 to the um 18 months and buy a lot like I mean three to four which is quite a lot if you consider that one module right now houses uh all of this like hundreds of thousands of stickies um operators that are both professionals or solo stickers or like dials that want to run validators as a community will be able to participate in these modules potentially or the module might say that

actually this is a module purpose purposefully built for like you said like high class energy integrate uh level operators that all operate using like saktus and ISO certifications and are fully insured and stuff like that so the modules will be able to come up with like different um design decisions for which node operators can participate in those modules and how and that's also something that's really really important for third parties that might be looking to build uh the modules because they can either add like their own um kind of like spin on them or they might want to integrate them into like other networks somehow or you know empower the users or the operators in some other ways but it also allows for like this cross-pollination of operators between the different sets so you might

have an operator uh just like any professional node operator that is in the current curated operator set and then they might also 101 distributed valve there's another module that's going to be possible and the staking router will basically be responsible for making kind of like this risk adjusted allocation between these different modules I think that's a key point there um that I'd like to double click on and that you know you could see participants of the curated also participating in the DVT and maybe more solo Staker sets um and I just want to get it kind of like the the benefits of that and I think about you know the risks uh for the speech holders of you know opening up the the validator set to solo stakers is that you know you take on more risk that you you know could your teeth could be

slashed right because you have less institutional operators of these notes um but is there a way to de-risk this expansion by perhaps like clustering a you know a a node operator like chorus one with a bunch of you know solo stakers and that way is you know as long as the institutional you know uh node node operator is is running then it can kind of protect I guess the other DV you know solo stickers in a cluster that's that's a really really great question um and so there's a very large segue here obviously to the kind of stuff that ocean is working on in a noble so I'll let him take that part but um I hope the professional node operators don't go and pretend that

they're solo stickers I'll get very mad if they do and like I'll know uh because it's my job to know but um the idea is that yes you should be able to use different combinations of of different operator types or classes to minimize either the risk that a certain cluster and the validators that they run poses to the protocol or the impact of something going wrong right and you can choose to either minimize both or one or the other and then find different ways to do that and it's up to the designs of each module to figure out how to do that and it can range from anything from like bonding requirements um that might be very basic and linear if you're talking about like a completely permissionless solo module because that's the safest way to make something like that work to more exotic things where if it's like

semi-permissioned or you have operators that are not necessarily by seeing themselves but prove that their their identity to the extent that it's provable that they're not also another operator right not necessarily like it's Joe in his basement in Montana but that it's not um you know chorus one or something like that and come up with like exotic non-linear bonding requirements or maybe say that if you can prove that you provide on-chain insurance for all of the validators that you're on then you don't need a bond but that the insurance is available or like and I this is why we're talking about DVS you cluster them together in DV clusters of different kinds of makeups and I'll let ushin talk about that and because all of those can offer different like technically risk adjusted ways to approach this problem

yeah so I'll pick up their um starting with the challenge of the totally permissionless one and the bonded one and as easy alluded to it's like it's very hard to figure out if someone is actually two people and they're not actually just civil attacking your network so if you're trying to you know only let Max one operator into the solo class you don't want them like you know getting 10 applications in you can do things like bonds but as you said you you end up looking at like the data you're trying to do statistical analysis be like they regularly have outages the same times these other people they might be related but it's very hard to kind of prove you have to kind of get quite subjective about it um so the idea of starting with totally permissionless we don't know who you are so long as you put up a bond it's probably fine it's definitely going to

work that's you know a bit on the like more extreme end and we've been you know working with the Lido team on and off for more than a year I think at this point and like kind of getting towards that like Direction and one of the things we've looked at is what you've alluded to of mixing solo stakers with the professional node operator set and I think we can talk about this but just over the last few months we've finished up some testing with about 40 um node operators and maybe about 12 of them being from the professional like curated set the other 30 or so being mostly solo stickers and we put them into groups with half curated half you know solo stickers and the nice thing about doing half and half is if you need

two-thirds of them to agree to anything you have quite a lot of comfort that you know at least some of the curated side agreed to it or you know the curated side also don't have total control anymore they need at least some you know solo stickers to get involved and agree to things so that when we talk about you know some of the earlier modules when you kind of go from you know we want DVS but maybe we're not you know putting this totally like putting an algorithm totally in charge it's let's have one with a mixture of curated non-created we'll give them a certain amount of allocation let's see how that does and then you go fully solo Staker and then you go fully solo Staker and it's bonded and permissionless and we don't know anything about you and you can kind of work your way out that kind of decentralization

I think that's that's really interesting and I I also want to kind of poke at some of the the different sorts of um I guess the flexibility you have within each of these modules um and I think about you know also on the fee level you know something like a a protocol like like maker which is very closely intertigned with with Lido and a big distribution channel for Lido you know could you see something you know like a a like a REV share right that is done through customized fees or something like a kickback for um for maybe protocols that are power users or other distribution channels that that also you know want control of their own module and they also want to see some of the economics of you know the Steep that they are bringing in

um to the to the overall you know validator setting yeah that's that's definitely one of the things that uh was purposefully kind of included in the broad nature of the way that the modules are designed so even like the the total fee itself uh you know like the Top Line fee which is 10 isn't set in stone technically although practically um personally at least I think it makes sense it's neither too high nor too low um and I don't think it makes sense messing with that right now in the immediate future but down the road um as protocol economics change and obviously or hopefully I guess and this is not a financial advice but the value of if also probably changes um the the 10 fee like might make sense to change it to something else but

within that um the share itself between what goes to the Dow if any what goes to node operators and what goes to potential third parties that are also included in terms of making sure that this module runs well or like you said is that is a distribution Channel um there's a lot of different ways to approach this and it can range from for example them getting a percentage of that that that fee split um all the way to something like secondary collateral right so the there's a lot of permissionless staking protocols that uh I don't know if they offer the option but so most right now like require a secondary collateral to eat um I did in my personal opinion I think like eth um or at least the staking token itself like the LST uh SD Ethan in

lighter's case is like the prime collateral um and probably shouldn't be substituted for something like this but from a complementary perspective it might make sense uh in certain cases for certain modules um to add collateral and for example node operators that post collateral in the secondary token might be eligible for something like uh increased reward share or you know it's it's akin to like staking that that token whether it's a utility token or a governance token or something like that and allowing module designers and creators to play with those kinds of like Financial uh aspects I think a allows the modules to kind of be seen as like business cases on their own so that we can find sustainable models for how do you create validator sets but eventually and this is um to

the point that you brought up that hustle mentioned in the previous cast the idea of developing a fee Market uh for uh validator sets and but I think fee is perhaps like constrained but like one more General market so you can say that this module offers this this and this and that might be you know like fully kyc uh operators or um operators that run all of their validators like in in green data centers that are not the cloud or something like that and then eventually either the protocol um or users themselves although technically right now it is the protocol because for the moment we believe that like an opinionated proxy for for user decisions here ends up working a little bit better like if you look at delegated proof of stake in general it ends up very top

heavy so we're trying to ameliorate some of those um kind of Side Effects by Distributing stake in as Equitable a manner and in terms of like prioritizing certain things for robustness like you mentioned earlier miles like geographic distribution um jurisdictional diversity and and obviously like software and infrastructure variants as well um and and eventually if you allow these like modules to compete against each other but perhaps within certain like bounds or limits so that you don't drive uh fees or or rates or rewards rate as like the most important thing because then you will end up with um like Corner cutting and stuff like that I think we'll be able to find that the design space for creating your own modules allows like more sustainable

mechanisms to to be created is he either it's I have a couple questions for you on that which is that that idea that also introduces sort of a local fee market for Lido similar to how ethereum has I think a very elegant fee Market frankly is very interesting to me I want to get a sense of you know what are the market forces that are going to shape fee markets within Lido and what is governance ultimately going to be responsible for because I kind of see these two conflicting forces here where there's sort of a free market rate between people who want uh access to a specific set of validators and this could be sort of the SRI Ram idea of maybe there's a premium on the Block space or more decentralized validator sets using DVT like opal or SSV but then on the other hand um I could also see governance right

trying to have its own I'm trying to get a sense of what is going to be determined by the free market right versus what does Lido governance going to be responsible for so can you give me like a sense of how you see that playing out yeah to a certain extent the free market is going to determine that and I.E that is lighter governance because like anybody can go buy ldo and have a hand in uh or have a say rather in in determining that outcome there is no um decision on this obviously because like the Dow hasn't voted on it right I think at least for my personal opinion what's happening right now is that there's an exploratory phase um we're trying we being like the current set of contributors that are working on this we're trying to determine what ends up with the right

balance of sustainability um and robustness but at the same time also being like appeasing to uh Capital efficiency right you don't want to go too much in One Direction uh where you sacrifice Capital efficiency to the extent that like you have you have ceilings on uh the total amount of like Supply that you can you can meet because that demand will end up going elsewhere um and that those other parties might not have the same considerations or principles that you do um and on the other hand you also don't want to go too much in the other direction and make everything about competing on price so I think the the protocol's job here at least from my perspective and like this is this is what I believe in espouse is that it needs to set up the right let's say risk-adjusted safeguards for what a

sustainable validator set looks like in the future and that hinges upon like the things that we talked about in terms of like what makes a decentralized validator set and how do you maintain credible neutrality uh and and censorship resistance in the network and if the Dow eventually um sells on a protocol where users can choose specifically like which validators there their state goes to it needs a balancing mechanism to prevent that like let's say possible lopsided decision making from affecting the overall protocol so if you make it so that like anybody can choose where their state goes to as opposed to like how it is right now it needs to be able to countermand the additional risk for doing that so if at some point somebody comes with like gazillions of dollars right and says I only want the stake to

go to this one node operator that might put the rest of the like protocols like fungible tokens at risk so the protocol itself should have safeguards um that rebalance the stake in a way that makes that as difficult as possible to happen I think that makes sense and it it touches on a theme that we've been talking about you know first that decentralization is offense um with liquid sticking protocols but also governance minimization is offense um and it it I think you're touching on a tricky balance there because if you really were to let you know put this decision in the hands of the user or maybe you know put this decision on the supply side where you'd say like these modules bid what the lowest possible fee that they would take right to to for the to get the deposits to win the deposits

Natural Market forces just move this towards you know most of that stake going to the largest operators um and so yeah I guess is it fair to say that you know while there's some you know whether it's Meb with PBS you can build that into the protocol and and basically you know ossify it completely the uh and the parts of the even the Lido contracts you will be able to ossify at some point but is it fair to say that maybe the you know monitoring the allocation of deposits is something that will you know never be able to be completely you know basically ossified or or left to the free market or the user choices yeah I mean never is a big word um I think that that eventually there so

there's research being done on this end it's it's public so like I'm not saying anything secret um we've like a specific set of contributors have been working on this with another mind research team we discuss it with node operators like almost every day and with uh other parties in the ecosystem like like obol um and even with with other staking protocols right the the difficulty here is trying to come up with um a semi-autonomous mechanism right like you don't want to keep touching this and you don't want to like having to grease the wheels like every every couple months uh that runs well enough um and that at the same time is not like let's say exploitable under uh bad weather scenarios and the latter part is what's really really difficult especially with permissionless systems

so uh stuff like DV is is amazing and at some point if distributed validators end up being as battle tested as we hope and we think that they will be it wouldn't be surprising to me if most validators are run uh in a distributed fashion but you can't just say because that validator is distributed that I'm contending with uh end parties now instead of one right like four or three um the permissionless nature of of what we're trying to build eventually means that it's very possible that these four parties may be one um and that will be very very difficult for a protocol at least from a purely automated on-chain perspective to discern that they are it is one and not four or three or two um and so to a certain extent I think there may be uh kind of like bumper guards that you have in like a bowling

alley that might need to you know write the the ball every now and then um but the question is making sure that those are put far enough away that they only have to come into play very very um seldomly and not in a way that in danger of the protocol and one of the key ways of doing that um and we're kind of going back to the question that you mentioned earlier is like this idea of dual governance so dual governance is all about how do you address like this principal agent problem where the the protocol that is basically responsible for making certain decisions May or not make or is governed by actors that may or not have may not have exactly the same interests or at some point diverging interests um with the the holders of the liquid staking token so for example in this specific case like LD holders versus

Steve holders so the the idea of dual governance is a allowing for sde folders to have a veto in the case that these incentives meaningfully diverge but also a way to let's say like meter the the possible like worst case scenarios that can happen in a protocol right so it's not only important for people to be able to to veto if something bad might happen or something that don't agree with might happen but also to delay whatever needs to happen long enough so that the people don't agree with it can exit gracefully versus you know leading to a kind of situation where everybody's running for the exits even if they might not need to that it ends up having like unintended consequences down the line because we're we're talking about D5 year right

there's no accounting for how people use uh the tokens that are theirs in a completely permissionless system and so you you want to create systems that um make make it clear that like if if something bad might happen uh or something that they don't agree with they have adequate recourse basically to to say goodbye and do so in a way that doesn't put anything at risk yeah we could go down this this whole Rabbit Hole of dual governance I I have a couple couple more questions for you on sort of the ossification of the protocol and I want to actually lead into a a a restaking question because we're going to have SRI RAM on next week but one one metaphor that has been um been miles and I've been playing around with a lot this this season is is uh actually like the App Store and if

you look at the development of the app store right it actually kind of started out as this one thing that wanted to be a little bit more permissionless uh but ultimately what Apple decided one is they wanted to give their users a better experience and they started having like higher barriers to entry and requirements for developers because the ultimate sort of Market factor or Market uh determinant for them was wanting to provide a good experience and Izzy that's the question that I want to ask you and open it up to ashine as well is just try to get a sense of like how permissionless can we get here because at a certain point if we just let anyone become a validator right if the if the staking router was to become so permissionless that that anyone could kind of do anything then you could risk some adverse consequence for let's say

steveholders right if you had irresponsible validators who risk getting slashed and then you know the way that the pool is currently structured everyone would sort of get punished for that so that's my sort of question for you is how permissionless can we ultimately get here and where does the line sort of exist so ultimately uh and we're talking about like I don't know four to six year Horizon from now I think we can get my permission list until then there's a lot of work that needs to be done um some of the core problems to contend with in the space are obviously like like civil attacks which we mentioned earlier um the idea of like how do you fight these when they happen or at least minimize their impact when they do because that's the most likely scenario that that they'll happen and then you

just want to make sure that the protocol is robust enough to withstand them um when they do and um the the second aspect is and and this kind of goes through the whole idea of building like on-chain identity and not in the kyc sense but in the sense that like anybody can participate to the extent that we can make sure that they're not also somebody else so there's a lot of data that you you would need to bring either from on chain or like a side the chain on chain so um for example like we talk about things that happen on chain right but the gossip Network itself itself is not on chain um so validators are not like aware of the physical location of of other machines that they're talking to those things to a certain extent will

always need some sort of like proxy for like meet space um and right now that proxy uh is governance eventually when there are are mechanisms to bring enough of that data on chain so that um these protocols can reason about it in a sufficient manner it doesn't need to be foolproof but it does need to You Know cover like 90 of cases um then we will be able to reach systems that are like either semi-autonomous or almost fully autonomous with very very few safeguards or let's say configuration parameters being tuned by something less like a governance mechanism I would say and more like caretakers got it um in oh sorry machine

well the one thing I was going to add to that which is I think permissionless is quite achievable but I think the one that I'm more skeptical of is Market forces driving like Risk parameters and stuff and being like Oh yeah we can just look at you know redemptions and we can look at people's like what they want and assume that there's kind of some natural place like put risk and stuff I think what a lot of times is very hard to appreciate is how Black Swan staking is in that like when something bad happens it'll be you know non-linearly worse than anything that's come before there's not going to be some data of oh yeah you know they started to decline in performance so automatically we reduce their like Risk and their tolerance it's probably going to be everything was fine

until it was unbelievably not fine um so you can still do permissionless but I don't think there'll be like a market price of like finding a clearing price that is the price of risk or at least not not an accurate one I think yeah I using that's such a good point and one one maybe this is uh you know we can end on this and it'll be a lead into our our next interview is the possibility of a big theme that we're exploring the season is sort of the intersection in between something like liquid staking and restaking and frankly the first thing that sort of comes to mind that is at the same time very interesting but I could honestly being very problematic is something like a restaking module within the staking router on Lido and I just have a lot of questions about how that would mechanically work for instance if the

middleware that um that you know we stickers end up running get tokens that are denominated and not if I mean how would frankly something even like that work but then also the bigger question of you can imagine right now it's the bear market and everyone's being very you know frankly rational and you know concerned with things like safety but we know that doesn't happen in Bull markets as well and you can imagine this negative reinforcing cycle in between let's say a Lido clone and an eigenlayer clone that aren't as responsible and acting in it's good faith where they just layer up on a whole bunch of different risks that they end up taking they drag the you know the weighted apy up and people end up going into uh you know sort of much less safe conditions so maybe if we could take both of those at each time I would love

to get your sense of if a restaking module would be possible and how would that work if the tokens were you know if the rewards were denominated in something other than Ethan then maybe we could talk about that that last point I think the thing I'd like to hear from Izzy is how a liquid staking token might stay fungible while people want to start doing different things like I know I was listening to the hospital podcast yesterday and he was like very insistent there will only be one derivative it'll be like uniform and everyone's going to use it but how does that work if there is you know demand for different modules and some people want the kind of risk averse when some people want the restaking one how yeah how do you blend risk profiles I guess so there's a bunch of different schools of thought on this and I would say that there is no

consensus uh right now um my the way that I approach this is that if you want things like that it's better to build them on top of sdeath rather than to build them alongside estef and like eigenlayer basically does this already right well it allows you to take your sde for your RF and deposit into a contract um not much is happening to it yet but you know eventually the idea is that that it will so to a certain extent the exposure that St Eve at least exogenously might have to something like restaking is unbounded um however it's probably going to be more appealing if there is some sort of core level um integration let's say be between the two right it might give you better apy

it might give you more granular control over the validators which you need in order to have like a good feedback loop over liens of collateral otherwise you know things might get like really really out of hand if you go really high up the restaking stack um and that in itself might take the form of a staking router module and then you basically at least in in the current way that sticking router works rely on the Dow to put like appropriate risk safeguards around that right so one is the thresholds to uh regarding how much stake might be allocated to that module and two is what the expectations would be for that specific module with regards to um like Risk mitigation or risk management options so it might say that like for every validator that is spun up

in this module x amount of whatever you wanna whatever you want to denominate that in it might be in SCE rewards it might be an eth or it might be in um these kind of like secondary tokens that end up being accrued like you said Mike uh gets sent towards like paying for insurance for these validators something like that um and so I think that also is the most reasonable way to address the other question that you have is uh sorry that you had ushing which is how do you not mess with fungibility like fungibility for me is the most important thing um for St Eve uh fungibility and liquidity and they kind of go hand in hand so if you eventually add modules that either allow you to take more risk than other modules do or for example like specifically stake with specific

operators or in order to you know have a certain certain qualities of validators I think they end up doing the same thing which is that it can it can if not managed properly like end up creating like different classes of overall risk which if they get too big Contra the rest of the stake um could threaten like the entire protocol at the protocol's job and governance's job is to a not let that happen so you have to put the appropriate safeguards in place um from a metering perspective and from a configuration perspective and then you also have to make sure that the actual business logic Within These modules appropriately meters the the possible negative effects of something going wrong so it might even be something like these need to be fully insured or they need to post collateral or

um it's opt-in but only a certain amount of stake can opt into this and if you don't get in you don't get in so like there's a lot of kind of like accusations you know that are made in terms of oh if the staking protocol is too big like you know they're going to mess with like Brock block proposal slots and then construct Mev blocks um vertically and all of this stuff and I I've actually never seen any proposal in Lido for for this to happen like either on governance or uh amongst like other people that I've talked to so like there's a lot of things that can happen uh there's a lot of things that could happen it could have happened in terms of like attacks of ethereum in the past uh but you ended up with them like not materializing because of let's say

like the culture and and the quality of people that are associated with this network like on average and at large so if we make sure that the culture and the ethos is there to not engage in like the most like de-gen let's say um kind of practices and inducing rewards but follow a path of like reasonable sustainability but at the same time balancing for Capital efficiency um I think that there's there's a path forward there that doesn't end up endangering uh The Wider protocol Izzy let me just uh I I want to make sure I'm not focusing on this too much and I also just for the audience I want to highlight you know this idea of being fungible so the reason why this is so important eigenlayer actually addresses this in their in their white paper where they explicitly say that we have no

plans to issue a token because positions in eigenlayer you're going to be running different types of middleware with different risks and return profiles associated with so there's not you know you can't make it it's not fungible like it is with Steve and Heath uh that said there actually is a precedent in finance for creating liquid fungible positions for Less fungible like actually Bond ETFs would be a really good example of that so we do know that that does there is at least some pretty large precedent actually in Chad 5 for it and the question that I that I have for you is I've pulled up here again Adrian's sort of uh Steve assets and liabilities their balance sheet and if this was a bank looking over at the right instead of on the assets part of their balance sheet instead of you know professional node operators small group Style it would be

treasuries would be a group of assets that you'd have commercial real estate would be a group of assets that you have small business loans whatever it is they'd sort of divide up their their different assets and um you know Steve would be replaced by deposits the the mechanism you know my understanding of the mechanism for how Lido pays out to pays out its rewards is there's an oracle it checks the balance of eth that's in the the total validator Set uh and then Steve gets minted and Steve uh will act like that it gets rebased to to Holders but then it also gets um you know new Steve shares you know which essentially act as claims on the pool get minted to the both the treasury and node operators so my question just from a mechanical standpoint and what the pool of assets would look like is if you had these uh

validators that were opting into additional hardware and receiving rewards in Oracle would check that and then but you still wouldn't be capable of minting anything other than Steve so ultimately the balance the the pool right of different things would Encompass other tokens in there right and you would still just get paid out with Steve and suddenly Steve would represent a claim on not just Ethan a pool but mostly eth plus some other tokens or would you shift the way that the you see what I'm saying is is I understand the question so there's no there's no answer to this um got it in terms of like there's nothing that has been said and so these are obviously like things that we're thinking about um my intuition here is that so so first of all the callout that you're making is

correct in the current curator operator uh registry node operators uh are paid daily basically or receive their their rewards fees daily and it is pro rata based on how many validators they run as a total number of uh compared to the total number of validators run by the protocol so node operators do not make more or less based on their like their daily performance um however with staking router this can be determined at the module level so if some modules want to pay operators that are performing better more than they than they pay operators that don't perform as well they can but it's up to the module to figure out the logic there now that logic might require um certain upgrades to like the main Oracle or it might work with like a satellite Oracle it's up to the module

to figure out how to do that on a grander scale like when we're talking about you know this this four to six years down the line there are a lot of different things that I think need to need to be considered in terms of like in how you were talking about like the that the total risk of like a balance sheet which might be treasuries or Commodities or something like that and it's only not it's not only about like um rewards adjusted returns but also in terms of what is the contribution to the robustness of the protocol of all of these different modules so a solo staking module which might make a little bit less less money in terms of rewards rate than like a module run by uh fully professional Seekers although with things like DVS like that might not even be the case anymore might contribute more to the robustness of the protocol

than you know the the equivalent amount of validators run by professionals would be so to a certain extent the protocol should value that higher then no on a per validator basis than something that's from the curated operator registry and these kinds of like you can call it risk adjusted calculations right but it's really about the sustainability of the protocol are going to be core in terms of figuring out what what the right allocations are so when we talk about risk restaking the same kind of logic applies there if the rewards that these validators are getting um might be denoted in something other than Eve there's like a couple ways to approach it one is that they actually um don't relate to the minting of sdeath at all

and it ignores those rewards and they are represented in another way so it might be another token or it might be something that you can claim um by holding sdes uh but not actually rebased in the full value of the token right so you can like assume that their value is zero in terms of like what's the contraposition um on the on the liability side for the protocol or you can do other things like instantly sell them for if and then therefore and restake it and then then that works um I think different modules will take different approaches to this and then we'll figure that out so that's the other cool thing about like the module-based approach maybe you don't sell them for eth maybe you sell them for a token of a project that wants to do this and then that's a that is a way

for like that that token to a cruise on value got it uh fascinating questions to ponder and thanks for I know a lot of this stuff is frankly it's still being written and discussed but it's just it's always interesting to consider and we'll have to poke a little bit about at uh SRI Ram next next episode uh is he in machine guys you've been so generous with your time thank you so much this is given miles and I a ton to think about if folks wanna find out more about you or follow you or or either reach out maybe you're seeing from a you know or interested in uh you know validating or machine or uh easy sorry what if I know more about Lido I think folks know better pretty well what's the best way to follow you yeah I'll start there so I think you can find us on Twitter at Obel Network and

the website is allball.tech o b o l dot Tech and yeah the thing I would encourage people to do particularly if they are a homesteaker or someone considering staking is to give a try in the launch pad try and run something on girly you know set up a squad with your friends give it a try because it sounds like lighter might have some opening for node operators in the foreseeable future yeah actually there's an opening for some node operators right now uh today's actually the the last day for for people who are interested to apply uh for the wave 5 onboarding so this is for the curated operator module you can find uh more information about that on the Lido Forum so research.light identify um there's already over 100 applications so uh our team is going to be insanely

busy once we get back from Etc uh we will be at ECC there will be a Lido Booth uh if you're in Paris come find us uh I'll try to make sure that uh I get you some merch if you say that I'd listen to you on the bell curve um you can find us of course on Twitter at Lido Finance uh and myself at isdrsp uh that's my name um and in general there's like this is a really really exciting time for me um all of the stuff that I've been thinking about for the last couple years in terms of how do we create sustainable validator sets is is like the culmination of that is the staking router in the first couple of modules that are being developed I'm super excited to be exploring the the solution space here with teams like uh oboe um

and others and I think the next uh 12 to 18 months are really really going to be pivotal in terms of showing not only how important it is to build systems that allow for like inclusivity um but also the idea that if you create like design spaces for something um you encourage other people to help you find Solutions as opposed to try and come up with with everything on your own like honestly both lighter VT and and especially like what opal is doing uh by creating middleware and and not necessarily like a prescriptive way to do things is examples of the same thing guys this was uh just such a great episode thank you so much I Myles and I keep saying we got to make these shorter but how you know what could we have cut out here this is just such great

conversation so uh we really appreciate both your time and uh yeah I'll have to do it again soon all right miles what a great episode that was I knew we were biting off quite a bit with DVT plus staking router and and we didn't even get to dual governance which is no I think again the mark of a good episode uh we're being very ambitious with the the planning sheets for for each one of these shows but man there's just so much to dig into there I thought that was one of my my favorite episodes of yeah couldn't agree more and you know came out of it extremely excited about you know the potential of the staking router um and and have a very good idea of how this intersects with you know DVT and and the importance of solo staking and how you know Lido is

really trying to align itself with what is beneficial for ethereum the protocol um so yeah yeah it's kickoff from there so you know starting off with solo staking DBT DBT is not something that I have necessarily heard of that much even six nine months ago I feel like incredible increasingly very smart people are working on solving this problem whether that's oboe or SSV or or whoever and one I think part of the reason we didn't really talk about this why uh Solo or self-stakers are so important is if you look at the scaling architecture of Roll-Ups and l2s I sort of have this kind of pet thesis that these Roll-Ups are going to be using a centralized sequencer for a long time if not indefinitely at the very least it's

a much thornier problem right than than folks initially gave it credit for so I think the importance of a very credibly neutral or decentralized base layer at ethereum is probably even more important today than it has been in the past so Technologies and mechanisms and creating a sort of incentive base for solo staking through DBT I just I just want to underscore how important that is in the current Zeitgeist and moment yeah that's a great point I didn't actually think about it from the sense of you know the the makeup of these Roll-Ups is is reinforcing the importance of having a good chunk of the validators that be these independent solo stakers that you know can are very hard to censor from any sort of yeah you know government or

another organization yeah and it was encouraging in talking to ashine I think the the part of that conversation that stood out to me you know I won't go back and talk about the the mechanism for how it works today but when we asked him about tomorrow and timeline and I think the question that you and I were really interested in driving towards here was what is the timeline for reducing the hardware requirements here to something where you could imagine you know being a solo validator or using just your cell phone and he said it might not even take years so that that to me was a very impressive or a very interesting kind of takeaway got me excited no 100 because you know I think the current requirements associated with this even once you lower

the capital requirements from 32 each to you know say four eth um there's still kind of a ceiling of in terms of the amount of people in the world that are one you know motivated to run a DV validator have you know the technical chops to do so um and I think lowering those barriers uh is extremely important to actually opening this up to a broader population and yeah I was I was surprised I was thinking it would be you know in the order of five years before we could get something like this to just run on your phone in the background right um or or just even have like very very flexible options here um and then once you you know lower these hardware and capital requirements as as much as you possibly can it just

becomes a question of okay how do you you know frame running a DV validator in a way that that is attractive to folks who you know may not have been interested in staking in the beginning or may not be crypto native um and you know I think there's still some open questions there but at the very least this addresses all of the problems of you know for folks that um are already interested in staking and and interested you know in pushing forward the decentralization of the network yeah I agree with that and we talked about segwaying into the staking router I mean even before that we've talked a lot about alignment and the closer you are to core protocol of our that sort of base layer infrastructure of ethereum more aligned you want to be with ethereum so I think it makes a lot of sense for not only Lido but the

rocket pool is probably the you know the most extreme example of this being extremely aligned with sentiment of ethereum there's actually a interest I'm not sure if you've got there was a there was a vote I think in rocket pool governance as to whether or not to self-limit is very similar to the light of vote that happened in May of last year very different answer that it was kind of an overwhelming consensus that we should self-limit the caveat that I will say there is that you know in the immortal words of 50 Cent it's hard to hard to hate it from outside the club you can't even get in you know it's very different uh saying you're going to self-limit with you know seven percent of stake versus 30 or something like that so but it is just it's indicative of this alignment sort of issue and I think Lido's doing my sense is that

light is a team of True Believers in a lot of this stuff but I want to get into the the discussion that we had around the staking router was I think extremely interesting I would say I kind of came away from this conversation very actively excited about it and I I've got a bunch of different questions I could ask here but yeah what were some of your high level thoughts from that part of the conversation yeah so I think in general the staking router um is allowing Lido to serve more diff different sets of users um Beyond just this initial you know kind of core user Persona of somebody that wants to delegate the hardware responsibilities and delegate you know um running these these validators to to a you know a curated set of professional node operators so it opens up you know

the a customer segment of you know these solo stakers um and DVT stakers um but it also opens up customer segments or at least improves you know the relationship with other customer segments and distribution channels like Dows themselves um you know or even you know maybe a subset of the curated set that is just highly you know institutional and compliant right um and I think it's it's really fascinating just how much flexibility that they have kind of left in design space that they have left to the community to to create these modules um you know things like custom feed parameters um or custom allocation you know parameters right you have the ability to just mirror how the curated set is you know how it deposits are allocated

across the curated set or you could do something very interesting you know like sending more deposits to the highest performing validators um or you know fees that kick back to a protocol or something like that and so it almost reminds me a little bit of uni V4 um in that you know it's it's I was going to say the same thing yeah opening eyes right um and I think it it opens up a path right for for Lido to to improve its alignment with the with the community get everybody comfortable you know with with its growth and its market share essentially um you know well also you know in a in a more greedy or I don't know greedy is not the right way but like it it's in their financial incentives to do this right because they're actually it's

becoming a better product um so yeah I'll stop there and uh would love to hear your reactions as well yeah I'm really glad that you brought up V4 I saw a direct comparison to that and I think it's there's sort of this converging this converging set of architectures we actually talked about this and it kind of has to do with uh minimizing the surface area of uh you know of your product and minimizing governance and this was a key question we actually asked in season two of this show which is there's sort of a more vertically integrated approach where you do a whole bunch more things and governance has access to all of that or you can choose to be a thinner layer so to speak and you minimize the amount that you do but you also minimize the amount that

um that you govern and that makes it more solid to build off foundation on and I think you're starting to see I think uniswap V4 was a great example of that I think Lido is clearly heading in that direction with the staking router I think we we're talking to Sri Ram next week I think you'll probably say something very similar when it comes to eigenlayer so you're starting to see this sort of um these two sets of designs play out yeah I would say I didn't call it the difference with uni V4 versus versus Lido V2 in the staking router is that you know with uniswap users have the ability to choose which you know version of uni V4 they want right which which version with XYZ Hooks and you know characteristics they want to use right and Lido could do the same thing Lido could say all right let's just let the

users decide which you know module they want to deposit their stake to right and I think the difference there is that with liquid staking protocols again that would just there needs to be a level of control one to protect the users and two to basically align with the health of the network because you could see a situation where the choice you know gov minimization is great right that's the goal but if you let that choice you know sit with the users completely then I think it's fair to say that'll you know and based off of what we see in delegated proof of stake systems most users would prefer to you know delegate their stake to the most safe you know largest validators right

um and so this kind of push pull tension right where you want to minimize as a surface area of governance as much as possible but you also need to basically monitor the allocation of deposits in a way to make sure that you're you're also you know driving forward the health of like ethereum the network itself right because the staking router would be kind of you know I guess the impact of the stake around it would be would be mitigated if um you know less than one percent of deposits were actually going towards these permissionless validators right that wouldn't that wouldn't really actually decentralize light or it wouldn't help Lido decentralize in the way that they want to um so this level of curation I think that's is interesting I think it's an unsaid assumption that

many would like to be true but I could see it going in the exact opposite direction that left to Market forces many protocols would prefer to be validated by Professional Services as opposed to sell for solo stakers right I think that's that now I think DBT has the you know to your point about maybe a professional you know uh validator like course one runs a part of that DVT cluster and then there are you know multiple different self-stakers that sort of become a part of that group I think I could mitigate that but I I do think as as it stands right now without DBT I do think most protocols would be prefer to be validated by professionals who will wake up and not only you don't have to worry about them waking up in the middle of the night they'll have

teams that just do that so I could see I could easily see Market forces going the other way and putting a discount on solo stickers as opposed to a premium so I think that's probably a you know that's maybe not a popular thing to say but but I think there's definitely the possibility that that ends up happening and then you will have to you know and that then they will be interesting to see the impact that Lido governance has on you know through allocation to different modules of stakers versus just straight up Market forces and it could be an issue for them if you know Market forces actually end up prioritizing a more professional curated set of validators as opposed to the solo guys but one question that I had for you miles is you made a really great point with maker frankly being a potential

distribution channel for for something like Lido can you can you explain a little bit and unpack that a bit more because I think that's a an under discussed Point yeah absolutely so you know I think the general idea is that you know folks could deposit ether's uh as collateral to maker and maker you know in their balance sheet Manager Management would deposit that into Lido and um you know to earn yield on it essentially and let's just say that maker or another protocol is so large of a distribution channel that it you know accounts for say like five to ten to twenty percent of all circulating steath out there at that point you know that protocol might be motivated to you know open up a competing liquid staking uh offering

right so that they can capture all of the yield and they don't need to share any of the yield with Lido anymore um given that you know it could be a substantial amount of Revenue um but what the staking router enables is to basically you know share some of this revenue or you basically customize the fees to kick back some of the revenue to the distribution Channel um and this isn't that different than some of the growth hacks that Lido has used in the past um with uh basically you know rewarding distribution channels like Ledger or other whitelisted um uh you know wallets or on-ramps with some sort of LDL rewards but this is a much cleaner way to do it right and so you could you could basically mitigate

this risk of of competitors like you've we've already seen with frax right who want to who say we've got all this eth sitting around why don't we just you know create our own liquid staking protocol to internalize that yield um and I think that this offers a really elegant solution to sort of let those these relationships grow together um and yeah that was just one immediate thing that came to mind who knows how prevalent that will actually end up being you know with with the with the growth of the staking router but um that's definitely definitely interesting it's an interesting question because what it may what ultimately made me think is you know if you look at that diagram of the the asset side of Steve then you kind of see five or six different modules and I mean you know maybe there'll be some more than that in

the future there is another future where there are actually thousands of different modules and ultimately a lot of those end up being individualized modules for say maker or Ave or something like that which would be frankly pretty interesting and I think that would be an alternate way of playing out from the other the other solution that you could do is vertical integration and that's sort of the approach that frax is taking and frankly you're starting to see vertical integration within um some of the major D5 protocols like maker curve and Ave are all converging on very similar business models and they have decided to go in the opposite route of something like like hostu would Advocate which is to just stay in your lane minimize governance you know maximize one you know minimize your managerial surface area they're doing the opposite they're vertically

integrating and they're maximizing trying to take on a whole bunch of multiplexity and risk and yeah I am not smart enough to know how that's going to play out but it's interesting to see very different approaches being tried yeah couldn't agree more and I believe like just going back to that maker example they could save maker really cares about the decentralization of the L1 right they could also specify that the only valid the validators in their module will all be DVD or solo stickers right they can basically curate who the validators are what kind of validators they are what the feed preferences are are um yeah so the flexibility adds you know it's a lot of a lot of possibilities here um and yeah it would be it would also be interesting frankly I'm just not creative enough to ask some of these questions but I do remember

you might be surprised about what these protocols end up caring about so I don't know if you remember there were Slater proposals for the PSM a little while ago to invest some of that usdc and there were these sort of competing proposals from coinbase and coin shares and the the idea was to reinvest and earn higher yield on that usdc and they ultimately ended up going with coinbase even though the amount of yield that was offered was lower and the reason was is because they could withdraw very quickly remember the function of the PSM is to be a stability mechanism in case you know there's some like depicting event you're supposed to be able to defend the peg whereas the coin shares proposal even though it was actually more additional risk management framework and they were going to

reinvest in bonds you actually had to move from crypto and to tradify so the withdrawal time took too long to the fact there's punitive so there might be these weird parameters that are outside just how decentralized is the validator set and what are the fees there will there will be other technical reasons that end up you know determining these modules yeah no I think this it will be very interesting to see exactly what modules you know in the same ways we're very interested to see what people do with univ4 or you know there's a lot to look forward to in in terms of you know what people can do with the with the staking router and and the modules that they create yeah I want to give listeners I want to end this by talking about the restaking module which I thought was frankly super interesting and I wish we had more time

at the end of our discussion to dig into that I did want to we initially planned this episode to be uh at least 25 focused on Dual governance and we only briefly mentioned it and I want to at least give listeners an overview of how that's going to work and why that's why that exists um I know Izzy talked about it a little bit but it's this idea of you can imagine if let's say in a future state where Lido ends up winning 70 of uh you know 70 of validators are are within Lido then you could see the co-opting of eth's sort of uh governance and how staking works by a very small set of Lido holders um and often and you there could be a um principal agent problem existing between the the wants of stakers and the holders

of Lido the token so what the the solution was to give uh steveholders actually the ability to veto and the mechanics are are pretty interesting there's basically a contract where after a certain number of amount of steath is deposited into this sort of escrow contract that there is a voting period and you can vote down any of the uh like a Lido proposal or something like that um the the other the other thing to mention is that you know Lido is not purely an ethereum protocol you can also you know it's expanded at one point it was on Terra Luna right there is Lido on Solana so it's kind of a supranational uh Dao entity as opposed to a national entity like ethereum to use an imperfect analogy so again it's just like if you want to be a huge nerd and go down the

rabbit hole we can link something in the the show notes which is the proposal that Sam kozin wrote that um you know you can take a look at but I did just want to say that was another key part of decentralizing the governance and uh that we just didn't have time to get into in the show that's like directly addressing the principal agent problem right correct and you know I'm trying to pick like an analogy here but you know in the absence of there being actual like you know uh top-down regulation and and people monitoring you know like you would see in the traditional Financial system you know you need to give the holders or the users of these assets the depositors some ability to veto things that are truly truly malicious and very frankly like unrealistic I think um but still that level of comfort that

it is possible is what is the big growth unlock that gets the you know rest of the community comfortable um and so I do think that you know the introduction of of the staking router and specifically permissionless pool uh sets or solo Saker sets um along with you know coupled with the Dual governance is is really you know the core of this response that Lido is is putting forward to these concerns in the self-limiting debate yeah so we'll link the the actual Forum discussion in the show notes and if anyone wants to nerd out about that that's that's probably the best place to do it although it has been a little while since that was proposed so there might be some updates in terms of how Sam or the lighter team is thinking about it I'm not 100 sure I want I want to end by discussing

the restaking module the possibility of a restaking module that was I thought one of the most interesting parts of the whole discussion I'd be curious miles like what did you find yourself wondering or thinking about when we were asking yes about that you know I think this is probably the edge of like right at the cusp of what becomes uh something that could get voted down because it's too complex by by the by the Lino Dow Community because I uh I I guess my initial sense is this kind of fundamentally changes the product you could look at it that way or you could look at it in the way of you know well we are managing risk already across all these different validator sets and this is just you know a little bit more risk

than those other validator sets but nothing we can't manage right but it does introduce complexity and sort of you know the way that you would claim non you know steath or non-native staking rewards um and and things like that and so my sense is that it's something that is possible but um you know I think it's a lower priority for you know as it relates to like Lido's core objectives for the next couple years um I I think they're they they were almost I got the sense that they that they would almost prefer to you know delegate the choice of um whether or not steveholders want to restake to the users themselves um and you know that's that's possible right now since Steve has been onboarded as a um as an LST for for eigenlayer and

I'm sure you know there will be eigenlayer competitors that will accept Steve since it's the largest you know that liquid stake in capital base um and so yeah I came out with the impression that yes it's possible but you know it's not something that is a super I don't know high priority but we will see right you know as you mentioned this is bear market and folks have you know a lot of you know care a lot more about risk management at this point and a lot less about yield um and so we'll see how much that changes over time and and I think you at the very least it will be a very spicy discussion you know if and when it's introduced yeah I I tend to agree with you on that I think it is I do fall fall out and probably the hallsu perspective here

which is that yeah there's yeah vertical integration if it ever gets explored should be much later in the protocols life cycle I I think right now they should uh try to minimize uh risk and complexity and I think this would be definitely taking that on that said I I view something like this even if it's not Lido and eigenlayer as probably inevitable and I agree I think there's a rich history of we've talked about you know the example would be Bond ETFs so that is actually if any readers of Matt Levine out there he's one of the the Kings outside of barn Jillian apparently he's better but uh you know he has this Trope which is people are worried about

bond market liquidity and it's actually very simple similar to this which is there's one Bond ETF but it actually represents many thousands of individual bonds each one of which has their own idiosyncratic risk profile but it trades as one liquid thing and it's actually worked kind of well another example would be this is going to sound dramatic but it's a it's a very similar example of like cdos or Clo's during the housing crisis where you actually had one sort of liquid instrument but it it was packaged about it was a bunch of mortgages that ended up getting packaged in there and you know there was an idea that if you Diversified enough it wasn't really that risky and you can see how after a period of time people might not worry about that it's been working for a couple years we haven't had a problem yet and I I think

the the most likely outcome here is that it's not eigenlayer and Lido that end up integrating like this but but some other you know restaking rest it's highly unlikely to me that eigenlayer is going to be the only restaking protocol that exists out there there'll probably be other flavors of it launched maybe you know one that won't be so concerned with the fungibility of positions and the the denomination of the rewards and yeah I think I think that's probably what ends yeah yeah I guess my point is like I think Lido of all of all LST providers that exist today or or come along tomorrow uh is probably the least motivated to do this given their current you know Market position and really they're you know they're trying to reduce complexity

right they're trying to grow alignment with the L1 um and introducing something like this I think you know just I could see it much more realistically coming from a competitor that is trying to capture market share from a much you know a much lower position right at the end in doing so by offering outside yield compared to uh you know the safer incumbents like Lido that's I I completely agree with that sentiment I I would just a couple of but you can see how these things shift and change over time right I mean even within crypto maybe a more relevant example would be we used to one of the big advantages that people used to tout was synchronous composability or Atomic composability and now it's like yeah async's probably good enough and there is this uh this idea of you

being at the mercy of your stupidest competitor I'm not sure if you've if you've heard that but kind of a an example of that might be a competition that played out in between Celsius and block five I'll let you yeah assume who was the stupider competitor and who is at the mercy of who but I I think you sort of see the my point is that it's just very hard to resist these things in the moment I think that's the the point that I'm trying to make and I I would um you know what do I know I mean people who work at Lido or the you know contribute to the day I've been thinking about these issues for so much longer than than I have but I would just say it's probably a good thing to not get involved with even as time as it might be yeah I think that's fair

remember in the first episode of season three Sunny introduced this idea this sort of uh the idea that being an app chain and permission list was an oxymoron I thought I've thought about that quite a bit since he introduced that idea and I've been thinking about it more and more and uh you know we talked about the App Store analogy here but I do think that this is something that protocols that are permissionless you know there's probably some logical limit to how permissionless you really want to be while providing a good product for your end users I think that's an in a very interesting tension to explore and for something like a a staking pool like Lido I'd imagine that there's some amount of monitoring of validators or node

operator operations that you always have to do you know we talked about we didn't bring it up on this episode but uh for instance you know it could make sense if there's some internal fee Market that gets developed within Lido it's enabled by the staking module that someone some group or module lowers their fees to zero and they don't monetize that way attract a whole bunch of stake and then they sell co-location services to their validator Set uh or there could just be much more simple uh sort of off-chain contracts you know that you end up colluding with one another so I'd be very curious about um I think this will get played out in time and I'm not sure you know this is all just speculation but I would imagine there's some amount of either monitoring

or due diligence or something that these staking pool operators like widow have to do on there yeah I think there's I think the state staking router will actually increase the need for more robust monitoring um and you know I know they have a close relationship with a with a project called rated um and rated just basically you know a node operating a node operator monitoring service um you know looking at things like uptime and performance and et cetera Etc but then you know apart from uh just generally like operationally up monitoring the operational performance of these nodes um there's also the subjective you know uh decision of okay what is the healthiest I guess way to allocate deposits across all these modules right

and if you to your point if you just left it to the free market um you know it probably the allocations would would be heavier towards you know the larger safer operators um and so yeah I think um I think that that's going to be you know as as much as like light I would like to minimize the surface area of human involvement um uh and decision making in the protocol um I think this is one area where actually you know if you were to completely minimize it then it would be not healthy for the protocol whereas if you were to you know ossify something like the withdrawal contract you know people would be happy with that um and so yeah I think that this is likely you know points to the reason that something like you know PBS can be

enshrined into the protocol restaking could even be enshrined into the L1 but something like liquid staking could never be enshrined at the L1 based off of the principles of you know ethereum there always needs to be somebody monitoring the deposits and the operational you know performance of these nodes yeah I would I would Point folks for a you know this this sort of trade-off in between uh something where human capital doesn't need to be involved as much is there's an old multi-coin posts I think the title of it is Dows manage risk and it highlighted a key difference between maker in uniswap they were actually they were talking about it within the context of how susceptible a protocol might be

to forking and the idea being if you're a maker you know one of your core competencies is that you um is that you underwrite a whole bunch of risk right like you're managing the asset and liability side of a balance sheet you're less susceptible to 14 but I think it applies to the rest of these to these doubts as well so yeah I think as it's something to consider as looking more like you know makers operations right where they're looking up at their balance sheet and kind of making sure that that it's it's healthy right um I think that because you can look at it if something like that is analogous with you know monitoring all these um uh the health of the modules and how allocations are split between them

um and yeah absolutely that makes you know a lot harder to Fork um but still there needs to be some human involvement there and it's just about minimizing that as much as possible yeah all right miles this was a fun one next episode is going to be great as well so we're going to be diving a little bit more into what we just touched on at the end of last episode we're going to be talking to you sriram Kanan of eigenlayer and we're going to be delving into I'm just getting an overview frankly of eigenlayer the protocol I think we uh you know are conceptualizing the episode as if eigenlayer is also a a two-sided Marketplace in between um stakers and uh sort of middleware operators that want access to that that stake um then you know what is the or what are

some of the drivers on the demand and supply side and then what is this intersection going to be with big liquid staking protocols and protocols like eigen layer so I think that's going to be a great episode as well all right buddy I think we can uh wrap it there this is a plumber [Music]