Steven Pack + Darren Langley - How DeFi Vaults Are Helping Rocket Pool Grow

Transcript

Great. Thank you very much here for it. I have the pleasure of uh moderating a discussion here with two individuals that I've had the opportunity to know very well over the years here. Uh Steve, let's start with you if you want to do a quick introduction. >> Hi all, Steve Pac, uh CEO and co-founder of RockSolid. We're a liquid vault platform that uh let folks earn the best rewards in DeFi with a single click. just launched six weeks ago with the Rocket pool protocol. Happy to be here. >> Uh and I'm Darren Langley, otherwise known as Langers, uh in the uh Rocketpool community. Uh I'm uh the general manager of the core team at Rockpool and uh Rocket is a uh decentralized liquid staking token protocol. Um we have a liquid staking

token called RA. Um and we also um allow people to do node staking on the other side for as little as 80 per validator. Excellent. And so uh the topic here is talking about how vaults can integrate with LST protocols. And so Steve, maybe for you um you want to talk a little bit about the origin story of uh how this idea formed and the genesis of it. >> Yeah, sure thing. Um so I was I'd been running Rocketpool nodes for a couple of years. had met the team at ETH Denver and uh I was finishing up a role and just really liked the community, liked the protocol, liked it was, you know, this intersection of finance and technology and it actually helped Ethereum be decentralized and so really

wanted to do something in the space. Uh at the time, one of the issues was getting enough node operators and so I'd talked to the team about um you know, a product that might sort of help with that. And then things changed and all of a sudden that wasn't the problem. what what what what Rocketfill needed was Arie demand and so uh yeah I had a co-founder we'd been talking to investors and kind of identified that re was amazing for its decentralization and its and its reliability uh but it wasn't as well integrated into DeFi as some um competitors were especially lighter so we looked at um you know ways we could help with that and kind of landed on vaults as this effective way to sort of be a focal point for our eth um so that

uh you know like we could then help negotiate um you know more integrations for re uh into DeFi and so kind of fill that maybe top layer that was different to the decentralized uh LST. >> Yeah. >> And then Darren from your point of view why was RocketPool excited to partner with a a vault provider? >> Yeah. So, um, as as Steve said, uh, we were being Rocketpool is kind of like a two-sided marketplace. So, you have AR demand demand on one side and node operator supply on the other side. Um, and you're always in this situation where you're kind of like shifting between between the two. Um, and we launched um, Saturn Zero uh, and it's me

meant that we kind of flipped over to being we had plenty of node operators but not enough demand. Um and the the big thing um for Arith is utility of the token. Um we do have you know a number of um DeFi um kind of integrations but a real kind of issue that we found is because we're a decentralized protocol we don't allocate capital. So, we can't go to a protocol or a new chain or or something like that and say to them, we have all this money. Uh we have all this kind of like TVL and we're going to, you know, put it somewhere. Um and so, uh a big thing for us is um having a vault provider who can actually do that for

us. Um and and also the fact that AR itself has you know quite good you know yield because it's the the base layer from uh the beacon chain but you know there are um a lot of people who want to kind of get that extra yield and so that's where a vault comes in as well. So um yeah so it kind of helps with the uh driving demand of our eth as well. And then uh Steve, it's been what, two months? I always get the times a little here, but I think about two months since you launched. Uh you want to talk about some of the early wins and successes that you've seen so far?

>> Yeah. Yeah, happy to. So yeah, two months ago, um we've seen uh 5,600 re, which is I think 6 and a half thousand ETH flow into the vault. Um so that's between 20 and 25 mil um uh USD depending on on the price of ETH on the day. So, you know, great response from uh the community and I think we've got northwards of 270, I think, holders now. And so, that's a good spread of, you know, we see 0.1 REF deposits and we see 100 um re deposits. So, you know, it's been great to see both the community and and Wales deposit.

Um, you know, I think one of the biggest things is we wanted to help with the re demand side of the equation and and you know, of that five and a half thousand plus re um analysis of deposits and the majority of that somewhere around 80% they didn't own re right before they deposited in the vault. So they went and had something else whether it was ETH or maybe state ETH sometimes that would be nice um swapped into RE before depositing. So in terms of you know protocol alignment and being able to say like yes we're helping with our eth demand like that that was a really nice sort of result to get from that from that analysis. Um you know another thing that uh you know we sought to do was D5

integrations and so still you know getting started here but I've seen a few. So um you know we've deployed to uh seven different strategies so far and uh one example was was hemi. It's a small uh L2. It uses Bitcoin for finality to improve the bridging um performance. And uh it didn't have our ETH on the bridge. Um but they were offering incentives. So we said, "Hey, if you add RA um we're interested." And then in the particular protocol that um they were incentivizing at the time was Sushi Swap and there weren't Ere pools on this chain. We're like, "Well, create an RE pool and we will come." And so um you know, that's good for the vault. The vault earns incentives that way. But what's nice is

that REF holders whether they're in the vault or not if they wanted to go and LP to a pool there like that opportunity is there now. And you know that was just the first we we got um RE added to the um Inc. chain as well where we're currently deployed into an RV clone and yeah we are and our partners are constantly out there like trying to negotiate for new opportunities for Raf selfishly for the vault but you know the whole ecosystem benefits. And then Lingers, let me ask a question then. I guess you mentioned early on that rocket pull it's a you know liquid staking protocol and so it has it has really two sides of the house right it has the node operator side it has the liquid staking token holder side the re side um what benefits are there for the

node operator side of the house. >> Yeah that's a great question. So uh on the node operator side of things um it means that they can deploy more capital. Um we've got like a little bit of a queue at the moment for for re uh for for node operators. Um but it means that um you know that queue gets processed by these by these deposits um you know the more re that can come in the more um capital a a node operator can actually deploy. >> And then what about the reverse of that question just the re side of the house in the larger ecosystem how how do you see this partnership uh advancing that?

Yeah, actually I did miss one for the node operator side. So the node operator side um with RocketPool you earn uh the the yield on your eight ETH um but they also earn the commission um from the ETH that you're staking on behalf of uh our ETH holders. So they actually get like a a commission on top of that. So they get more yield from that. So the more that they can deploy, the more of that yield they they can they can get. Um uh on the re side of things as Steve said um it this is kind of like a uh an expansion um for for Ari um the uh it's opening up new doors and new opportunities for Ari uh and its utility. So things like yeah

a lot of LPS a lot of new chains um potentially more lending markets uh yeah all of those things add to utility um for for holders. Actually, one thing I'll add on the re side, like one of the strategies we run is like leverage looping of the of the token. Only about 5% of the vault is deployed that way because we want to make sure we're in mostly liquid things. But when we first deployed that um we actually closed the discount of R to its underlying value because um you know we were there constantly you know like mint like borrow mint borrow and and so we could see the gap closing and >> you know it was a point in time thing but it was just kind of a really visual

representation that you know the more demand there is the the closer that the R is to PEG and you know there are other protocol related things anyway to coming to to help the PEG but that was Just again nice to see like yeah this this really is uh operating in a protocol aligned way. >> Yeah. >> Yeah. >> Maybe maybe Steve to you let's change it over to a little bit about the maybe the risks and um uh uh challenges that are out there right and so one of the recent things was uh stream finance had a collapse right you want to talk a little bit about that and kind of your perspective as a vault manager. Yeah, sure. So, first of all, DeFi has risks.

There's a reason why the vault has a greater, you know, return than staking does. Staking also has risks. You rely on client teams. You rely on, you know, the the protocol sort of operating the way we think it should. Um, but, you know, it's priced lower. Uh, with the vault, we deploy to DeFi. So, we we do incur risks, things like we use bridges. So, you know, we use bridges that we we we trust, but there have been issues with bridges. Um, a lot of the protocols we're deployed to are also rock solid protocols like Ave, like Spark, like Morpho. Um, balancer just blew up, right? So, um, you know, we weren't affected by that, but you know, there are risks. Um, so that that part should

be clear. Um, but we do a lot of things to reduce those. So, like I said, due diligencing the um, the bridges, um, we typically do delta neutral things. So we don't we don't like borrow stable coins against um the the re holdings and deploy that. You can earn good returns that way but um if ETH falls against the US dollar which you know we're seeing right now like you can get liquidated and lose money. So we really um focus on delta neutral strategies. Um stream I think is a particular example where you know you need to understand that the asset right. So a lot of um DeFi is is lending. It's like I will I I will lend you ETH like and on

the other side you have someone give you collateral to borrow the ETH and go do something with it. So what's the collateral you're you're accepting? And um you know with Stream XUSD turned out that the collateral was like basically them um also running strategies but that weren't transparent. They they had taken money they' given it to some other asset manager to to to manage. it was offchain so you couldn't even see it. That asset manager lost the money and all of a sudden it was gone. So, you know, we had seen opportunities to participate in XUSD uh opportunities and was like what's what is this collateral and it just you couldn't figure it out, right?

It was called on Twitter. It was like this trust me bro approach to like um you know DeFi. So yeah, just by nature of the fact that we're focused on delta neutral strategies um and do look carefully at assets we avoided with stream but that's also why the APR is you know 7% with um at the moment with the incentives that we add and not 10 12 15 20 that you see on some of these like stable coin uh focus vaults. And so what resources are available for somebody who is uh you know considering uh investing in this and they want to do their research? What type of transparency uh do you provide somebody to make an evaluation of these risks and

to understand where the funds are? >> Yeah, great. Thanks for that one, Ken. Uh so just go click on the vault, you'll see the strategies that we're deployed to at any given time. There's I think seven at the moment that are active. Um there's a debank link. So, for folks who haven't used DBank, uh, it does a really good job of looking at a wallet and and finding all of the positions across all of the chains. So, you can verify that what we're saying is is is what is there. And then for folks that really want to go deep, um, you know, there's a there's a very long and boring terms and conditions document where we really tried to lay out every possible risk, you know, we could think of, uh, that exists in DeFi. And, you know, they're all there. So, plenty of risk material

for those who want to dive in. >> Yeah. But I think one of the best way that you said it was that your your kind of vaults are like a a risk adjusted a risk adjusted return. Um which I think is a good way of putting it. >> Yeah. >> So excellent. And I think uh you know last we were speaking a little bit right uh the launch was successful. You maybe had a chance to sleep one night right after after the uh uh the launch, right? But now uh now the rest of the journey begins. Do you want to talk a little bit about what's next in the road map ahead and where you see Rockolid going?

>> Yeah, there's there's lots happening. So, um there's like sort of there's always like feature type things going on. So, u one thing coming up is like instant withdrawals. So, typically it's a 24-hour delay um when you withdraw from the vault. But, um you know, we can run a pool of RE and and and and um vault receipt shares. So if someone wants to swap out instantly um there may be a slight haircut um depending on the market but you know being able to get out instantly is um you know is a nice feature um that folks value. Um really we want to keep growing the vault right like there are there are ETH holders out there that um I think value the riskadjusted returns and that value that our ETH is a force for good for Ethereum

and we want to convert them to to deposit holders. So very much grow you know grow the the existing vault is is number one. Um you know like vaults also like uh are useful outside of the rocket pool ecosystem right there are other you know um ecosystems or just holders of ETH that um like value out the way we approach um vaults and especially delta neutral strategies. So um you know definitely looking uh at that as well. Um but yeah that's really the focus at the moment is growing growing this one. you know, it's been a great start and uh I think uh it's two and a half billionish re total TVL and we're at 25. So we've converted 1% uh you know like I would I

would like to see 10% of that. Um you know and I I don't think that's actually outrageous. It just takes some time for us to like be in the market, keep delivering returns for for holders and and yeah, I think we can get there. >> Excellent. Well, before I let him go here, we do have about five minutes for questions from the audience. I don't know. Does anyone have a question for the panelists that are up here? >> Okay, perfect. Hang on. Give me one second. Okay. Um, I know liquidity is a big factor. Have you guys considered, I don't know, funding or building a secondary protocol that focuses specifically on highly liquid stake derivatives? because um apparently a lot

of like uh bigger investors, prime brokers that want to get into staking ETH, what they really care about is the liquidity so they can exit early. Uh what are your thoughts on that? And um does the vault does it take away from that liquidity? Is it affected by it? Can you talk more to that end? >> I'll deal with that the the base kind of like from the protocol liquidity. So um so there's a couple of things there. So we have within the DAO uh we have a management committee called the incentives management committee. Um their job is to incentivize liquidity of re across uh different chains. They focus a lot on mainet to make sure we have um deep liquidity on mainet but they also um they also incentivize

liquidity on on L2s as well. Um so that goes um that's incentivizing liquidity providers on uh different liquidity platforms. Um so that's that's kind of like one thing. Um the other thing is in terms of like withdrawal liquidity um so uh Saturn which is our next release which will be in in January that actually improves withdrawal liquidity um quite a lot. So at the moment um uh the withdrawal liquidity is just fed from uh node operators exiting the the protocol. But uh in Saturn Zero, it'll also be any ETH that goes into the protocol, we'll serve withdrawal liquidity first so that we make sure we we service that first and give that a

priority and then it'll go into growing or servicing the node operator Q. So um so yeah, that that'll help get that kind of like withdrawal liquidity from that from that perspective. Um yeah, that's that's probably the base level. Yeah, and I think that will be an awesome feature for just Rocketpool's competitive positioning in the LST marketplace. So, very much looking forward to that. >> Um, then the next level I think where you're getting at too is well just holding an LST if you need to get liquid ETH like you know how do you do that? >> And there it's um there's secondary markets, right? where you know that's another one where um >> actually I should say at the protocol level as well um talking about kind of

like the the big institutions um uh the DAO has kind of like pri prioritized redemptions um so essentially forced exits of node operators um for the for our next release so after Saturn um the next release after that we'll have uh forced exits um redemptions um and so that's that's like a key thing for particularly the the big institutions. >> Yeah. Yeah. And then for the sort of getting from um an LST to uh to actually liquid ETH that I actually agree with you there is a kind of an unmet need there because um that exists today. you can call a lending desk or a um if you're a large institution or a um a

market maker and say like what's the cost to borrow ETH and then um the thing is like though when when when things are orderly and the redemption the the execute the validator exit is low it's like not much and then when kil blows up and you ask and it's 47 days the answer is it's a lot so um yeah it's it is an interesting I think place for experimentation Yeah. >> Excellent. Well, please give a round of applause both for Darren and for Steve. [applause]