Why restaking is crypto's biggest opportunity

Transcript

did you know that reaking is the fastest growing use Case by tvl in the history of crypto igir went from 1 billion to 14 billion in just one quarter are you prepared for this massive opportunity in this episode we're joined by Mike co-founder and CEO of ethery the most decentralized liquid reaking protocol in crypto right now to help you better understand and wrap your heads around the restate meta we I think it was to help all of us cuz I learned a lot in this episode but Mike talks about how ether F Grew From 100 million to 4 billion TV in basically a quarter he predicts the potential yield for reaking

and it's pretty juicy so make sure you stick around and check that one out Mike believes that lsts like Li and Rocket bu are going the direction of a fax machine and everyone's going to move to lrts which is actually something I believe in as well uh and then we talked all about the token of ethery and what the purpose of that token is and how it fits the ecosystem this was a juicy juicy episode really good stuff here gmgm welcome to milro radio the easiest path to get smarter about crypto I'm Jay Hamilton joined by my co-host Kyle rehead and we believe that onchain is the next online this is the opportunity and we're here to guide you to capitalize on it before we get started on today's episode we are hiring at milk Road and if you are a

crypt native and you want to work at one of the most fun and exciting teams in the space we would love to have you check out the links in our show notes we're currently hiring a prod a Podcast manager and two writers one more on the financial analyst side and one more on The Daily News aggregation side lots of roles lots of opportunities would love to have you join our team so check out those roles Kai you're also writing a pro report all about reaking that'll come this coming Saturday can you tell us a little bit of Alpha and tease us on that yeah look this episode is perfect to get the understanding about reaking and to get the perspective of one of the well

the biggest protocol in reaking liquid reaking and um this Pro report is how to capitalize on the opportunity that we're about to talk about here this episode so it is a perfect Pro report to read after listening to this comes out on Saturday it's for pro members only so make sure you are signed up to Pro so you can get access to this and see where you can put your capit how you can get the most yield Farm the right tokens and what to do in the reaking space so make sure to check it out so with that let's jump in and hear from Mike from ethery GM GM Mike welcome to milk Road radio yeah thanks for having me super excited to have you my man excited first of all because reaking is just one of the biggest narratives in the crypto space right now and we want

to make sure that our listeners are up to speed and understanding it but also ether 5 you guys have absolutely been crushing it this year has just been a rocket ship for you guys and so really excited to talk about everything you're building and your team and all the success you've had let's start with the most basic question I can ask but maybe the most difficult question to answer which is what is reaking can you explain that in simple terms for everybody well I'll do my best I'll maybe explaining two ways one as technically what's how it works and what's happening and then maybe I'll explain it by analogy to things that people might be familiar with so the concept of staking is part of the

ethereum consensus mechanism the basic idea there is that you take the ethereum token which is ether and you deposit it in a special contract on ethereum which then gives you the right to run a computer that processes transactions on the ethereum network it lets you be part of the ethereum network and why would you do this because you get share of network rewards so you put in these days the minimum number 32 East it's about about $100,000 and you put that into the special contract and exchange you run this computer you're getting about a three or 4% rate of rewards on your your $ ,000 plus you're e upside exposure that's the basic idea of staking the

mechanism is that if you you're running this computer and you screw up you do something bad or malicious your East gets slashed so you're putting your East at stake in order to run part of the ethereum network and exchange for Network rewards that's the whole ethereum consensus mechanism in contrast to let's say the Bitcoin consensus mechanism which is lots of computers guessing random numbers really fast which is a good mechanism but less efficient there's tradeoffs there okay so you say okay well that's great that makes sense so what is this reaking thing well when you stake your e you you're locking it and you can't do anything else with it so if you think about the e taking reward rate is the risk-free rate and it's pretty close to

risk-free relatively low risk like a few basis points of risk there's nothing inherently wrong with that but it's like where tbos aren't the only investment like does it make sense to potentially reuse that e that you stay that $100,000 for other stuff well what is that other stuff well you could be using it in the same way that you secure ethereum with that e you could be using it to secure other networks other blockchains other services that are built uh that need to be actively validated and that basically is resta it's sort of you're staking your e and then you're restating it for purposes of securing other services in exchange for fees from those services so then instead of getting three or 4% from just ethereum you're getting whatever you know the rate is maybe you're

getting 10% in total but you're taking more risk because you're putting your eat stake in multiple uh networks you could sort of imagine it as like you're you got a pool of capital you've got you know a million dollars and you're kind of like Lending is collateral that's really what you're doing you're let's say a company needs to take out a loan or a bunch of companies need to take out a bunch of loans you're lending them this collateral to take out this loan with the understanding that it's not likely that all these companies that you're giving this collateral to are going to go bankrupt so there's like an element of a corporate bond by analogy here it's not quite a Perfect Analogy because this kind of thing doesn't really exist in grafy but it's maybe an imperfect now very good explanation I

just want to clarify one thing The Lending example or analogy that you did we're not really rehypothecation e in reaking is that correct you kind of yeah you you are reting yeah can you explain and I don't know if this is getting too technical but this this is the thing that people continue to ask is they there's a lot of people wondering about the risks of reaking and are we setting up the system of ethereum here for systemic risk of some sort and potentially yeah so can you sort of talk walk us through that and talk about that a little bit so there's lots of I mean as with anything else right that you can imagine all kinds of disaster scenarios happening it doesn't mean that one should always think about disaster all you know exclusively in disaster scenarios right because it's um you keep

think about any new technology right cars like what if everybody gets in an accident one day and dies like okay it doesn't mean you shouldn't have cars right right because there's things that we can do about uh protecting people from from that but not to diminish it but it's a little bit like that where like people start catastrophizing right away about all the horrible things that happen and and they could but it doesn't mean that it will happen and there's lots of people that are doing you know good work to prevent uh these disaster scenarios from happening but uh there's there's a couple sources of danger one is ethereum the ethereum consensus mechanism was very carefully designed to achieve a certain goal which is to secure and run ethereum and we're kind of overloading that goal because you've

got like these validators now they're supposed to be running ethereum stuff but now you're creating these incentives like what if the other network that you're reaking on P greater rewards than ethereum and the interest get conflicted somehow now like ethereum could get degraded the other network could run at the expense of e potentially other cases would be if like you have again this is a wild scenario you know $50 billion dollars of e gets Stak in some specific restating thing and that restating thing C has this catastrophic failure and $50 billion of each just gets wiped out it gets burned sent to the zero Zer address like yeah that would be bad that would be really

bad uh I think there's much more tangible risks that are actually much more real and and sort of present that are bigger risks than that type of thing happening like um dominance of usdc and usct dominance of Lio like these things are actually like much more like concrete like right there in your face um I'm not to say we shouldn't seriously consider the reaking risks around that but most of the arguments around the dangers of staing that I've heard amount to arguments about anything that's too big to fail on ethereum those are valid arguments like things that are too big to fail are problematic um but again there's lots of things that are actually too big to fail like Unis swap very big if it fails are they going to have to

roll back the network like maybe it's not like we should fix it on reaking in fact reaking is much more hypothetical in that regard right right well let me ask you this you built a business off the back of this technology so obviously you don't think the risks are that big or or maybe you're just a very risk risky individual I'm not sure but what makes you so confident that one reaking is I'm going to assume you believe it's the next big thing or it is at least a big enough thing that you want to build a business on top of it and so one what makes you confident that you think it's gonna succeed and then two what makes you so confident that it's not GNA blow up or fail well the thing that makes us maybe I can explain a little bit about EF what

we do and what our our goal is but to answer your question the answer is because it's to some degree at least in our control right the risks that we take are in our control and control of the the protocol through governance and the way it's designed so while there may very well be blowups in fact there probably will be in the reaking kind of universe we're going to work really hard to make sure we're not one of those by mean much more risk conscious and careful okay so what is ether let me set a couple context ultimate aim is to make defi accessible and easy to normal people if you think about like what is our mission that's really what we're trying to do we're trying to make crypto native life possible and and easy for people and so with that we've got a road

map of a Trilogy of products that ultimately will make it possible for someone to save invest and spend their money all in a crypto native way that doesn't uh require them to you know onramp at off ramp they should be able to just live entirely in crypto without even having a bank account that's the dream that's trying to get to the first stage of that is what ethery has built is staking protocol and that staking protocol allows the user to deposit their e and mint a liquid staking and reaking token which they can then go out and use in in Defi and that has grown now to almost $4 billion dollar it's the largest reaking token out there and then on the back of that we've also launched a liquid vault which is a our SE product

it's called e liquid which is a think of it as like a robo a non-custodial def strategy Vault so that a person can mint their e deposit it into liquid and have it automatically deployed at defi to harvest the best uh yields in the risk managed way and then the third product in that trilogy is either by cash which will be the the spending account let's just chat a little bit about you mentioned almost four billion in uh value locked I think I was checking yesterday and you were at like 3.8 or 3.9 show out to you and your price and I I just G to ask one quick question how many people are on your team yeah we're really small I think we're 11 people now I mean we're hiring we're

trying to hire as quickly as you can but yeah we're quite the small team almost four billion in 11 people that's just wow wow sh out to your team that's just yeah incredible only in crypto what are the other sort of highlevel metrics that you guys are looking at to kind of give us an overview of ethery how many users any other metrics that you guys consider on a regular basis or look at yeah so we've got depending on exactly how you measure it about 200,000 users which is a pretty solid number in crypto I mean that's about as it's hard to get much higher than that I don't know how many active real people there are defi probably like a million or two but getting a few hundred thousand is about I mean that's as high as most protocols ever ever go like some of the largest

protocols um and you know we're growing by about again hard to tell exactly but about 2,000 users per day that's kind of the volume that we're uh seeing and then depending on the day 30 to hundred million in deposits per day obviously a lot of this is driven off the back of sort of points Mania with it there and Beyond but yeah see pretty good uh growth and traction there have those growth numbers continued post airdrop I know we're going to talk about season two later so I don't want to quite dive into that yet but just curious if those growth numbers sort of peaked post pre- a drop and then tapered off or if it's been no they they've continued we had about a one week it's last period where I guess the the sort of pure mercenary

Farmers rotated out and this is actually an important thing I can talk about in terms of like Risk and how people should think about different reaking protocols but yeah we had about I think 30 to 40,000 each which is um May almost $200 million exit so withdraw and so it was kind of flat where they that was actually just balancing out new deposits and we were flat for right about a week and then it kind of rotated out and we've been growing ever since I think during the air drop we were at maybe 800k E I may be wrong I can actually just check but now we're at 1.1 million e so we've got you know at least 300,000 e since then I can tell you right now actually yeah right around 800 we were on 800,000 e and now we're at 1.1 so

still we've grown more than 30% I guess since the Dr that's amazing yeah clearly a combination of not just points Mania also some product Market fit is clearly happening here let's talk about the there's a bunch of liquid restating protocols you're not the only one what makes ether F different a lot of things and obviously I'm biased so just you know take everything I say with a grain of salt I'm sure other people will tell you that their thing is the best but you're Canadian but you're trustworthy so that's um I know I'm Taman I'm in Taman now so there's a bunch of things so we're the largest I mean that brings with some advantages one of the advantages around that is liquidity so we've got the best liquidity depths that

you can trade traded on decentralized exchanges you can TR trade it on centralized exchanges which were the only liquid saking token um with centralized exchange listings which is pretty big deal only Lio which is a sty token has that I think that's quite uh powerful in addition to that we've got the most defi Integrations so we've got close to 100 at this point Integrations with other protocols so there's just a lot of stuff that you can do with the token and most maybe even all of those Integrations were the largest sort of deepest liquidity pool the most important thing actually is that if I had to pick one thing is we have withdrawals like that's a huge huge thing this is May blow people's mind and usually it does when I say it's like

we're actually the ultim restake token that has withdrawals enabl you may ask that like what do you mean by that it means literally other reaking tokens you can deposit you cannot withdraw you have to swap it in the market which it's like okay you've got a billion dollars of tokens around there and maybe 20 $30 million liquidity so yeah if everything's perfect great yeah you'll be able to swap it out of the market if like the slightest blip happens that you're going to deeg 20% and that's going to cause liquidation so if you're taking leverage on this thing it's really uh dangerous and so having withdrawals means that there's an army of market makers and Traders that are standing by to ARB the token if it ever goes below pay like when we had the um what the number is let's say 200 million

in e exit during that in withdrawals during that period like our token didn't be Peg deeg maybe 25 basis points just because of the the flows if we didn't have withdrawals we would have dged by 10 to 15% and there would have been tens maybe hundreds of millions of dollars of liquidations that would have occurred so there's a lot of protocols that are building good stuff and I I respect a lot of them but like personally I've would never deposit into something that didn't have withdrawals like you kind of I that's a real crypto D genen thing to to do um okay so that's you know those are some other advantages we've done the most audits we're in the process of doing a formal verification audit so we just on a security standpoint we're really good whatever I mean I could go on and on like there's lots of from an

eth delegation standpoint like in terms of actual like what the whole point of reaking is we've delegated the most th than the most CS relationships so um those are all things that I think make e good can we go back to your original thing where you said that you guys have control of the risks for reaking and can you just walk through you know how that works so a layer is obviously the protocol that enables reaking or or one of them anyway I think there's there's competitors that are probably coming but how does this work in the sense that you guys or or not even you guys I guess it's probably the Dow or the the governance structure Now sort of controls that risking is it controls the capital and then I want to get into this conversation around abss you just brought that up we'll explain what that

is to to listeners in a second and kind of how those Dynamics work with with reaking but let's just start here on the control side just want to get an idea of how that how that works so there's a number of decisions that are reaking protocol is making when it comes to reaking with with liquid staking like Lio or rocket pool or Stak wise you're not making riskmanagement decisions I guess except for May which node operators you you and obviously smart contract design with reaky you so so like one liquid staking token that's just vanilla steaky is if you're comparing lighter rocket pool like you know there's pros and cons but like Risk level is probably comparable between those two with liquid reaking there could be wild differences you could have a liquid reaking token that is insanely risky and another one that is like

basically you know the same level of risk as vanilla staking and so the decisions that the liquid reaking protocols I guess are are making is which adss to actively validated Services which reaking services to delegate to so in the analogy of like you're writing collateral to a bunch of companies to you know take out loans which companies do you provide that collateral to how much collateral do you provide so how you which abs and how much e are you giving them and then what is the overlap like are you using the same bucket of eth that just secures everything that serves this collateral for everything or are you doing some attributable pieces that are like okay this collateral is just for this company

and nobody else which is less risky than this collateral is providing security to you know 10 different ABS so those are the decisions that are being made in the initial stages there is no flashing implemented yet and so for probably a few months there's not going to be slashing possible so there really isn't a lot of risk management to do it's because again there's no slashing so there's not much uh uh many decisions to be made but once slashing is implemented our approach is going to be to work very closely with the number of thirdparty entities that are contracted by the foundation to do risk assessments on every ABS that we would work with and only wi list and work with ones that we the the cross a bar I mean all the ones

that launched recently with i l I think certainly meet that bar but I think eventually there's going to be a big spectrum of like sketchy versus web design ones um right so we plan to only WID list the ones that are high quality and then second of all we plan to only not to sort of reh hypothecate you know as aggressively as one might otherwise we we don't plan to be the highest yield liquid restatement protocol we plan to be the safest and so that means there probably will be you know super DJ protocols out there that uh make different choices let's sort of connect the dots for the listeners so reaking is basically you're taking your stake eth you're reaking it and now you're extending the security of that eth to go and use it for other

applications which you're calling which are called avss right and so you can take your pool of eth and you can start to provide security for I don't know rollups or other blockchains or oracles or other applications that also need security that don't want to bootstrap their own security they want to instead pay for reaking instead and so what you're saying is basically those abss are going to pay the reaking protocols for their security and I guess the more that these reaking protocols use that capital or reh hypothecate that Capital the more yield they can get so the more aggressive they get the more yield that can be present to the re okay interesting I did not realize actually that that's how it was set up and so it's up to the discretion of the protocols to decide on how risky they

want to be exactly yeah so you could have 500 layers or one layer and a little slices for everybody or like one big pool for everybody those are all choices that are being made interesting and do you have any idea what so right now you can't see what the apy is for your reaking portion of your there's no API do we know what those estimates are or do we have any sort of idea if I had to guess it would probably be around 5% across everything conf guess not a forecast on top of the staking y wow whoa that's a complete guess don't okay on that at all but the points stuff has been very has been much more lucrative but the reaking yield I

think will probably be in that ring that's my guess wow that's incredible so now you have Stak eth bringing you you know three to four% and then you have the restake somewhere in the ball park of 5% um yeah I mean let's make it a range like two to six% let's say that that's probably a plausible rate interesting I don't want here quoting mem like you said it was yeah yeah I know worries that's interesting I mean from what we've seen it's always been zero and I was like what is this going to be is this going to be massive is it not like I wasn't really sure and obviously that'll depend on how much attraction or attaction we get from reaking right is there a lot of abss or not do you have any idea ultimately like initially it's token you know emission that's all it's going to

be right because there these adss don't have customers yet um right so there's no economic activity right now so it's just token emissions and obviously that's that's very speal at some point the bridges and the oracles and the cross chain things and the ZK co-processors they're going to have customers and those customers are going to pay money and that money is going to eventually flow back to uh to resters interesting I know it's still early days on reaking but I want to sort of get a lay of the land here of I guess sort of the ecosystem and the competition so you have a bunch of liquid reaking protocols as we've already sort of touched on ether 5 being the biggest the largest and the most safe so far as from what you're telling

us and then you also have the liquid staking protocols right you've already mentioned a bunch of those Li rocket pool Etc I'm curious where you think this whole ecosystem goes does everyone just move to liquid reaking tokens and you think that's how it's going to be uh yeah t restak is just going to be table States ASM totically ethereum staking yon is going to come down to I mean I actually think it comes down to maybe below zero with the the most recent proposal I thinket which one it was where like the yield curve could actually go below zero if there's too much stake if reaking yields are sufficiently high taking yield could be below zero but it's still worth it because you can restate so I I actually

think it may have the exact opposite intended effect well I guess it still sort of reduces the y or the amount of e stake but I don't think it'll have this like dramatic effect that like L SE ends up getting stck I think uh d y could go to below zero and be will still a in so right now 26% of e is staked 3% is restak project that out for us what do you think those numbers look like in one five well it depends exactly where this proposal ends up but um whatever the yields end up or sorry whatever the amount of State de whether it's 20% or 50% or anything in between most of the yield is going to come from reaking and

therefore I think restak is just going to be table Stakes right because like why would you hold the token that P you either zero or negative years or 1% why would you hold that if like relatively safely and I think it will be relatively safe and you can earn 3% 4% 5% whatever you're just going to hold that token and again over time this will be more battle tested and proven and it just become uh table Stakes yeah I mean again I really especially I do think this proposal probably will go through I I think sty yo probably goes to zero or negative and just most of the yo just comes from reaking very interesting there probably eum right well I mean it's definitely a good thing that reaking came about because if not and staking yield goes to

zero well then that's but the reason zero is because they're like seeing all like everybody's just dumping all their e and that actually I mean we can get really technical so too many validators are problematic because it makes it difficult for the network to reach consensus so there's this other proposal called Max EB which increases the amount of E could put an validator so it's not fixed at 32 but that it relieve a lot of pressure from the network actually so there'll be much fewer validators with some of which just having more e that addresses a lot of the the problem so there's a couple of these like different solutions so the idea is you want more e Stak but less validators running that stake because then it just complic

issues some people would argue uh that too much eat steak is is problematic you don't want to let all your eat steak some people would argue it's um I I disagree with this but like one might argue well like you really should just have the minimum amount why have a ton of e s you should if like 10% of e stake is sufficient to provide security to the network anything beyond that is just kind of a waste you know you want that e out there doing stuff I would disagree with that but that's one argument for why one might not want to have a ton of safety interesting let's jump out of the Leeds here on that note though I do have one question so if you if you believe that we're going to basically move move away from any liquid staking tokens and we in the future we'll go all liquid

restak tokens super set to be clear like liquid reaking in a certain condition where you're not securing any ABS is liquid staking so it's liquid reaking is super set it's more just like everything moves to the super set I think by default right makes sense so what do you think happens with Lio rocket B Etc who are currently just liquid staking tokens do you think they start to run their own reaking or how does that play out I think so I think they're gonna have or well there's already a way for people to participate by just wrapping and it's a bit of a misnomer but like reaking the liquid staking tokens so they you can already take re e and SE and put it into igen lay restake it and then you could just wrap that into a receipt token I

think you know igen pie is the largest one of those I think um so that's already possible so that may very well be the way that people participate and so like all re and sth and others are wrapped up in these liquid you know reaking tokens right okay talking about reaking is always so weird because you're like staking tokens and then repping tokens like yeah yeah it's just it's so we're writing a pro report on it and just like the amount of times I've said these words I'm just like this is getting out of hand try to explain to a non- crypto person what what you do when you're remember at the beginning of the episode when you said your overall mission was to make this to make reaking available to the normal person and here we are and it's like completely

inacessible to does a person that getting a 3% you know interest rate on their checking account need to know but the repo market right no no they shouldn't care about that they shouldn't care about Bond e curbs and whatever they're just I got money in my checking account it's giving me my interest that's it that's all I care that's the level I think that a normal person shouldn't have to care about they shouldn't have to Mint a token and then put it into pendo and you know make a decision of a YT versus PT like that's not a normal human and this is your goal with either fight right like in having the liquid restake token liquid and then cash which is the the third part of your the three different services that you offer is basically the

ability for someone to hold all of this in their wallet and then be able to spend it but yeah I I'm assuming the Future Vision for you guys is like they don't need to go and think about all these different tokens and stuff just have E5 bank account yeah deposit e deposit Stables deployed through Auto non-custodial fully transparent so you can think of these as like this is an analogy analogous to ETFs but some shitty Banker can't take all your money um sense that it's self custodial you're still holding custody of your assets it's fully transparent you know exactly what's happening with them and it's it's automatic or managed through a governance process that's what we're trying to uh to get to there's

like all this like hype and excitement about like Bitcoin ETF e ETF and and I get it obviously these are like great ways to sort of bridge the two the two worlds but I think we're actually not even that far from a world maybe it's five years you know maybe it's three years where the default is going to be crypto you're not going to launch funds like launching a fund on like the you know NYC or NASDAQ or whatever or or or you know going public would just be weird it'll be like buying a fax machine it like what do you like all the liquidity everything's in crypto like what do you even talking about So eventually this stuff replaces ETFs and funds I mean these are the Proto versions of these these things and so I

think right now everyone's excited about all these inflows I'm looking at that look it's going to be the inverse like there's going to be funds and entities launching crypto native on you know decentralized exchanges and people will be excited when people bridge that to to Trad fight because the flows will go in the other direction because most of the be in crypto agreed let's talk about the business model side of this when I think Lio rocket pool the way that they um or their Dows anyway make money is you know Lio takes 10% of the yield that it's getting from stake rocket pool takes 15 coinbase takes I think 25% and so there's sort of probably a race to the bottom there on that although they've they've stuck with that how does it work on the liquid reaking side is it the

same thing are you guys just going to take a certain percent of yield or is there a that's right we're there's a lot more complexity here because running multiple ABS is more expensive as a operators just more it cost more money to run all these things the basic idea is the same that there's these abss are providing rewards for running for validating their services those rewards portion of them goes to the node operator portion will go to igen lir portion will go to The Ether five protocol and then the vast majority should go to the uh the Staker I don't know if it's uh five5 and five and 15 85 goes to uh the reaker or what but um it'll be that order of magnitud D you know I don't think there's a lot of

folks that we've spoken to that are arguing for a much larger rev share I think um there's a reason I think things have settled on 10% for staking and one it's because if you try to do more it becomes overly punitive and you just don't have a lot of customers eventually and then it also has to be somewhat correlated to like the cost structure of running validators and so if you're you know if you're charging 1% you don't have enough money to run the Val you don't have to run enough money to run the servers if you're charging 20% unless you're you've got almost a captive audience like coinbase it's too punitive so there's going to be a balance there if I had to guess I can get be that order of magnitude where

it'll be 8515 or may20 between uh you know resters and the various service providers so you guys don't even have a plan yet for like you don't have an exact strategy out of what you're going to charge nobody knows because nobody knows what this stuff's going to cost the fee module hasn't built yet yeah no nobody knows yeah that's so funny this space moves so fast it's so wild well yeah I mean look G got 10 billion in tvl or 14 billion in tvl before a single re ethos reate right yeah very much kind of get gets ahead of it so actually that's a great point I got a question did you expect it to grow that fast like I don't know when you guys started building ether fi I'm curious to know that and then like did you expect

this to happen this way yeah just a year ago I guess is when we started and uh no nobody expected anything I mean a year over a year ago when we were staking was a couple you know lectures on YouTube by this professor named Shri like that was that was reaking I didn't even know if that the word had like become common place yet right we started as a fund that was doing staking my previous company was a tech company then we started a fund and we were doing staking and so when I was looking at that it became to me at least it became really clear that reating was going to be the table stakes and is going to become the the default for staking it was there was an opportunity to build the Next Generation staking product and so we made a very big bet I mean we took this

huge gamble which a lot of some investors bought into most did that this was going to be the thing and that bet turned out to be so much more maybe it's incorrect to say that the BET was right because well we we certainly didn't predict that like there would be this insane speculative frenzy around restak and all this Mania uh the BET was that reaking was going to be legit and and create a lot of value um what we didn't expect was the speculative Mania around it and so yeah it shocked I think everybody shocked d l shocked yeah like it it was a real surprise I think everybody involved pretty nice surprise though that's for sure it's nice to step into a business where or maybe not actually to some degree but I would say

it may turn out to be more of a problem than actually a benefit because if a market gets so far ahead of itself in fact that you will be it is a problem more than a benefit when the market gets so far ahead of itself how long is it going to take before there's enough like services that actually create enough value that like can sustain all this because you've got you know whatever it is 13 billion in E that is needs to be serviced right in a sense it's sort of it's it's kind of a debt and so how long until the thing gets big enough to actually be able to service $ 13 billion need like a couple years I think and so there's going to be this uh there's a lot of challenges associated with that that everybody is is working on I think it's a little bit like you

know why the coyote like run off a cliff and like you don't really know that you're about to fall yet and maybe if you keep running fast enough you can make it to the other side that's a little bit how uh it be this I mean aay has basically Gone From Below 1 billion at the beginning of January to almost 15 billion at the end of March early April I think that's the fastest growing crypto protocol in history in terms of TV I don't know of anything I was trying to think of this I actually tweeted this out yesterday no one had the other probably right yeah I think it's the fastest growing I grew pretty fast but I don't think it was that fast not as fast no this is almost double as fast as L we actually there's a chart that's um percolating around Twitter right now and

it's comparing I ler to then L double as fast so it's pretty wild but I guess to your point of what you said of like well we don't have enough AVS is in Revenue to actually support all this e yet that 5% you're saying is or the range gave is a future thing that's going to be years out before we reach that or is there enough incentives in the meantime like so many things it depends on the you know the fed money printer a lot of this is speculative right so all these abs are going to be inuring tokens and those tokens are going to be emissions and but like there needs to be enough speculative demand for these things for the emissions to be worth anything and so that's where the 5% instead of a completely made up number not completely

made up that that is a very very in precise number so that's where it's going to come from it's going to come from various token emissions from speculative speculation around those tokens Can you just um share a little bit like who are these abss and maybe help The Listener also understand like what is the problem that AER and and reaking is solving for these abss yeah that's a great question there are lots of problems that it solves I'll name a couple so one is it allows somebody to bootstrap a network or or a ser service more efficiently so normally if somebody is spending up a new blockchain like I know kusama or whatever so somebody is they're trying to spin up blockchain

they need to do a lot of emissions token emissions to get people to like provide security to that chain so they launch this whatever Usama token you got to do 30% annualized emissions to just get like people to use this token and stake it and you're trying to bootstrap this network and you're you end up you know creating a ton dilution and um on this tokens that's problematic right that was the only way to do it now you can launch a network and provide you know maybe 1% emissions of your token or some something on that order and for that 1% you're borrowing the security of this like super stable crypto land super stable Rock Solid asset like uh uh like ether so instead of like bootstrapping or network

you're just paying like a little toll to borrow the ethereum security so you the net effect when you're bootstrapping Network you have to do less emissions you have to less do less dilution to to bootstrap because you're borrowing security of a more established uh n that's the value proposition of reaking and igen layer is that you can bootst your network more more efficiently there's other benefits around more tighter coupling and Alignment to ethereum like if you have for example an oracle Network that is sort of houred or secured by reaing it actually um uh allows your work on N to potentially be much more efficient from both a gas standpoint and um you're not having to create a whole other network of nodes

you're just reusing the same existing ethereum infrastructure and something like an orico network is actually quite foundational to uh a blockchain uh so there's lot I mean I can go on but those there are lots of benefits that um come out of the restak naturally in Building Services via restake it opens up a pretty broad design space um right examples there are lots of examples Omni is a an interop cross chain solution it's like its own network but it's used to provide cross chain Communications across different layer twos and and other chains so Omni was the first deal that we you know we struck with them as ether fights provide I think it was 600 million in each security so that's one example another example is lrange which

is a ZK actually I think they launched with State committees I'm not even try to explain that but uh their next product is the ZK co-processor which let to um provably Aggregate and compute across data on the blockchain where previously You' have had to do a bunch of like offchain computation I don't know if that makes any sense but that's the basis idea of it there's the old layer which is there's a whole bunch of these tyes I could go into the Weeds about each one and is this you said that you guys struck a deal with them is IG layer the ones that are bringing in the as's or is it on the frea protocol themselves the way to think about it is iir is Amazon or the Amazon Marketplace we are a seller on Amazon Omni is a

buyer so we're selling e security Omni is buying e security and right Igor is the infrastructure and S is the connector okay yeah cool very interesting we'll get to the token and the points program and stuff in just a second I just have one more question Jay I'm not sure if you have more to ask as well on the note of reaking there's another protocol that just recently launched I think it's called Carrick or kak or something like that which is now taking reaking outside of just eth and you can restake I don't I think like stable coins and probably other tokens I don't know what are your thoughts on this and is this a thing like is reaking meant to be just for eth or is this going to proliferate to millions of tokens just if you think about the name it's reaking usdc is not stake so you're

not reaking you're providing smashable security which is uh very closely related obviously because like that's a big part of reaking is you're providing Etha SL security but it's not reaking so maybe that's pedantic because it's not like who cares about what it's called you don't want to associate it with something that's perceived as stake like staking and like you're taking your dollars and using them the slash security and like you're using this word that's proceeded that St safe it just doesn't kind of doesn't sound right um but aside from that yes they are providing a protocol for slash for providing slash security to other services um to be perfectly honest I don't know a t about it but yes they are I mean I think they would visit position themselves as I L better interesting Jay

any more questions your end or should we get into the uh let's let's sh gears to the Token you guys launched your token on March 18th I believe and so we're just under a month here we're recording a bit before this episode comes out by the time this comes out we'll be at about a month of the token what's the purpose of the token within your ecosystem how will it be used give us a uh an overview yeah so it's the network token that I guess controls the protocol so it is the protocol that the the token that is used for voting to pass proposals from the foundation which then you know contracts out the labs company to build and Implement those proposals so voting is one source of utility for

the token the other uh we have a proposal that's going to be live on this soon and this proposal is a buy and lock mechanism where a portion of protocol Revenue goes to purchasing the the token on the open market automatically and locking it you know in the foundation for some period of time so that um effectively creates a value acrel mechanism for the uh the token and then in addition to that there is a role for node operators and staking of the token but that hasn't been flushed out yet on the voting side I mean obviously it's to for upgrades of the protocol and stuff but is this also for the risk appetite and the abss that you're going to be eventually it will play a role I think

probably wide listing will require vote wide listing in ABS will require a vote probably some risk parameters will be set using the the token um just leave it at that for now okay and you mentioned the value AC crw which we we already talked about how sort of the revenues are made from ethery this instance it'll take some sort of cut from that we didn't really touch on what about the other products you have of liquid and cash is there other Revenue sources coming from that and will can also play in the ecosystem there too or how will that work yeah about half of our Reven so liquid is now the largest defi strategy protocol I mean it's all part of one thing so it's kind of with eeri right now you're actually you're getting kind of two things you're

getting the largest liquid reaking protocol and the largest defi strategy protocol and soon the largest payment Network and all really nicely integrated with each other it's it's kind of a first in defi where we've got this like clean fully integrated sleet rather than like these very narrow kind of Point Solutions which people have gotten accustomed to I guess in in def5 so ether stake is the staky product ether liquid is the automated def5 strategy b e by cash is the the spending product that's upcoming uh and each of those has its own protocol revenue streams which then you know feed back in value cow back to the uh the token and uh yeah as I mentioned so liquid is actually driving about half of protocol Revenue

right now even though it's um maybe 15% of the size in terms of tvl as the state product interesting and it I mean it only launched like a couple weeks ago yeah I guess about less than a month three weeks ago yeah and what's the timelines around the cash product mid June is what we're aiming for first W launch yeah for 11 people you guys are just pumping things out we're hiring we're need to hire a lot of fol yeah you want to come work at UH ether F come you know check us out we're looking for a lots of D cool let's talk about this points program I followed you guys from the the early early days of when you started this and you guys knocked it out of the park points programs are obviously like

somewhat new but very very popular over the last like L's probably blast I think started it and then FR well uh blur blur was blur right I I don't even know if I want to take credit for this but right around the same time blur and US launched points programs we had no idea that I was in an I didn't know they existed but like I guess simultaneously we invented this goofy thing when did you originally launch your points program February you know 20222 whoa really3 yeah feary yeah yeah wow okay that was earlier than I got on to I didn't realize it was that long the last like from Q4 of 2023 and this last quarter though you guys I thought really

put in a good marketing strategy you guys had different like weeks where you would do certain events you a vampire attack yeah but they worked really really well I think right like yeah talk a little bit bit about your guys strategy with this points program like why you guys are doing it how it's working like just I help us wrap we again I don't know that I want to take credit for this but look we did come up with a lot of this stuff that's now become sort of standard I knew it's just I don't know just coming up with stuff and experimenting with a lot of stuff worked a lot of stuff didn't work I was just sort of playing games I don't even know why I'm I I don't want to take credit for this because it really like went people went too crazy with it but

like we did the thing where we chok Igan L's points and just passed it on to our users that turned out to be uh like gasoline on more like Napal on the other fire because it just went I mean that that went absolutely insane and then obviously lots of folks are are doing that now yeah look we just ran a bunch of experiments and we did hundreds of experiments and probably most of them fail but like a few of them really worked Mega week was a big one and that that was massive and then Final Countdown was a massive one we had almost 300 more more than 300K steak this part of like The Final Countdown promotion we're running one now called staking friends and it's um it's funny

how the bar has changed it's maybe about 70k e so far and we're kind of like yeah it's okay that it we need it needs to be more okay so season one ended a couple weeks ago now we're on to season two which I think is about 10 weeks long or something they get finishes up in in June no more than that it's until June 30th so it's uh okay 14 weeks and 14 weeks okay cool one of the questions that Jay and I have have talked about a couple times is like how do you wean your users off of points we're all addicted to points in crypto and I mean it works really really well like it obviously brings in a lot of users brings a lot of capital which allows you to basically bootstrap your business and obviously IG and a bunch of

these liquid reaing protocols have done really well from that but like you said the season one is over and you had a bunch of outflows now you guys had season two and so the capital came back in yeah when does this end or how does this end like what how does it work we're not going to be able to do a season three because it's just there's not we're too large basically like we need to like emit all of our tokens right absolutely have a a real return yeah I mean I guess we bootstrap this network the token is embedded in all kinds of things now and I think the seasons are going to start winding up kind of across the the universe uh and so everyone's kind of gonna have to shft back into more steady state mode that doesn't mean we're not going to be doing

token emissions we will be and incentives and grants and all that but uh this sort of like fire hose of points is definitely gonna has to end because there's just not enough to sort of go around what would it be the end results of that do you feel strongly in that it won't have a big impact or will it lead you guys to be in a position where all of a sudden a whole bunch of people are pulling out I'm sure there's going to be lots of people that but like it it's physically impossible for everybody or anybody to just keep emitting points forever so at some point it's like okay you're going to pull out but then do what you're going to go back to Lio like and then there's going to be reaking rewards and all kinds of other reasons to stick around so it just becomes more

of like a a standard you bootstrap a standard where you're going to have your long e exposure through these reaking tokens and then of course you know different people have done different strategies right SW is doing their Layer Two For example and so that is sort of like they bootst this network and they're using it to launch a layer two and that's going to create an ecosystem around it so that creates some value and and stickiness our strategy is we're launching this this Suite of vertically integrated products and so if somebody is using us for staking for liquid and they've got their credit card that they're using day to-day it kind of just makes sense to stay in the ecosystem right and in fact with liquid I mean we're going to be accepting a variety of tokens so

uh I guess we're probably going to announce it before this uh this airs but yeah we're goingon to be accepting for example swell as you know reaking token into liquid because it's it's actually not competitive we want to have a broad array of strategies that people can can use so um our approach is vertical integration and what does that mean we're providing more value to the user we're creating a product that's just like really easy to use and let the user participate in defi without being a you know financ nerd so that's valuable and I think that'll that'll add some sticking some stand power yeah I me it's all about finding product Market fit right which is like the lesson for a lot of people in crypto if you're investing in companies is like are they just have a bunch of users in capital because they

were giving incentives or they actually have product Market well of course that's why I mean that's exact that is the reason the people went because of the point systems and games and all the you know the speculative stuff that's exactly why they went in but that that maybe why you enter but do mean you're gonna exit immediately right for sure so the true of any ecosystem bootstrapping project for sure for sure yeah you brought up swells L2 which is quite interesting so for those that aren't aware swells launching L2 where a bunch of liquid reaking tokens are now on it's kind of like the staking L2 and I'm curious with with the setup that you guys have of your three products you're going from staking a token and earning yield on that to then paying with a credit card I imagine this can't exist

on ethereum L1 this is going to have to move to an L2 as well will you guys launch your own L2 will you just use like swells or how's this going to work we're open to both options you can't launch a payment system on ethereum El want obviously pay $2 for you know gas fees for a coffee um so for sure we need uh you know we we're going to look at a variety of Alternatives that we're looking nosis pay is one foundational thing as well I'm sure could be an option I mean there's there be multiple networks that we do it across there's a chance we build our own I don't know I mean I I've always kind of shied away from things that were very kind of grifty it's very easy to just be launched L2 or an L1 just for the sake

of it because you know that's uh that will create a lot of like specul buying around it um we'll do what makes sense for the user like for us the the customer is what actually matters if it makes most sense for us to use another product that's probably what we'll do and that's the most likely outcome because there are a million l2s lots of things could be used to we need you said this product's going live in June right I mean it's it's not going to be like a full-fledged uh Universe in June like it'll be uh yeah aspects of it are going to be live June will'll probably have like a landing page and some explanation of how it's all going to work in the next couple weeks actually but um the actual like click a button order your card and download your app this is going

to be around uh mid till a June so things are moving real quick for you guys like you're not even quite sure what what chain going to be on if you have your own chain we're evaluating options yeah there's there's zero chance we're going to build our own Chain by that is 100% yeah it's just interesting how far this ecosystems come like I don't know like a year ago you would have had to plan this out so far in advance and now it's just so easy to either I mean you probably could spin up your own chain yeah like by true yeah you could an optimism stack and like five yeah I mean there's a lot of infrastructure has been built that makes things that uh in trafy are just impossible or would take a decade now you could do it in thei in days or weeks

that's the magic of the of this ecosystem what needs to happen though is like real economic activity has to like start getting kind of mounted on this system in the end like it it can't just be a giant Casino forever right every what can but to me that's a lot listen hope yeah I was gonna say hopefully that's not what it is Jay I'm not sure if you have any other questions Mike is there anything that we missed that you think we need to touch on when it comes to ethery or reaking I a ETA the whole thing anything that we haven't really touched on yet I think we covered a lot I mean I'll just say you know ether five is going to be your place to uh save invest and spend your crypto uh in the meantime go go to user. buy take some e

uh deploy it into liquid and just play around that's probably the the best thing that anyone can do just stay a post on how the stuff works Mike where can uh people follow you or uh anybody listening that's interested in uh joining your 11-man team that is lifting a heavy lift right now where can they learn more about your jobs yeah go to E.I I think we've got a jobs board there um in terms of following us following _ 5 on X yeah those are probably the best your best channels join our Discord server amazing Mike just a incredible conversation thank you for taking very complex topics and doing your best to simplify them for our listeners and for everybody out there and there's a great

opportunity right now and a great opportunity ahead to understand and get involved in providing this security for ethereum and for all these avss so excited for everything you guys are building a deep bow I please go high five all 11 guys on your team guys in I don't know because it's just insane what you the speed at which you guys are moving is truly incredible only in crypto does innovation happen that fast so thank you and uh respect for everything awesome yeah I really enjoyed the conversation thanks so much for listening in everybody have an awesome day thank you for listening to milk Road radio the easiest path to get smarter about crypto if you like this episode share it and hit subscribe or follow so

you don't miss out on the next one there's also a link in the description to our free 5minute daily newsletter where we simplify crypto for you while making you laugh and if you're willing to step up your crypto investing game then we'll leave a link to milk Road Pro as well your number one resource to help you invest successfully in crypto one final note this podcast is for educational purposes only and nothing we say is financial advice crypto is risky so you should never invest more than you're willing to lose thank you friends and we'll see you in the next one