Will Cosmos Hub Enshrine Stride and Save ATOM? | Analyst Round Table

Transcript

The fact is all the issues that you see on Cosmos historically are going to port over to the L2 space. Optimism still has no does not have an interoperability solution. There's still not an interoperability solution between Optimus and Arbitum. And before people start like coming into the comments saying, "Oh, CCIP from Chainlink is going to like solve world hunger." Like, slow your roll. It hasn't even launched yet. Uh it hasn't really been battle tested. Like it's easy to say that when it's just a concept, but until it has a year or two under its belt. Um, you know, I would not I personally would not like trust any bridge outside of like IBC today.

All right, everyone. Welcome back to another episode of ZeroX Research. We got a great analyst episode lined up for you guys today and uh, you know, really liking this new format. So glad you guys are in the same boat with us. It really just gives us the floor to just, you know, jam on what we've been thinking about all week. So, uh, we got a got another one rolling this week with Effort Capital and Ren. But before we dive into the thick of it, quick word from our sponsor, the Hexons, the most hardcore security team in web 3. They're working a ton with ZK and novel cryptography, and they've worked with trusted projects like Polygon, including work on their new ZK EVM. It's as well as Mantle, Risk Zero, Lido, 1 in, New Bank, and more. We are recording this episode on October 6th, uh, and it will

be released on the following Wednesday. So again, we're uh we're battling through some PTO and some time off. The boys are doing a little RNR. Uh so forgive us if anything this goes uh in this goes stale before it gets released. We're doing our best here, but we will be back to the regal regular scheduled programming uh the week after this. This week we have a uh interview section going live on the Thursday of the week. Um and another good another good episode this one with Bitwise again. Matt Hogan and Ryan Razerson make a third appearance. I don't know. We're giving these guys too much time. No, I'm kidding. They're they're always a pleasure. A lot of good co talk on ETFs, why it's important, as well. As always, we get their institutional viewpoint. Um, so let's uh let's jump into the analyst segment,

though. Maybe I'll get Effort Capital to kick things off. He was just over in Istanbul enjoying the Cosmos First event. So, I'd love to get a recap of that. Um, and honestly, there's a major news event that kind of rolls us right into the governance update segment. So, uh, I'll leave the floor to you, sir. Yeah, thanks, Dan. Um, yeah, so just got back from Gaz from Istanbul, uh, about a little over 24 hours ago at this point. Um, and I'll just start off by saying overall the the vibes were pretty immaculate. Uh so despite the bare market uh despite I think a lot of narratives in crypto Twitter especially after like the whole OP stack and like the announcement of base earlier this year um there you saw a lot of people really think that like the app chain

thesis specifically as it relates to the Cosmos ecosystem was dead uh that L2s were really taking over this idea commercializing it as in Ethereum. As we all know, Ethereum and the wider L2 ecosystem likes to like rip ideas off of Cosmos and really just do it better better distribution um and what have you. Uh but like despite that narrative, I think that is still out there. Um for those outside the Cosmos eco, attendance was up 20% year-over-year. So, um more people are still following the the ecosystem. Um again, despite like if you look at Atom prices, Adam prices are as low as they were back in June 2022. um a a large percentage of the attending attendees were devs uh and really active community members. Um

there really weren't as much like professional capital allocators. So I want to say there was like less than 15 people out of the I think there was over 1,700 or 1,800 attendees at Cosmover this year. Um so like there was literally like less than 15 to 20 people that were uh in like the VC space. U I I heard that SoftBank was there which is really interesting given like their size. um Hash Key, which is like uh a startup accelerator and and they allocate capital to other areas as well. Um I believe Spartan Group was there. I I could be wrong. And a couple other like Cosmos specific uh investors, but um overall like you could think that that is bearish. I personally think that's bullish. Um you know, devs are still building. Bare markets are for

building as like the old cliche goes. Um, and I I fundamentally believe, and again, obviously I'm relatively talking my book, so take it with a grain of salt, but I still think the Cosmos ecosystem is the most slept on, um, you know, out of like the three or four major, uh, ecosystems in the space. Um, the, you know, major takeaways outside of that were a strong focus on crosschain UX. So, we got to this point where IBC is arguably the most valid tested interoperability protocol, but uh the UX itself built on top of that still is a little um I don't want to say archaic, but it still has a ways to go.

But I think people are going to be shocked like that are coming from Ethereum to the Cosmos over the next six months. I think they're going to be shocked to see like how far uh we've come. So, I I think you know you're seeing a lot of uh interchain aggregators. So like DEX aggregation over IBC. Um having one account on a chain on chain A being able to control another account on chain B. Um you know making the entire Cosmos ecosystem actually feel like one like omni chain or one super chain like to quote like the the optimism thesis. Um so I think we're like very close. So you're you're seeing a lot of work on uh better wallet UX uh having better fiat on-ramps. um you know leak wallet which is one of like the major wallets in uh in the cosmos they presented like what their

like roadmap looks like over the next coming years um and it's really just like a vast improvement over what you've seen like in MetaMask um and even Coinbase wallet like I still think has like a lot a long ways to go um you know a lot of discussion in the Ethereum ecosystem around like account attraction uh ERC 4337 like pay masters and all that stuff but it sounds like the Cosmos ecosystem And the devs there are much more focused on UX, I think, and are much further along than what they're giving credit for. Um, I want to I want I want to jump in right there because that that makes sense that that's the focus, right? Is because if you have this network of app chains that inherently have a piece of friction between them, right? Like they are

separate ecosystems. They need to connect there. there needs to be that super super driven focus on UX where if you think about some of these other uh smart contracting platforms like honestly any of the monolithic L1's like they didn't necessarily need to think about that out of the gates and I I don't know I mean this is like an impossible question to answer but I wonder if that like played a role in like the very like engineering focused drip mindset versus you know bringing an app to a to a consumer quick shout out to Hexons as we explore today's blockchain landscape let's take a moment to recognize them as a premier cyber security provider in web 3. Hexans is trusted by tier 1 projects like Polygon, including a security review on their new Polygon ZKVM, Mantle, Risk Zero, Lido, 1 in, New Bank, and more. Get a deep dive

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Find them in the links in the show notes. But without further ado, let's get back to today's episode. There's obviously benefits to building on a monolith, uh, at least up front, and we see obviously some of like the downstream or longer term effects of doing so outside of Salon. It sounds like they've kind of figured out a lot of the issues with building on a monolithic chain. But the fact is all the issues that you see on Cosmos historically are going to port over to the L2 space. Optimism still has no does not have an interoperability solution. There's still not an interoperability solution between Optimus and Arbitum. And before people start like coming into the comments saying, "Oh, CCIP from chain link is gonna like solve world hunger." Like slow your roll. It hasn't even launched yet. Uh it hasn't really been battle tested. Like it's easy to

say that when it's just a concept, but until it has a year or two under its belt. Um you know, I would not I personally would not like trust any bridge outside of like IBC today. uh but there's been a strong focus on on product uh on on applications and user experience over the past like six to 12 months in the ecosystem to abstract away IBC and I think you're starting to see the fruits of that labor starting to play out and I'm actually really excited to see like what um the ecosystem looks like end of this year and early 2024. Um, you know, on top of that, obviously, we we spoke about it a little bit, uh, and it's been on the in mainstream media, I guess, for the past few months, but Native USDC officially coming officially here in the Cosmos ecosystem, uh, Circle was there and presented like

the work that they've done with, uh, the Noble team uh, to really um, have like useless uh, seamless transfer of USDC from Ethereum to uh, to the Cosmos. It's going to be like a really big uh launch like officially when DYDX comes to see like how much native USDC transfers over into the Cosmos eco. Um, another big thing was like lack of liquidity. Obviously, Cosmos ecosystem is not nearly as liquid as you'd like to see it compared to Ethereum at the very least. And there was a big focus on how do you bring ETH liquidity and Bitcoin liquidity over into the Cosmos ecosystem and potentially like create an an onchain economy uh for Bitcoin. So, Nomic uh which is like a BTC bridge uh

leveraging tap routt gave a good presentation. There was a whole host of teams building ZKIBC tech to bring mainnet uh Ethereum liquidity into the Cosmos ecosystem. Um, and I think the the last really big takeaway I'd say is the uh ICF, which is uh not Cosmos Hub specific, but like the foundation for the wider interchain, and they're sitting on like $280 million uh a split up between Atom, Bitcoin, and Ethereum, and I think about like 80 to 90 million of that is sitting in dollars or maybe treasuries. So like the ICF is extremely well funded for the foreseeable future.

Um, and I think that the the Cosmos ecosystem is like teameming with activity. just we need to figure out what is that use case that gets users over here and I don't think this is Cosmos specific. I think the entire crypto ecosystem is saying like what is this killer use case obviously we know it's like gambling today that's why I'm extremely excited about DYDX and if DYDX is a good product I think that's going to create like a flywheel where you see more liquidity and more developers come here they realize how good and how strong the Cosmos SDK was. Um, last thing I'll say, and this kind of parlays into like the the major announcement at the end of Cosmoverse was the Stride and Cosmos Hub potential merger. So, the Stride team came up like right at the end of Cosmoverse and presented a idea

for Stride, which is the dominant liquid saking protocol in the Cosmos ecosystem to be acquired by the Cosmos Hub. Um and their reasoning was that um you know obviously we're seeing a whole bunch of conversation around Lido and align with Ethereum and potentially Ethereum enshrining LST mechanism uh into the protocol to ensure credible neutrality and safety. And um one of the ideas is that Stride proposed like if the Cosmos hub uh acquires Stride then Stride can scale to much more billions of dollars worth of uh liquid staking derivatives or liquid staking tokens and potentially because the Atom asset is more distributed than Stride and almost every

other chain in the Cosmos ecosystem because of how long it's been around. Um, I personally think that the distribution of the asset is what correlates to how neutral a given protocol could be. Um, and their thinking was, you know, for Stride and being for Stride to be like the ultimate neutral LST provider, uh, it probably needs the most distributed and largest market cap asset backing it. And that goes beyond just leveraging the Cosmos hub for security. that means actual atom being the the governance asset of the of the protocol as well. Um, so I'll pause there because I think we can kind of riff on about this a lot, but it's a really interesting concept, especially on the backs of like Vitalics's piece on

minimum viable. I'll jump in here with a a few thoughts. Uh, first of all, on the user experience, I think everyone agrees that there's a lot of work to be done. Even for example, if we think like Coinbase wallet is a better product than MetaMask, after onchain summer, Brian Armstrong basically came out with a tweet saying, "Okay guys, after onchain summer, I've realized that our wallet is completely dog [ __ ] There's a lot of work that needs to be done." And if I'm not wrong, he put out like a Slack message asking every employee to like go through the entire onboarding process, spend three hours doing that, and send him like a personal memo of like what their experience was and what they can work on. Um, as far as sort of what the use case or sort of like the app for the

Cosmos will be, I think DYDX obviously is like a very critical moment for Cosmos. But one thing I didn't think about until like what you talked about was CCTP. Um, because USDC is going to be sort of like the base token for DYDX and CCTP is live on Ethereum, Avalanche, I think Argentum and hopefully I would guess optimism sometime soon. I feel like that could potentially be a very big boost um versus a world where CCTP did not exist just because that user experience is pretty seamless and it's a thing it's like a backend technology where any [ __ ] provider can sort of like use it. Um so yeah, I think we'll see like a significant amount of inflows

there just based off CCTP being linked with all of these like rollups or like other like chains. Um lastly on the note of what you said about sort of Cosmos having like its own like base token, you know, like Ethereum has Eve, like Avalanche has AAX, Salana has like So I'm not sure now that I thought about it for a while, I'm not sure that a blockchain needs to have like a non-stable coin as it sort of like base token. I I think obviously it's good for the price and obviously you need like the base token for gas fees on most chains, but now that like I think about it more, I definitely think that there are going to be like blockchains where you're going to

see more like USDC liquidity than whatever like the native like gas fee token liquidity is. Um, but that's like a personal thing and that sort of brings me into like the Strive and Hub merger, right? Now that you mentioned that the ICF is sort of like a third Bitcoin Eve, a third like stable coins and a third um like Adam, I think I'm thinking like does it make sense if this deal does go through does stride want Adam or for example like would they want like USDC? Like which one is the asset that they want more?

Well, I think in terms of in terms of like governance, right? So, I think you're saying like if the team plus all the Stride token holders wanted to be get to get acquired, they pro obviously you probably want to get paid in USDC because it's more stable form of of cash. Um, but I think in terms of like governance over the Shride protocol, uh, what would you do? I guess would you just like lock up USDC? Like where is the world where do you lock up USDC and the amount of USDC you have locked up to a given EOA determines like your voting power? Like that'd be really interesting.

The issue there is you can't just print more USDC to to to fund things, right? like Circle could do that and they could run circle chain and you know they could print somehow print those while still ensuring the other their backing of user uh USDC is still one to one like that that I think that's where the idea of a stable coin kind of breaks down in this case um you know you've seen chains like Agoric sticking in the cosmos like they their gas token is IST right but you it still has its own like CDP mechanism behind it uh which is kind of interesting and they still have BL as well. I don't know. I'd have to think on that more if I really had like a logical conclusion there.

Yeah. I What's interesting going back like the whole Stride Hub thing. Um so the the team presented it at Cosmoverse obviously there rounds of applause after the after that there was like a quick panel discussion with Stride team uh some of the core dev teams like informal about like the implications um what does this mean for liquid staking? um where did this idea come from? And it sounds like the idea was like came on a Monday, like at Monday night after a couple drinks, the Stride team and like the one of the core dev teams were like, "Hey, this seems like a good idea." Um I personally do think that this there's some merit to to this idea, but I also understand like the other side of it.

There's a lot of drama going on in the Cosmos hub forum right now. It is hot. People are upset, especially a lot of Stride token holders because they feel like they are getting potentially short end of the stick if this merger goes through. It's like, hey, look, I bought Stride for this reason. There's a whole large lot of upside. Shride is valued at approximately $80 million market cap right now or it was prior to this proposal, this idea being floated. Um, after that, it it pumped 10% on the idea being announced, and now it's actually down 20% uh week to date. Um, so you know the the market's kind of it sounds like upset. Stride token holders are upset. Um, but also want to be clear the Cosmos doesn't even have a treasury

sizable enough to actually purchase Stride at current market cap. So um, I think we've seen from like the Ferrari proposal historically like mergers and acquisitions are very hostile. Uh, you know, both counterparties in these transactions never feel like they're getting uh, their full value. You can argue that Stride is not worth it uh at current prices because 80% of its TVL is Atom anyways. Um and you can also argue that the Cosmos Hub uh should maybe potentially remain incredibly neutral and not own a specific LST provider. I see I see both sides of the argument, but I can also make a strong case for why it actually makes sense. I ultimately think that like the end state is probably not going to be a merger. um

maybe uh but or an acquisition I should say. I think what we're going to have to do is probably find a middle ground which is like some type of treasury swap where you know the the Cosmos hub would love to have a team like stride who have shown time and time again they can execute. Uh maybe the hub buys out stride teams and strides VC allocation. uh Stride team has KPIs and ultimately work on behalf of the hub to but still work specifically on Stride the the uh protocol on behalf of the hub. So there's some type of like alignment there between the the core development team and uh and the protocol and ultimately like maybe the hub also gets like governance rights uh by buying out the stride allocation from the team and investors. Um but this is going to be a

really interesting ride. It's gonna probably take a few months for the the hub community and the stride community to figure out like what they want to do. Uh but um really interesting time. Yeah, let's let's let's break this down a bit because we've been talking about it since since the announcement basically. So I feel like we just jumped to the end state there. But if we rewind and go from the beginning, so Stride wants to get acquired by the hub. And to your point, the hub doesn't have a a community pool that just has, you know, approximately 70 80 million uh sitting in it, which is roughly the FTV of Stride today, which by the way, I did not realize it like nuked 20% over the past week. That's pretty interesting.

So, there's like a couple immediate questions that come up here. First of all, what's the fair value of Stride? Uh, second of all, which tokens deserve to be bought at the fair value, right? Like liquid tokens, of course. If I'm just an average Joe holding a Stride, like I I deserve to be bought at fair value if I'm the team and I'm investing. I don't I don't know these specific terms off the top of my head for the Stride team, but something probably like a one-year cliff four-year vest. Did my tokens that vest to me in four years, like am I fully deserving of those tokens because I only like created a halfbaked product? Like should those be bought out at ver fair value? I love the Stride team. I think they're incredible.

But and I'm not trying to like throw shade at all here. I'm just like saying from a from an M&A standpoint, like the answer is probably no. Investors, they seated the capital, took full risk that the protocol would go nowhere. do their pro do their uh token allocations deserve to be bought out even if they are on that fourth year of their vest like that's a pretty gray area and then what about like additional liquidity incentives I know Strat had a large portion of its token allocation saved for liquidity incentives given the nature of the protocol being a liquid staking protocol and liquidity is very important to have a successful product should those be bought out and I mean pro maybe yes because then you know you buy them out in Adam now Adam becomes this incentive token is that a good

thing for Adam. There's debate around that. Uh and then lastly, what about the Stride community pool? I don't know the size of the community pool. I assume there's a community pool just given it's it's a hub chain or sorry, a Cosmos SDK chain and that's like one of the modules I would imagine is is part of Stride. Um should those tokens be bought out? Like why? Probably not because why would they just buy a community pool? So there's like all these questions around how do you actually buy like what are you buying first of all and how do you buy it and the next question is well with what assets do I buy it and that the answer is kind of has to be a onetime mint of Adam and so if you're going to mint you know it's somewhere between 60 and 80 million of Adam that's roughly

four three to 5% of the current market cap around two billion and so you got to ask yourself like as an atom holder do I want to make a three to you know three to five % in hit take a 3 to 5% hit of inflation for this product of stride. I see a lot of people freaking out about that and I'm like guys your inflation rate is what 16% today like it's not going to make a difference. Uh, so that was one thing I find super interesting was like there was a huge debate about oh we're not minting more Adam that's ridiculous but like if you're minting more atom to require like acquire a really really good product that people love and generates real revenue that's [ __ ] great. Uh the question is like

is it gonna continue generating? Yeah. Well, are they willing to accept? Is it going to actually generate meaningful revenue in the future going forward? Like there's a lot of question marks and ultimately I think like if we had a perfectly efficient market, Strive would be trading at the fair value of the business and then you could just decide which tokens get bought out at the full fair value. But we don't have that market. We do not have efficiency. So just buying FTV or buying market cap like that's that's probably not the fair value if you ran this thing out. And I mean it's Stride is mostly like a business rather than some other like you know economy like stride's not really money. It doesn't have that same level of premium like you would have to ascribe to some other L1's.

So probably just a classic good old DCF but then you know you're doing that on a super venture ba like stride's like what just over a year old like I mean you start getting so then you're going to do revenue multiples and try to do some comparative analysis and do some market you know come to some market uh market based analysis and I mean that's not going to be what it's trading at there's just no way I haven't done the analysis myself I don't know but yeah just to give some like highle numbers and this um so right now stride about 2% of all atom staked atom is being liquid staked and when you include that revenue from liquid staked atom which takes up eight which makes up 80%

of all of stride's TVL um and the other liquid staked assets that stride supports stride has is getting about $700,000 uh revenue annualized and stride actually uh passed a proposal a few months ago where all revenue actually gets sent to the token holder which is interesting because a lot of protocols like to uh be like, "Oh, yeah, it's protocol revenue, but token holders don't get it. It's going into like our Dow treasury." Uh, and yeah, we I won't go on that elaborate on that further, but uh there's a lot of catalysts for Shride. So, DYDX coming, right? Dydx is going to likely be a cash cow. If Stride supports stake Dydx, which some alpha I'm hearing they will be, uh, if they

do, that could be a huge boon and a huge revenue driver for Stride token holders. And also, they're likely going to become the major liquid saving provider for Celestia's new token, TIA, right off the bat. So, hold on. I I got a question here, and this kind of sort of goes off topic, but not not really. What is the val like? Why? Okay, so the DYDX token was going to make a ton of of fee revenue and st and I assume it'll still get staking revenue. So it's going to have real yield through trading fees plus token inflation. Yes, that makes the yield quite high and makes it an interesting asset. But like DYDX is never trying to be money or anything like that. So like why like what's the I try to like okay so when

you start mapping this out it's like why do we need liquid stake tokens for everything? Like why do I need liquidstaked Juno or why do I need liquid staked OSMO honestly and like just because they're good products doesn't mean I want the liquid staked token like I want liquid staked ETH because ETH is a great collateral to use across Ethereum DeFi and staked ETH is a better version of it. I I want to say that yeah, sure like DYDX isn't used for like anything. Um it's not trying to be money, but we always want like capital efficiency and access to leverage. Um I feel like that's just part of human nature or like just an inherent part of the financial system. So if Stride products like if Stride basically

provides that product like there's lit literally no reason not to use it, right? Um, Hassu said something in like a recent light of forum post that LSTs compete on moneyiness leading to a winner or take most market and uh he basically said that liquid staking beats all for all other forms of staking which I I do agree in. It's just better capital efficiency and there's other stuff that you can build on top of the liquid stake token. Imagine a world where you could take like the top dividend uh or cash flow generating businesses that distribute dividends to you and you were able to actually like use that in your normal day-to-day life like

would would you not want to use that like that is ideally like or wouldn't you want to use that as collateral for like to to run's point like uh you know lever up uh on your on your net worth like billionaires most billionaires are able to gain their net worth mostly by levering their assets not through like their salaries but they take the assets they they already own borrow against it and then do other parades of business opportunities to like generate more higher net worth and higher credit line um like DYDX would be an ideal form of collateral because it can like lower the cost of capital if you want to borrow against it like if it generates 8% yield or real yield and inflation then you can technically borrow stable coins uh up to like 8% borrow rate um like there's a whole bunch of I guess downstream

effects of having a liquid stake dydx. But to like round out this conversation because I don't know how much we want to go on. I know we have a lot of other things to talk about, but uh there's long story short, there's a lot of callous for liquid stakes protocols like specifically for stride with UIDX and Celestia coming and dependent on the market penetration of liquid staked atom um and other liquid staking assets in the Cosmos ecosystem. Shride has a legitimate path to bringing in tens of millions of dollars in revenue. We already see Lido, like how much revenue they bring in. Um, but like Shride is probably the best largest competitor to Lido, I think, in the long game. That's my personal opinion. And I think a lot

of Stride holders see that and see it as like pretty much a kingmaker in the next cycle if they're able to execute well, which history has shown that they've been really good at executing. Um, and you know, to your point, Dan, like how how do you value that? Um, and like where's there's obviously risks associated with any kind of deals like this. Um, and I think ultimately like I don't know if the communities are gonna be able to come to an agreement. Um, but it's going to be really interesting to see like over the next few months like what the ultimate result is. Um, but it would be really cool to see like some more closer alignment with the hub and stride whether that means like a a treasury swap or the core development team like collapsing into the hub but specifically to work on stride. And I

don't know exactly what that payment structure would look like, but uh I think that there's some kind of agreement we could ultimately come to. Yeah. Yeah. I'm gonna I'm gonna force you guys to make a decision on if this is a good or bad idea, but I'll go first. So, and I'll I'll put some some context to this. If I'm a stride holder, I don't think I like it because I think stride is a good business and I think it'll continue to be a good business. And I don't think like capitulating at the peak of a bare market or the depths of a bare market, I guess the reverse peak of a bare market is the right time to be doing this. And I think why some, you know, just like reading through forums and talking to people, it kind of seems like there's a

few reasons why people don't seem to love this. One, I think this is a bit pessimistic and quite frankly I don't hold this view, but I have seen it a few times is Stride's a year old and there was like a one-year cliff on team and investors allocations and like that just hit then there's no liquidity on the Stride token. So if you wanted to like, you know, capture some of your your profits or if you're a team member, you know, I like fund your life. Uh you can't really do that because if you sell any meaningful amount, you're going to absolutely nuke the token price. So, some are like viewing this as like, oh, the Stry team's just trying to get a liquidity event and like cash out basically.

I think it's incredibly pessimistic. Like my personal view, I love and I know you already said this, like I love the Stride team. Uh, Bashall, uh, Riley, Aiden, like the the rest of the team, like I met with them personally at Cosverse. I've talked to them at length for many months. Like, obviously, you never know, but I fundamentally believe that they're here. They're one of the uh, for the long term. They believe in the ethos. They're here to build up in the Cosmos ecosystem. Um, but like that is a concern, right? So if they can't, you know, get exit liquidity for their Strive because of the ill liquidity of the asset, but to me like the the Cosmos hub wants developers like that align with the hub, right? So typically with

illlquid assets and I recently took part of like an OTC deal with them liquid asset asset I won't say the name but was trying to convert some of asset to uh stable coins to fund some initiatives and the VCs wanted you know 25 to 30% discount on that asset and it's like you know what maybe that's what we do maybe if the hub wants to get ownership of the stride of stride allocation and also have the dev team align maybe the dev team takes a 25 to 30% cut on their allocation. Uh, and there's like an OTC deal where like the hub treasury swaps to to buy out the team, specifically the teams, that the Stride community can still have upside in the asset. Uh, but the Stride team is is aligned for the future. And we also make sure like dev's

got to eat too, right? Like if we want to be if we want to bet on the team, I said this last podcast, bet on the team, not the protocol. In an open source world, anyone can make a liquid saking protocol, but you got to bet on like a team like this that have shown over the past year that they're here uh for the long run. One last thing I'll say is going back to this whole idea uh about like how to value something. This is essentially a two-way marketplace. Uh that's all liquid saving protocols are. That's what all DeFi protocols are. What if a a large commercial real estate owner owned 80% of the properties on Airbnb that were or that were listed on Airbnb? Just like 80% of TVL is Adam on Stride and then this property owner went to go buy out Airbnb. Would Airbnb like

would the property owner look at Airbnb and go well 80% of the properties listed on your marketplace that are drive 80% of your revenue is actually my properties. So, I'm not going to buy you out for your full like value because 80% of your business is just a repackaged form of what I already own. Uh, so like that's one also thing that I think the Shride community is like not looking at. Uh, the people that are very angry and that's also one of the reasons why the Cosmos hub community probably might feel that Shrine might be overvalued because 80% of its product or its service is literally just a repackaged form of atom which is fair but you'll never get find like a happy mill unfortunately. I think I think that last piece gets interesting though because the Cosmos sub just introduced the OSM that's likely going

to get extrapolated onto other chains. And then now like there's a huge opportunity for that to change especially with DYDX coming in that will certainly eat into the the total of 80% I think. Um and so that that's why there's just so much contention around this I think. And the other piece I've seen is okay so let's say the merger goes through Stride is owned by the Cosmos Hub. Now the Cosmos hub token holders are deciding which other like which validator sets win of other ecosystems right because that's where like stride today the governance of stride that decides what the validator sets which validators within the active set receive the delegations through the liquid staking module. So that's going

to be another piece as well. So TLDDR and then let's all make a decision on this and move on is if I'm a stride holder I'm against it. I I'm more excited about the future of my product than the price today. If I'm a Cosmos hub, uh if I'm an Atom holder, I [ __ ] love this and I absolutely want it. This is a great way to get a product for the hub that's it's good business and at a great price and aligned with the growth of the interchain. I completely agree with Dan's point. Um, and just going back to something, I don't think there's anything wrong. Like even if this was like a planned exit or like liquidity event since day one like startups in like web two do this all the time, you know, before they even have a product like on their project, they have

oh like we're trying we're going to try to get acquired by X Y and Z. I don't think it's like the worst thing to happen. And part of me feels like this is going to be such a contentious like M&A event that it might not like ever go through. So yes or no? try from the stride holder perspective and then the atom token holder perspective I agree with you um no from a stride holder perspective yes from a atom holder perspective I'm both so but obviously like I do have own more atom than tried full disclosure but these are not separate communities like they're the same people like if you are in the cosmos ecosystem you own both of

these and you're most likely own like 90% the allocation is like there's 90% token overlap. So I think it's funny sometimes where the cosmos ecosystem and I'm part of it. We are talking about like sovereign communities. It's like bro the same people. Like can't we just figure figure out like some kind of middle ground? Uh but with that being said like yeah you're 100% right. If you if you think of these as two completely different communities try token holder like you're pissed. Community Cosmos hub community you're absolutely thrilled. Um but I think that there's gonna be some kind of middle ground that could be figured out and um interested to see like what what happens.

Yeah. No, I think that's the answer is if it's if it's a no yes, how do you make it a yes? Yes. And that's probably changing who gets paid and how much is probably that simple to be honest. Um let's move on to another governance update. Uh let's try to make this one maybe a little quicker, but uh Effort, I'll throw it over to you just because you got the details on this again. And we keep talking about Cosmos governance updates, but those people do love governance, so I guess I'm not too too surprised. Hey man, bare markets are for are for governance forum posts and uh it's because the Cosmos ecosystem is building. That's why Dan, everyone else is just virtue signaling about Ethereum alignment in the Ethereum ecosystem. The only people that All right. All right. Get on with it.

[laughter] Cosmos and Salana. That's it. They're the only ones building. Uh yeah. So, Axel has a really interesting forum post related to their inflation inflation mechanism and uh is potentially like signaling that there's a future for their Axel token to go deflationary. So uh this proposal again I'll do it quickly but it breaks down into the three things short-term medium-term and long-term strategy for Axel inflation and like the future of how Axel supports crosschain interoperability. Uh so right now the inflation of a of axle is 1% base inflation and then 75% inflation for every subsequent uh chain that Axel supports. So Axel supports about 14% ch uh 14 chains right now and the inflation rate of Axel is 11 and a half percent

year-over-year. uh this this proposal um asks to reduce it from 0 75% for every new chain to 3% for every new chain. So that would bring the overall axle uh inflation down to 5.2%. Um they they also are talking about a potential burn mechanism. Uh so right now um if you want to trans if you want to do a transfer a crosschain transfer leveraging Axelr there's like a five BIPS fee I believe and like a 0.5 Axle fee in addition to the gas fees on both networks you're trying to swap between and uh Axel is proposing using that fee mechanism to burn Axel instead of distributing it to Axel stakers and that they said that uh at approximately a 20x increase in crosschain transfers

leveraging uh Axelar if it went from I It's about $5 million on a daily basis today if it went up to hund00 million in volume that that would be enough to counteract up to 10% of inflation of the Axel token. So that there's actually like a meaningful pathway to seeing Axel deflation and assuming uh in the next bull market um and and assuming like Axel is a major beneficiary of like the growth of crosschain interoperability. Like that's like the short-term plan. The medium-term plan is to have some type of like opt-in um crosschain like validation service. So that uh right now the entire Axelr validator set has to support every new chain Axelr supports and they're saying well maybe that's not scalable in the long run. Maybe we have

like uh if a developer team wants to leverage Axelar, they need to pick handpick like which validators they want to opt into their service and then they need to the developer team that wants to Axel support needs to pretty much incentivize validators by buying Axel uh into like a pool and that Axel is like delegate is given to the valid or paid to the validators that opt in to support their service. And this would like make sure that there's no new inflation for supporting new chains in like the future where there's millions of chains because yeah, we definitely need millions of chains in the world. Uh and then like the long-term vision is uh leveraging like ZK like clients. So we're already starting to see this like CKIBC but they said like in order to bring the cost of

uh validation for this you know millions of chains crosschain for future um we need to figure out a way to like bring cost of of hardware down to like a minimum and this is probably leveraging ZK light clients and also like having incentive mechanism for relayers. So like that's the overall like Axel piece. It's really interesting. Um I don't think you've seen the market kind of move on this news at all. Uh, but this is the type of news I think that's like really important if you're an Axel token holder, if you're interested in like the supply and demand um mechanics of or supply and demand flows of of certain uh tokens. Um, and this could be you if this passes you can actually see a potential like reduction of supply overhang on the Axel token.

So, one really quick question and then one more complicated question. Really quick question. Is this a forum post or an onchain proposal today? It's a forum post. It was just posted to taste Friday, October 6th. It was just posted on the on Wednesday, I believe. Cool. Okay. So, about two days ago, maybe the 4th. That's some quick some quick math there for you. Um, but more complicated question. If So, I think of things like ETH and Adam and like arguably Soul, whether or not depending on how you want to take it, like I don't view those as equity.

My mental framework for it is not equity or programmable equity or anything like that. Like it's this is a base layer money that is used to like create the economic activity within an ecosystem. And I do not view have that view for the Axel token. I very much view that as like a an application that has a programmable equity token. And so in that case, do I do I how much do I care if it's like inflationary or deflationary? I think like reducing inflation is fine.

Like you don't need to reduce it so much. Um, and especially I think there's a lot of people out there who sort of create buyback and burn mechanisms or sort of like distributing like uh protocol profits to token holders and that's just like not it when you're like a super small like bridge or like DEX or like a gamify protocol even you know like you should be reinvesting all of that money in protocol growth developers BD marketing partnerships and all of that nonsense like Don't worry too much about your token, especially if you're not trying to become money, which like there's probably like only like 10 tokens or even less than that should be really trying to become money right now.

Um Sam's on PTO, so strongly agree for you with you there. [laughter] So what does that look like though? Like if I kind of like the idea of burn so I see two sides. like the idea of burning because it's effectively like a stock buyback um to to in an efficient market which we don't have in in an efficient market right like on a long time horizon though that it's it's equivalent to that but I also agree like we are in the early innings we have like five onchain users throughout crypto we have no application that's going to hit mainstream adoption let's it's not front tech like maybe it's stars arena on on avalanche that'll be interesting uh but how do you fund further marketing and BD and and

distribution. Um, if you if let's say that Axel token that's being used all that all those fees let's say it goes into the treasury ultimately you want to make sure that there's not a supply overhang if you have a circulating economy like inflation is going to lead to supply overhang decrease in in price of the of the network or of the asset and nobody wants to see that. So maybe what's interesting is uh and ultimately like you know the real economy and real jobs real people want to get paid in stable coins. So maybe what you do is take the fees, bring it into the treasury, and then a a large portion of those fees, at least for the foreseeable future, are OTCD to teams that want exposure to Axel, but with a vesting schedule, and

in return, the treasury gets stable coins, and then we use those stable coins to either pay Axel validators and delegates, or you use that to pay for like strategic purposes like business development and marketing and what have you, and you know, further back um iteration. I think that's a really important point that you brought up there, right? And when you think of like inflation, you think of it from like token units from the protocols perspective, but to the people receiving the inflation, they probably denominate that in US dollars or stable coins, right? So like in the best case scenario assuming your protocol is growing then you can slowly reduce um like the inflation rate over time but you also have to factor in

token prices you know like say AXO the token goes 10x like should the protocol reduce emissions also by like 90%. I kind of think yeah maybe not 90% but you should like respond adaptively to market conditions and the USD value of your token. That's a good point because so I I was going to say something semi-adjacent to this which was I guess what's the driver for Axel wanting to do this? if they want to just lower inflation to like, you know, fit the narrative or whatever, like okay, that's a bad idea. But if they're just like vastly overpaying for no particular reason, then yeah, like absolutely. But and my understanding is the inflation goes to the node operators because

they're running a ton of infrastructure. And if you're like if you cut inflation to the point where it becomes unprofitable and you like get a smaller validator set, bad idea. But if like you can cut it without losing any sort of like without any degradation of your validator set then yeah like if you're inflating for nothing that's equally as silly as as deflating for nothing. Agreed. Yeah. So I think I think everyone here and correct me if wrong is in agreement that because issuance is a cost, right? uh we we agree that like lowering inflation is is probably good if you could run a more lean protocol and a more lean uh marketplace, whatever you want to call it. Um but now the to your point is the deflation worth it and probably not yet.

It probably is not. Uh but you people also like if you just take that axle into the treasury and you but you still want to fund development or what have you like that still does create supply potential supply overhangs on the asset. So the best thing is just just continue finding institutional investors that will buy at OTC at a certain price for like a discount and getting USDC in return and you have them on like a longer term vesting so that you keep kicking out the vesting schedule for uh certain allocation of of Axel tokens for like the foreseeable future and then maybe like at the 10-year mark or something you go look like we have such adoption like we found product market fit um and now we can

actually start burning this axle as like a stock buyback program. But I also think that crypto protocols are um gonna achieve profitability potential potentially profitability like at a much quicker rate than like web two tech giants have because oh yeah uh these are like unlimited scalable businesses. It's just code right. Um so theoretically you have you're much more operational efficient. Um, we'll see if that actually plays out over over the next few years. But you can definitely see a world where crypto protocols are doing stock buybacks or distributing like cash flow to their token holders way sooner than web two tech giants were able to distribute dividends or or cash flow to their stockholders.

Yeah, there should be a lot less overhead to run the software as opposed to like a full-scale business. I definitely am in alignment with you on that for sure. But uh let's move on to hot seat cool throw. And that is by far the longest governance update we've ever had. So that's what happens when you get uh I mean to be fair the the stride the stride uh in the Cosmos hub merger is actually really really cool and I guess that's more of an acquisition than a merger just to clarify. I know there was some contention around nerd sniping over the word choice there on Twitter. So leave us leave us alone. We know the difference. Uh I'll go first here. One a couple of these are pretty long so mine's relatively short but I got a hot seat this week and uh this one actually

comes either a week or two after me putting Thor chain on the cool throne. I got to put Thor swap a different protocol on the hot seat. So Thor chain is the base app Cosmos based Cosmos SDKbased app chain that operates a more of like a a deck/bridge that allows for native swaps between different assets. Uh we've had Chad Baraford on the podcast twice now discussing different upgrades. Uh so be sure to check those out if you want more of an in-depth explanation on how ThorChain works. And Thor Swap is the leading front end that sits on top of the of the Thor Chain network and allows users to interact with the protocol. There's a couple other major front ends as well, maybe like I saw there's like 10 to 20, which that's news to me. I knew there was like

two to two to three. Um, so this this is by far the largest. And they just announced that they're actually going to be halting their operations for a temporary pause. Um, and they put out an announcement tweet and I'll read this piece to you. As yesterday, following careful evaluation of the situation in consultation with advisers, legal council, law enforcement, the decision was made to temporarily transition the source Thor swap interface into maintenance mode. This action was taken to swiftly curtail any further potential illicit activity. Swaps are paused, but LP actions, uh, their earn program, their borrow program, and their staking actions are all fully operational. So, all they did was pause their swaps. And

this is in response to an alleged uh North Korean exploit that was being moved through uh Thor swap the front end. And so basically what happened was there's a major exploit that occurred on Ethereum. Then they used Thor Chain specifically through Thor Swap to move their Ethereum based assets over to Bitcoin and then hitting the Bitcoin mixers. And so this is a bit of an interesting situation because it's Thor Chain and Thor Swap were not the mixer themselves. They were just the like the highway that moved the, you know, the bank robber from one country to another.

And to use some sort of an analogy here, but they like they weren't the car like they didn't actually get them over to the I don't know this analogy is falling apart, but the point is they uh they didn't actually mix the funds. they were just the bridge to get them to Bitcoin which has you know what the most popular uh mixers and so they uh they're obviously in some hot water here especially the Thor swap team is like doxed I don't think they're US citizens but don't quote me on that um nonetheless like they're doxed individuals and the allegation is like their protocol helped the like North Koreans get the North Korean exploiters I think it might have been the Lazarus group uh actually move funds and and launder them and like that is not good uh from a government standoint point,

but also like from a moral standpoint, like you don't want to be helping bad actors do things. And so some people are like super super upset. They're like, "Oh my gosh, like this is ridiculous." But the reality is the founders don't want to go to jail. And that's a perfectly rational thought and action. Um, so I don't know, there's like this huge, uh, Tavano, she works for MetaMask and is like a definitely u, you know, one of the the top security experts in the space and she put out a tweet that said something to the effect of like, guys, there's a huge spectrum between the two ends of, you know, full permissionless decentralization and like, you know, pure government control.

And like you can't help bad actors and and we need to use incentives to like drive to help good people and hurt bad people. And it's like this is a hard problem to solve. Um but the reality is like if your protocol is helping the Lazarus group, you're going to get in hot water. And like that's not a huge like bar for for me to take a mental hurdle of like that's that's bad. And like I don't want to be a part of a system that's helping that either to be completely honest. Like this is bad. But how do we you know we are creating permissionless systems that help everybody equally. So it's like huh god what is this is such a tough problem.

I think um first of all I have a question actually uh the tweets say that they temporarily transition the interface into maintenance mode but does that mean that you know if I have the technical chops I can still interact with the smart contracts or no? Uh I don't know from the Thor swap perspective but you can absolutely still interact with Thor Chain itself. Okay, gotcha. Cuz uh I think like unis swap has like a similar stance right? um like they can remove a token like from the UI in the front end and make it like invisible, but if you really wanted to, you could go on like editor scan and still call a contract. in terms of what you mentioned about that like sort of trade-off between like food decentralization and you know like not

wanting to fund North Korea's nuclear program. I think it's hard to me like the best middle ground is some form of governance where you can like blacklist contracts or certain like wallet addresses from interacting with your set of smart contracts just because that's like a pretty straightforward thing to do. Um, and I don't think those would be very contentious governance votes. Like, do you want to blacklist North Korea's wallets from interacting with your protocol? Everyone should vote yes, you know. Um sure that means that it isn't like fully immutable but also like if your governance is decentralized enough theoretically that should mean that those set of actions in terms of banning

wallet addresses it shouldn't be sort of subject to like government or like regulator regulator pressure because like you can't just force um like token holders to vote a certain way. But of course that execution layer where like someone would need to like manually black this that while it is always like a risk. It's very possible that like someone which should have the right to use like thorough or like thor chain a government comes in and says like hey we know who you are the protocol dev like we're going to extradite you blah blah blah and that's always like a point of centralization but I think it's I think it's a hard battis but yeah we should definitely stop funding North

Korea's nuclear program let's say start up a fresh wallet and uh you know then I run an exploit now I have these funds and then I go to Thor swap. Like that's a perpetual game of whack-a-ole to try to be blacklisting which addresses and like that's that's a tough problem to solve too. And I don't know. I mean the other thing is like at the end of the day like that is censorship but it's not at the base layer. And is that okay? Is that the trade-off we're willing to make? So like the Ethereum block still goes through without the censorship but it's up to the app to make the censorship like I don't know. I think in this case just like the base layer being censorship resistant is not enough like especially with sort of like sort of the

original use case of crypto you know it lets you escape dictatorships blah blah blah like you need that censorship resistance at the app level for that type of stuff you know like it shouldn't be like some dictator somewhere has complete control or I don't know like the Chinese Communist Party says hey stop this person from using Ethereum and moving his funds around and you don't want to like piss off China, you know. So, I I feel like it does actually need to be at the app level, but I do not have a good solution for it right now. I mean like not to bring in AI and stuff, but like eventually you're going to have to have some type of like TRM labs or chain analysis like AI solution that can immediately tell like based on blacklisted addresses and things other

wallets interacted with like whether or not this is a bad actor and it automatically updates the blacklist and maybe token holders have the ability to veto like a certain address being like oh no you messed up there like that is not like an address that uh that you think it is and allows kind of like um governance to veto but not necessarily generate the blacklist itself or the white list for example. Um but the fact of the matter is if Lazarus wanted to convert Bitcoin to Tether uh or to whatever they wanted um they'd figure out a way to do it. Um they would do some type of OTC deal off of some like China black market. Like it just happen so happens that DeFi allows and permissionless DeFi allows it to be

easier. But if there's a will, there's a way. Um, there's always going to be bad actors. I got to figure out ways to get around the laws. Um, and I'd rather I think at least DeFi, you're able to trace the the flow of funds. Um, and I think that transparency that DeFi offers is a step in the right direction that you know doing full you know how much illicit activity is done through cash, right? Um, so you're never going to be able to stop this. Um, and the the biggest concern is that the governments like the US government goes after like the node operators themselves of of Thor Chain. And I really hope it doesn't get to that point.

Um, but unfortunately like we've seen that government overreach is a thing. Um, and if that happens that that's going to be that could potentially be like one of the largest like future issues for the crypto industry at large. Right. Right. And um it wasn't that long ago that Lazarus was just using the Avalanche Bitcoin bridge to do basically the exact same thing. So it's like they're going to go where the liquidity is to your point. And like I don't know the specifics of why they stopped doing that and why they kind of looked elsewhere. I don't know if they chewed through all the liquidity. I don't know if Avalanche did something to stop that.

Um so I don't want to just like make something up but you know that it's my understanding that was happening. Uh and now they're kind of migrating to the next source that they can use. So to your point, like maybe that's the perpetual game of whack-a-ole is like we just need to stop these exploits from being able to occur, which again that's its own wormhole of answers, but uh I don't know, maybe we can leave this one there because it is like an open-ended question of of how do you solve any of these problems and uh you know, render effort if you guys want to uh to take the conversation and and give your hot seat cool throne. Yeah, I can go. Um, this week I have a hot seat which is the Ethereum church called I don't really know what to call it these days. Um, but basically they're

having the Lido discussion again for like the 10th time this year on Twitter at this point. I'm like kind of bored by it. I'm like, okay, no one really cares. Um, but obviously enough people care for it uh to be a very contentious debate that's happening in the Ethereum ecosystem right now. Basically, we're having the same argument again. Lidle's becoming too big. Is it a problem for Ethereum decentralization? Just to sort of like have the set the baseline, Lido currently or stake deep specifically currently has around 32% of market share out of all Eve stake. Um they have 31 node operators and each one of those node operators roughly has like 1% of all total Eve ST. And I think the

debate, don't quote me on this, this debate got started by Scott Sternardo this time and he basically said that someone using the system in an intended way and in good faith but ends up being a threat to the system is a failure of the system. Like I I don't think Lido did anything wrong. I think it's the incentive mechanisms that have a problem. And I think one thing that most people in crypto can agree on is that liquid staking tokens are sort of like have inherent centralizing forces due to the moneyiness of the liquid staking token. And I think Lido is just responding rationally to the system incentives, you know. Um, and now there's like a whole other factor after

that Vitalic blog post about enshrining. Um, and people are saying like, should we enshrine like a liquid staking mechanism or liquid staking module into the Ethereum base layer? And my personal gut feeling is no. You shouldn't enshrine a mechanism that will interfere with free market forces. That that feels very very wrong. That feels like almost like a trade commission, like the FTC coming in and saying like, "Hey, I'm going to break up your monopoly." Um and yeah, but obviously nowadays Ethereum is a lot more complex than it was, you know, like say three years ago. There's a lot more stakeholders in the system.

There's a lot more money at stake and everyone has their own goals and incentives and it it definitely is like a hard debate to have 100%. I have like more thoughts, but I'll stop there first. Ethereum did this to themselves. You would think all those gigab brains that have been building on this for like the past like eight yearsish that they would have realized that this was an issue and it's like what is the like I don't want to say the foundation's asleep at the wheel but they kind of are because people have known this has been an issue for like two years now that lido has been around and we're and they're so focused on like I don't know like me burn to make Ethereum more ultrasound money instead of actually like the real credible threat to Ethereum credible neutrality which is like not me burn and

it's like literally like lido liquid saking But Ethereum is is valuable because it has the best form of securing digital property rights. Crypto is all about digital property rights or property rights in an ever digitally growing economy. Um, and the moment that Ethereum decides, hey, that private entity is too strong and we're just going to absorb that inwards and or enshrine that and pretty much like a stateowned enterprise take take it over. like that gets rid of private uh the the belief of private property in a digital world. And in my opinion, if they do this, Ethereum crumbles. Like I honestly think the entire the entire crypto space looks like a joke if Ethereum does something that enshrines Lido or liquid

stake provider and tips the scales in favor of one or the other. um other proof ofstake networks like Salana or the Cosmos Hub or Avalanche like they never were built on this meme of credible neutrality like um you know I I fundamentally think that um if Ethereum just does something like this especially with off-chain governance where you never really sure like you know who who has say and who doesn't um the the the lines are blurred um I'd be in you know I'd be very upset um as someone that doesn't even like really care that much about the Ethereum ecosystem personally Like I'd be upset for the entire space if Ethereum did this. I think it it'd be really poor form and they need to figure out a way to just at this point Ethereum

needs to align with Lido. Lido doesn't need to align with Ethereum. Like Lido has fully shown that they're fully Ethereum aligned. And if anything, it's like these loud actors in on the Ethereum side that I don't think speak for the wider community. But um it's gotten to a point where it's like, you know, can we just get along? Can we figure out ways around this? um there there needs to be like uh a better way of like communicating our frustration and figuring out like a path forward. I don't have any philosophical thing like insights here. Um but to me it's like okayh it's like all right what are the implications of this really if you like and you also have to think LIDO is no

different than any other DeFi protocol or really any protocol built on built on smart contracts today like it's not in its end state it's not mature yet so we also have to think about what's coming forward for it and like what upgrades is it focused on and like Lido knows this is like a hot point of contention and they're not just like saying all right well we're just going to take over the network and you're going to deal with it. Like uh you know, I'll let Ren kind of elaborate here, but like Hosu was just in the Lido forums giving like a plan of like hey here's how we're going to decentralize further and like they want to they debate these different things like dual token governance and giving ste holders the ability to veto different proposals and whatnot and like there's a lot of different ideas about

how to make Lido having a large stake. Okay. And like that's hard for me to be like, oh well just because it's over the the threshold of 33% um and they can you know cause some turbulence in the network like that doesn't necessarily mean that's the beall endall state. Like today there's 31 node operators and they each have about 1.18% stake uh with like the last seven or so having slightly less than that. Um I don't know that's that's tough for me to get like all bent out of shape about. Like I I do understand why some of the core ETH devs have like very philosophical debates about why this is okay or not okay and you know they're they're obviously entitled to that and like that's why they've been building Ethereum for the last what nine years

now 10 years. So I I get it. I I I definitely get it. I think like the free market did free market things you know. I don't know why like you're very surprised by that. And I think there's like two things that I just fundamentally like don't really get. One is that Lidle is a business. I think everyone kind of understands that and 99.99999% of the profits come from Ethereum. You know, they know that Ethereum as like a credibility neutral base layer if it loses that then chances are the price of ETH goes down and that also means they lose any profits that they were going to make and their cash flows nuke by 99% and they cease to exist. You know, like sure like 32% is like a scary number,

but it's not like Lido is going out there and say like, "Oh, haha, we can like prevent finalization on Ethereum now. We control you guys." Like it it's very apparent that all of the actors within Lido are here for the benefit of Ethereum. And they've made that very very clear. And I want to hold on let me ask you a question on that point because Okay, so there's 31 node operators and so if they all let's say let's say they had 40%. No, let's say they had exactly one/ird. If they all colluded together and made a decision that they're like, "Hey, we're going to cause some finalization drama here." I'm assuming that that's possible, but that would take them all colluding together to do that, which they're financially motivated not to do.

Yeah, exactly. And they have 31 node operators today. is probably some of the largest like centralized exchanges like Coinbase uh like probably what 171 18 billion dollar company is not going to take that risk of colluding with someone else cuz they themselves have something at stake you know sure if you're like a super small node operator running like a I don't know I don't know like a $5 million fund or you're just some like random company that somehow got uh chosen to be a node operator sure I could see like why you might decide to like collect together with new and then like have like a massive Eve short on but there's also like large node operators which party I think is a good thing to be honest um obviously like we want to see more home stakers but then

again like n lido onboards node operators at a decently frequent rate and with new technologies such as dbt permission and staking modules like explicitly outlines that their goal is to have 5,000 node operators uh in three years time like that's very different from 31 node operators which today are very decentralized already. You know, it would take an incredible amount of coordination from the node operators or like global regulatory bodies across the world in order for them to collude and just mess with Ethereum. Um and yeah, like like you mentioned, Hu put out a great post the other day on the Lido forums about sort of proposed goals for Lido D to consider. you know, um they

say Lido's main goal is to keep Ethereum decentralized, accessible, and resistant to censorship. And I think they've really thought this through to be honest. Like Lido has an ongoing scorecard on the website where they say, "What have we done well? What have we done?" Like, "Okay, but we can improve and what needs improvement." I I'll read out some of these. Um under what we're doing well, but can improve. One of them is no operator has more than 1% of the total stake. And they acknowledge that. Sure. like a few of the operators have between 1% and 2% of total Eve stake.

They're looking for geographic distribution and jurisdictional distribution. Um they're looking for distribution in on premise infrastructure and different cloud service providers, client security, node operators are disincentivized from acting maliciously and that's from a more like infrastructure and technical perspective but also on the governance perspective right a lot of their needs improvement. For example, Lido governance has significant safeguards which it doesn't really today. And there's a robust set of lid governance deedicates which it also doesn't have. And I would argue that like a good governance system requires like a well incentivized and robust set of delegates. And for example, stake thief being able to sort of veto potential governance votes. Like that's such a

no-brainer. And as a stake deep holder, I also wouldn't want to nuke like whatever is like the price of E because that would mean the price of my STE also goes down. So there's like just a lot of these things that lead me to believe that like Nidos's in it for good. Like I'm not that worried. They're doing everything they can to sort of decentralize in the node operator set and they're aware of their constraints today. Sure. Hashu makes it like very very explicit in this forum proposal that like stake thief or these stickers staking tokens are money right um and they compete on that basically and has to even go so far to say serving only 30% of stakers is not a long-term sustainable position in an environment

with high network effects and I think that's totally fair that's totally rational right um like even if one day stake deep becomes 70% of all total e stake caveat here like hospital go is 50%. Um of stakers choose to stake with lido in like three years but even if staked to become 70%. like there are benefits to the underlying like liquidity and like the network effects and a lack of fragmentation if that's the case. Like I don't want a scenario where there's like 20 different liquid staking tokens all with fragmented liquidity and e foundation devs and researchers like oh my god the liquid staking market is like decentralized. We don't have a

centralization risk anymore. Yay. But it's like a [ __ ] [snorts] user experience you know. Um, so yeah, I'm I'm I'm really against like whoever is like saying like Leto is a problem right now. I I really really don't think it's a problem. I think in a full onchain economy like we also got to remember there's only so much like onchain economic game theory you can do to prevent centralization forces but like offchain market actors. Um, and obviously we're working on some of this for like the D liquid staking tax we're proposing for the hub, but like the the real thing I want to drive at is like Lido is making a credible effort here and it's it's obvious there's certain things maybe Ethereum can do to try to um I mean I think

Ethereum is kind of stuck because of this whole credible neutrality meme, but um like again there's only so much like economic onchain game theory you can do like as long as um there's reputations there's offchain reputation uh you know at play here. Um, and maybe there's certain mechanisms that Lido can do to further solve the principal agent problem between validators and delegates to ensure the like the long-term viability of their protocol and like long-term viability and security of Ethereum. Um, but I mean I think you you explained it all really well, Ren. Like this is it's getting it's also tiresome at this point. Like Lido is aligned with Ethereum. It's clear as day to like the average person that's not like super hopped up on this like Ethereum Maxi

like meme. Yeah. I just got one more thing uh and then David, I'll kick it over to you for your cool throne this week. But uh I just want to clarify just because this is a hotly top hotly debated topic and I want to make sure we get this piece right is today there's 31 node operators but none of them are actually centralized exchanges. That doesn't mean like that there's not large companies operating these things. So just example some of the names is like block damon uh all nodes you have people like consensus and nethermind as well as course one and jump crypto in there. So it's like that's still true but I I just want to make sure there are no centralized exchanges that are currently running nodes but David I'll but effort capital I'll kick it over to you is the last hot cool throne.

Yeah it is. Okay. All right. So this is not cryptoreated but on my cool throne I'm putting Lil Wayne and Drake this week. So, uh, Lil Wayne and Drake both released new albums and I'm super hyped up to listen, uh, over this weekend. Um, so Lil Wayne dropped the Fix before the six because I think his last, uh, album was the Carter 5. Um, and then just this morning, Drake released for all the dogs. So, I'm personally excited about this and I'm just putting them both on the Cool Throne because I always love listening to new music and I was kind of getting sick of my uh, my normal rotation.

Cool Throne before the listen. Follow Effort Capital on Twitter for more great music recommendations. But thanks a lot, guys. Another great episode. See y'all next week.