The State of Staking Infrastructure | European Blockchain Convention

[Music] hello everyone thanks for joining us this morning I hope you're uh well caffinated and paying attention uh today we're going to be discussing the state of staking and uh just a brief about me I'm RN valer have policy at European blockchain Association we spent quite a bit of time working with uh with industry and with Regulators on this topic it's a very complicated topic there's a lot of moving parts so uh to get right in let's uh let's jump to the questions and give our uh steam panelists here a chance to introduce themselves hi everyone my name is Amor Sexton I'm Co of block demon we're the world's largest infrastructure provider for web3 we're really a gateway to web 3 with a wide variety of products and services that can meet the needs of any company that's looking to build on a blockchain or interact with the blockchain hi everyone can you hear me in the back yes staking do you want do you want to hear about saking raise the hand yeah let's do it it it seems there's a lot of people for my team so I hope uh there's there's definitely people from other teams as well interested about sing so I'm the co-founder SE of Kil laslo Sabo and Kil we are the leading rewatch platform for institutions uh we offer sticking in defi in a non-al way um for this platform and we definitely a big staking player with the largest staking platform etherum uh for example happy to talk about staking today great uh lassle let's start with you uh what's got Kiln excited about staking currently and what's your uh 2025 road map shaping up like yeah um and I think um we we had um kind of a similar pass with with kind of uh with blog demon in Constantine back in the days we did our first infrastructure products so we were running uh private notes in 2019 So like um six seven years ago that was the use case at the time then we run uh public chain uh public noes um that was uh 5 years ago and then we do the staking four years ago right so staking was an evident play for validating transaction on blockchains today it's the um most Ed um validation mechanism on all these blockchains uh maybe even Bitcoin which is a pro of work chain might might uh turn to proof of stake in the future happy to talk about it so yeah I'm very excited about staking because it's um the first rewards that you can find in the markets and uh it's it's also the first um or the best the most efficient way um to validate transactions on blockchain which uh which is an important uh thing to do a more same question but looking at it from uh from block Damon I think from a staking perspective we were one of the first ones in the market to do it um and we what's exciting is to see the number of networks out there at the moment who are utilizing this um methodology to secure their Network we're seeing the maturity of the technology as well both the networks that have existed for a while who are maturing their own technology or the new new entrance to the market um there's the the nors the node operator risk Standards Initiative which we're very very excited about which is looking at really bringing in third party certification for validator operators to ensure that you know valid operators are really meeting institutional needs when it comes to to risk management and that they can have that that form of um certification that would meet the standards of an Enterprise due diligence um we we are broader than staking though it is one of our products so from a a company perspective we're really excited about you know some of the stuff that we're doing around our wallet technology as well one of our products we're going to announce soon is being used by one of the world's largest financial institutions live in production which is you know very exciting for us um and then we're just continuing to build out our on premises wallet product too which is again meeting the needs of large regulated institutions who need to have that level of um the level of functionality and control over the functionality for their products awesome when you're looking at the certification for for um for validator operators like from an evm perspective you're talking about like vanilla proposers and those that are running at the station subnets like grouping them together or just generally it it's a broad range of things so it looks at a control go framework for making sure that you're adhering to the protocol's rules it looks at change management Key Management um you know your operational resilience practices you're a continuity of business um it's really about making sure that if you are operating ethereum validators you have that Enterprise grade operational processes in place you know that operational excellence that institutions expect llo uh staking is a broad term to put it loose ly uh you know there's technical staking there's a lot of things that may be considered staking in name only or Soo and the the term is thrown around quite a bit in the space can you just kind of unpack the difference between what technical staking actually is from a consensus perspective and what all of these potential microservices that are built on top of the staking infrastructure look like and and and how you might group them yeah of course and one of the Reason by the way coming back to your question staking is exciting is because we follow blockchain path um and they're evolving very fast um it's um super fast evolving Market maybe you know the the fastest um innovating Market um so every six months there's a new narrative uh that's what staking is is actually exciting um so staking is the concept of validating transaction on a blockchain network right on a proof of tech chain so um you run a valid whether you have a collateral and then in proportion you are able to validate all these interaction it's very different from uh the rest of defi which people might also call staking um in that case staking is not defi um it's a consensus layer rewards so you get the reward from the protocol fees and the inflation of the protocol and actually defi uh becomes defi the first prod of defi is liquid staking so it's uh the concept of representing in a token a liquid position in um in defi uh liquid taking position in Defi and then all all the rest kind of follows so um yeah it's very important to differentiate um the the the two rewards um staking and defi um and staking is is the primary reward in blockchains uh and yeah it's it's also kind of the risk free kind of rewards you can you can find compared to to the rest of words on on blockchains more I know the block Damon has also done some work in terms of grouping these things into different buckets uh can you just explain a little bit more and maybe elaborate on that sure I mean I think for me staking is it's really at the protocol level it's a utility function at the end of the day you're trying to secure the network by encouraging decentralization and distribution of the people who are participating in your network the rewards function is incentivized participation it costs money it's uses resources to be able to participate in these networks and it's subsidizing that participation with these rewards the on the flip side of it with this actual State tokens the the ability to adhere to force adherence to your protocol's rules by imposing penalties if they don't follow that so it's incentivized participation to ensure security of the network and I think that's a really important thing to understand because there's lots of other uh developments in the market where people are focused more on rewards but everyone needs to remember that staking itself is a protocol security function at the end of the day and its utility and I think that I think the market understands that now I think probably about 12 months ago I think it was still the the word staking was still confused with you pulled offerings and other things that we saw more in the retail space but I certainly with all the conversations that we're having even with Regulators I think they do understand the utility part of it at the moment so I I think that's the biggest thing um to keep in mind the the utility function versus different business activities that people are doing with the tokens um where they may or may not use the word staking as part of the title no I think I think you both raise a good point you know the association what we've been trying to drill home is that it's it's network security through economic value at loss really it's a penalty based system due to slashing and other things so in one sentence um and then this brings us to to the to the question of Regulation which is always a sticky subject uh there's there's no elegant way to approach that I mean you know you have some Regulators saying that that need the touch points or the hooks need to come at the validator level or at the application Level the execution level so what do you think from a market perspective and this is a general question to to both of you what is the appropriate course of action if you're a regulator and you're and you're looking at this landscape um what what should you be focusing on and what you what should you be avoiding for the purposes of outright just scuttling the market altogether yeah we um ourselves talking to a couple of regulators either um French Regulators AMF or um uh you know the Commissioners for in Europe for MAA or any uh frankly Regulators in the world today there's no clear regulation um around staking you don't need a linense when uh you offer non-al staking Services um they might be an exception Singapore um though it's it's definitely an edge case and the reason is staking is not not uh lending um or it's not custody right when we uh or our customers actually using our services we are not able to steal their fonts we're not able um um to access uh their Capital it's it's these capitals are essentially um collateral um on chain so I think staking could be regulated in the future because there are some risk associated to it uh which is slushing we we run valid Keys um and there's definitely a small risk there um so we keep talking to Regulators um so first of all to explain that Cal staking Cal pooling staking is not similar than non cural staking um which is what we offer it's also different from lending um but you know again in the future there might be a world where um this space is a little bit more regulated or at least um watch but for now um I would say yeah in in in the coming couple of years staking and defi stays outside of any serious regulation I think for me um when we look at regulation Regulators are trying to address the risks that are inherent in the activities that you're carrying out so a validator for example La I mentioned we don't have access to the private keys we're not cing the assets we also don't control the rules of the protocol the bonding unbonding periods that's controlled entirely by the protocol so what are the risks that are inherent in the activities that we carry out and that's all about resilience making sure the validators follow the rules of the protocol making sure that our machines stay up and running um that we've got got good operational controls and resilience and that's exactly why things like nors are so exciting um because we're getting ahead of it The Regulators are already asking what are the risks and as an industry we're recognizing what the risks are and holding ourselves to a certain standard to make sure that we are mitigating those risks at a at a technical level um so I think for I think we're going to see some form of regulation in around staking activities to the extent to which IT addresses the validator role I think it's going to be interesting because it's so technical but I think having these certifications and having these standards will really help to inform that narrative as well no I I I I completely agree and uh I applaud you for your efforts in this regard llo uh penultimate question for you uh looking at Petra and uh the fact that it's coming up um have you guys given any thought to how some of the eips in pectra might be affecting scope of staking Services going forward for example Max effecta balance execution layer triggerable exits things of that nature yeah um two things right um first of all the um effective uh Max balance um will increase I think from 30 to East to 2048 e which is definitely good ux for staking providers if you look at like other um protocols they are called dpos so delegated proof of stake because you can there's no limits um in terms of coins you can delegate to to a specific validator on ethereum you have to spin up a validor every 32 e in that case we'll be able to increase that limit so it's going to be easier for us to run our operations it's going to be better in terms of ux for the end user specifically in institutions that is trying to State their assets then the the second feature of pectra is um actually the fact that you can have now um font keys that can essentially exit the fonts uh which makes it a complete non-al product um today you had to get access to the validation key to exit the fonts so we we we had to basically give our clients a pre exit message so that they can you know sign um on their behalf and they don't have to rely um on us if they if they want to exit their their staking position so that's actually very exciting uh we're looking for pectra to come excellent Amore last question to you um what do you think and this is just very broad what do you think are the biggest uh challenges and opportunities to the scale up of staking services from an Institutional perspective uh going forward I think from an opportunity perspective restating is really interesting the idea that you can have use the same state tokens to be able to secure multiple networks I think that really helps from a scalability perspective for the ecosystem as a whole um so I think reak is very exciting from a Challengers perspective you know this one it's probably my coo role rather than the CEO role and it's quite um it it seems quite small but it actually does have an impact and that is as these protocols age the requirements for the hardware increases and I spoke earlier about incentivized participation we need to make sure that the the the costs of actually participating in the network um is proportionate to the incentivization and I think that's a challenge that the networks need to tackle because I definitely think that as the networks mature it's going to be increasingly important because they want to encourage as many participants as possible in their Network this kind of goes back to vitalik's uh point in Rainbow taking about splitting between heavy and light clients having Solo stakers versus versus institutional stakers and it's a it's a economy of scale situation at the end of the day right if you're an individual what's your sun cost versus institution what what can you actually afford to do or or or not if you really believe and you really want to secure the network um any any final remarks from either of you before we close off I think we're pretty good for time management so yeah I would say I mean this question of like what's exciting in the staking space coming is is is a good one uh the cool thing in in the staking space the cool thing in in the blockchain space is that every 6 months there is a new narrative so um igen layer definitely reaking this concept of securing other blockchain with the ethereum security layer is is interesting it's also a very um great opportunity for our clients in terms of rewards and I would say l2s staying is coming right um on ethereum all the volume used to be on the main net now all the volume of transaction going into l2s and as staking providers we validate dist TR so we we might be able to capture a little bit of values of l2s um via staking them uh running sequencers shared sequencers so there's a lot of research and and cool projects uh launching in the coming months about this topic and I think the the most exciting topic now in the staking space I mean for me uh is Bitcoin staking right uh Bitcoin is 70% of our Market um uh in of our um asset class and it used to be per work um there's now old defi nft ecosystem building around Bitcoin was l2s was reaking on bitcoin they want to leverage the Bitcoin security to power um their own use case and for our customers it's definitely a m opportunity because since FTX you don't have proper good rewards in the market there's lending rewards but they're not great and they're actually quite risky so if there's a decentralized rewards mechanism coming into Bitcoin of course all of our customers are very interested and that's coming in in in in a couple of couple of months we have seen babyon which is the first reaking project on bitcoin we've seen core Dow core Chain O stacks and there's couple of interesting project in that space so very bullish about Bitcoin staking today ethereum is the largest staking Market um I'm confident you know in a couple of years maybe you will see Bitcoin uh spreading and uh passing ethereum absolutely and for those of you who haven't read the uh the Babalon light paper it's a little heavy on the math but it's a great read and definitely recommend you check it out uh thank you to both of you and a round of applause for our panelists [Applause]