Managing Risk With Institutional Staking on Ethereum - TOKEN2049 Singapore 2023

foreign good afternoon um thanks for having me uh and it's awesome to see all the energy out here so my name is Rock Kopp I'm a co-founder of etherfi uh etherfi is the First decentralized Institutional grade liquid staking protocol um so who here's familiar with staking on ethereum anyone nice great good um so I'll go through a couple things uh start off I just want to touch on our investors and I think the reason this is important is that we have really good investors who saw the same problem that we did um when you think about uh staking and where staking is the market has grown immensely so today it is a 1.5 billion dollar market uh arguably it's one of the things along with stable coins that has found like true product Market fit it's a massive massive uh industry generates a lot of Revenue also provides security for the ethereum protocol so um the the current options for staking the merge happened last year and there was this transition where ethereum went from a proof of work blockchain to proof of stake a huge transition the ethereum team did an amazing job executing on it um but when that happened uh the security relied on people staking their eth and so the options that were out there um were custodial and centralized uh and so I'll kind of walk through the different options that are in the market uh with the the eat that is currently staked so you have non-custodial centralized um node operators that's about five percent you have solo stakers uh rocket pool has done an amazing job with this uh they have thousands of nodes across the US and really have worked to decentralize ethereum you have custodial centralized so this is the Krakens the coinbases uh of the world uh the United States and the SEC specifically has come after these exchanges pretty hard um uh and it's it's been a challenge um to move through the staking industry in that world uh and then you have Lido um Lido has about 32 of the current stake uh on ethereum and so Lido uh they've done a great job making liquid staking a reality uh the majority of people who stake have probably heard of Lido it's super super easy uh and the team basically created this liquid staking made it a reality um but when they created it they didn't know how withdrawals were going to work and so there's a couple of things that kind of prove to be risks uh to the ethereum network because of how the the protocol is built so one of those being how much eth has staked with them um it's 33 it once it gets over 33 of a stake with one provider uh there becomes systemic risk to the the protocol um and it could really damage the whole network in holes so that's a very important number um for us to kind of stay under or have Lido stay under um but the market needs to bring different staking Solutions so I'm going to talk about a couple of the risks that are facing ethereum and this is not just for institutions this is for anyone who is staking um and you know when you see it you're like hey I'm holding ethereum on Long ethereum why not take an extra five percent uh and totally makes sense and I I totally agree with that I'm long a theory and I'm I'm gonna stake too uh so the first thing there's a map up there and there's two dots 50 of ethereum nodes are run between those two data centers one is hertzner in Germany and the other is U.S Amazon East so what does that mean that means if either of those data centers were to go down a massive amount of eth or the network just couldn't run anymore uh and so when you think about that decentralization is so so important to ethereum like that's what the blockchain is built on and what they want to do and next shoot on and having 50 of your nodes in two locations is far from decentralization so you have a geographical centralization risk the next one is a technological centralization risk so there's a variety of different technological clients that execute these nodes Geth is is the most prominent one that is used basically what that means is if there's a bug and get their death went down um validation on the network would stop so that needs to diversify as well that has been slowly coming down but it's it's still a big risk um and then the last one I talked about a bit but it's Lido so uh like I said they're 32 33 is that number once they cross that threshold it becomes a risk um and so no fault of Lido they've done a fantastic job uh they've created this industry the team's done amazing stuff um and they've brought a ton of people into the staking Market I think it now is on the market to provide an option and to educate the market on what their other options are so the brand you know brand awareness people have of Lido is so great and it's so easy to use that people don't realize some of the risks that that kind of come along with it um so one of those things that is super super important is 32 validators are staking are responsible for all the eat that is staked on those those validators or node operators also control the keys to the eth so in return you get stief but they have the Ethan they have uh the withdrawal keys for the eth for those validators so if something happens if you know maybe an employee gets the keys or there's some bug basically what would happen is you'd get a bank run scenario on Steve where one validator would be locked up and people would have trouble exiting the queue and therefore you could not redeem your Steve for eth so it's something that's super uh super worrisome and I think that that's what we set out to build and why we raise money to build it so ethereum staking is a bit different than other staking um since it was a proof of work concept before and now a proof of stake there's a little more complexity that goes with it so the thing that we thought was super super important was that you as the Staker always maintain custody of your eth and so there's two keys that need to be generated there's a withdrawal key and a validator key those keys in Lido for example sit with the node operators they generate them they have them you as the Staker have no access to it you have your steath token which is a representation of your eat that is staked with Lido we give you the opportunity to generate your own keys and then spin up nodes with professional node operators so you have custody entire custody all the rewards are earned to your validator and if anything were to happen to one of the node operators you still have custody of the Ethan you can exit at any time the interesting thing that we've done as well is we've created two nfts and that's our bonding mechanism so uh most people think of nfts they think of pfps uh these are actual nfts that are representations of eth so the tnft is 30 eth and the bnft is Tui uh that bnft is sole bound to the validator so once that is exited once that is exited the whole validator shuts down and that's where you have access to the the custody of your eth so I'm going to show a quick little demo here of how it works and this is if you go to Ether dot Phi you come up here you click stake you basically are going to download these keys you'll save them in a secure spot deposit your eth you upload your keys that then goes to the node operator the node operator decrypts them spins up your node and then you have a live node that is staked on the ethereum chain rewards will start to earn to them all staking rewards are consistent like some people will get a couple boosts here and there but in general it's gonna be pretty much the same within a couple bips so uh we think that the security of running your own node and having control of that in custody of the eth is super important so we have three real options uh we have ether Phi ether fights what you just saw it's delegated East staking you generate your keys you have the withdrawal Keys you maintain custody the whole time we have e eth is coming out in six weeks but uh this is for the crypto degens who want to go get crazy in pools and uh earn more yield than that uh so we'll have defy Integrations uh kind of across the board you can go earn more um and then we have our e-staking fund so the eve staking fund is a hedge fund setup uh in the Cayman Islands this is for people who want white glove service and don't want to basically do any of the staking procedure themselves so um it's a very popular with our institutional clients because they don't want to keep custody of their keys they don't but they want to trust someone with it uh and so we don't charge any fees on it but it is a feeder Into The Ether Phi uh protocol if you wanted to go that way we also have a product called ether.fan and this is a tokenized liquid staking nft so it's a pfp nft that accrues uh staking rewards to it so you can stake fractional if anything from 0.1 eth or more and your rewards will accrue to them um we've gamified this a bit and we also uh give back all the protocol revenues that we generate to Ether fan stakers and so we are able to generate higher aprs so the current APR on is around 11 percent the other thing that we've done with this is we've put them with solo stakers across the globe so we have over a hundred Solo stakers in six continents uh in 25 countries that we have been able to get in uh with the eat that we've staked we have 20 000 e-stakes we just launched in June so it's been really good growth we have that over 15 000 wallets so we serve both institutional and Retail clients uh and we raised 5.

3 million dollars uh in March we think it's super important your funds stay secured we've gone through a bunch of audits we want to make sure your assets are being protected we have a team that has successfully built and exited companies before and so we're super excited to bring that experience to the uh web3 and then the last thing is uh I'll leave this up and go to a few questions but we're super focused on being investor friendly so we're the first liquid staking protocol that is natively integrated eigenlayer if anyone's heard of eigenlayer eigenlayer is restaking it'll generate higher rewards and so when you go and you mint e e you will be able to get increased rewards by restaking your eth onto eigenlayer so I appreciate everyone coming out if you have any questions happy to answer them that's good no it's good awesome thank you yeah that one's talking um you talked about the hetzner and AWS problem uh but I don't know if you mentioned specifically how you guys want to solve that uh could you talk about what you're doing there to kind of decentralize where the nodes are run on in terms of the data centers yeah so there's two things we're doing one everything that goes through ether fan is going to solo stakers so we have a it's basically this initiative where you can get a free staking machine you pay it off over three years but from the ethereum rewards you earn um but so that's how we've gotten the 100 validators out into uh the variety of different continents and countries we have uh so that's that's one way to do it um the other thing is the node operator partners that we pick we are very cautious about where they're running nodes from um so it's just part of our like due diligence that we do on the front end we want to make sure there's some type of bare metal uh we stay away from the U.S and Canada for obvious reasons um so yeah but really good question awesome it works that so just piggy banking on the same question um the uh the the node operators that you select um how do you ensure that there's no centralization that's going to happen in that kind of node selection yeah so of the the professional node operators that we use uh we have seven of them that are whitelisted and no one can have more than 20 of the nodes that they're running on ether Phi um so so that's one way uh and then the other thing is we go through like a deep due diligence process with each one of those to make sure we're comfortable with their process what they're doing how they're running things um so yeah we have really great node operators we're super happy with that so do you have like a protocolistic kind of mechanism or that's manual at the moment like it's it's when you stake you get to select your node operator and they have like uh bids up there to basically take the stake got it okay yeah I think there's one right here oh you got the Dead one test I got another one coming here we go okay this is better uh so you mentioned that each stacker is holding his own keys do you have programs that uh kind of helps the users know more about how to keep them secure yeah so we detail it on our site and like how to keep like using the air gap machine and the best practices to use um and if it's if people aren't comfortable with generating their own keys and casting their own keys they can also just use the liquid staking token uh or ether fan and kind of go that route but uh yeah that it is one thing that is I guess more advanced crypto users to uh generate and use their own Keys yeah because this is a like you said it's not very user friendly on that side but it's good as long as there are guides to help them through because uh for example there are a lot of viruses lately that are targeting specifically those keys totally uh Bitcoin miner it's one of them uh okay yes all I wanted to know thank you cool thank you thank you guys appreciate it foreign