Will Staking Yields Rise or Drop in the Future? | European Blockchain Convention 9

[Music] 3 2 1 so we've got 20 minutes we've now got 18 minutes so uh as uh we were told maybe far away pretty quickly um just by quite quick introduction um by thank you very much for being here but Greg voser with block demon um on the Sal of business development side I background in uh digital asset custody for 3 to four years have moved across vck demon to sort of help build out the NPC infrastructure but also talk around staking and node node support um over to jper yeah hi my name is Jesper I'm the found and CEO of North stake we specialize in Regulatory Compliance staking products uh we regulated custodian and um yeah based out of Copenhagen Denmark all right hi um yeah very excited to be here uh talking about staking with you guys so my name is m I'm CEO and co-founder at staking rewards we are the leading uh data aggregator for the staking industry um yeah we have a website staking worlds.com and basically helping investors to find the best staking partners for themselves uh by providing data and information on the industry super thank you um so yeah we had a quick pre-chat um before this was going to go out and so tried to highlight probably three or four key areas that we want to discuss I think each of them are probably two minutes each so number one so first of all the question will staking yield yields rise or drop in the future um there's a lot to discuss there so four five hours into now 15 minutes um so number one what is staking and I think so Jesper if you're comfortable just saving a very basic outline of staking sure so um there are many different definitions I think about staking and it's perceived know differently depending on on on who you are and how you sort of watching the that's not a good sound um it's been confused with lending and borrowing and earn programs and so on but the way that we Define staking is Active network participation I you run validat notes and set networks and for our clients who are excuse me primarily institutional clients it's very important to them that there's a full order Trail of the deposit of the funds how it's um Stak uh on chain and subsequently the uh documentation of how the taking rewards were created through Active network participation so for us it's very much uh much a technical operational exercise that we have to execute and not uh necessarily a financial business model uh that that enables staking yeah I think that's really important to highlight that staking like we talk about staking yields but actually staking is not really a yield it's more like yeah it's just a um staking is a digital work agreement so there are two components to it like one is like the work that like Sten providers do as like Services kind of services towards the blockchain to like keep the blockchain secure decentralized and scalable um and then there are like the other component to St is basically the guarantees um so the staking providers would like on one side provide the work um which is mostly like validating add stating producing blocks and so on and then they are providing the guarantees that this work will be provided in the future um this is like the stake you put down 32 e uh for eum for example um and then that's the guarantee that you're going to provide honest work in the future uh so the blockchain can be assured um that uh there will be people who are validating and keeping the blockchain secure scalable and decentralized okay thank you both um I guess so that was going to be a basic touch on what is the basic of staking I think we we've gone slightly deeper into it so I'll flick on to another question and I know there's other panels that have talked about compliance but it's more around what is our current view on the regulatory Outlook um that if we can touch a little bit on I guess the SEC but I guess really focused on European so where we're looking at Ma maybe some of the stuff in finma and also FCA we sure is this better sounds better yeah great um so if you look at how crypto regulation has evolved over you know the past couple of years I think I think most notably we have markets and cryptoz regulation taking effect next year in U in the EU and I think that was sort of a wakeup call especially if you look across the pond to uh America where you suddenly figured out quite rapidly that you know this growing industry needs regulation in order to to continue its growth and um we're now seeing how Regulators are struggling especially in the US to actually enforce rules on the the industry because there's simly a lack from a policy standpoint in um in how we can Define basic um sort of basic legal definitions of what is a token what is staking so on so forth right so um our opinion I think is very much I would say we look at yes and say it's not necessarily a big surprise that they are trying to enforce existing regulatory framework important the industry and they are struggling to do that it shows as a policy Gap at the same time you can see how businesses uh Investments flow into the EU uh because of clarity on uh what the regulatory framework will look like for the coming years so um from our perspective it's it's very bullish on Europe uh because because of what what a clear regulat framework can enable Okay thank you and just I guess just from a block demon perspective just looking at the General market we've seen a huge essentially staking side dry up in the US and that all of that has exploded then into European and Asian markets um I guess with that in mind like there's the top question yields rise or drop like does the regulatory footprint SEC as and when they become more comfortable do we think we'll see a spike in sort of broader use cases um with staking and does that you know does that have a grand effect yeah so R so the future of crypto is regulated crypto and what regulated crypto means is that we create Pathways for institutional clients to start engaging in uh crypto assets um that will be conducive for bringing the next billion users on chain because what happens is that that inflow of of capital will sort of reinvigorate the networks the the the the communities that are building on chain uh to an extent where you can see an acceleration of the use cases that they are trying trying to put into the marketplace uh and once we see that that's sort of a flywheel effect where um where staking actually plays a a crucial role in ensuring not only the Integrity of the network themselves but they represent assets um from a financial point of view that institutional investors understand right so again this can only be done because uh professional investors have Clarity on um the regulatory Frameworks yeah totally agree and I think there's also two streams there there's the developer developer mindset how do we make great technology and how does that move forward and you know that's why there's other protocols and other types of proof of stake uh projects that will be ongoing and people looking to create better Pathways and then there's also that you know fundamental traditional Market Market how do we access and that's where the regulatory piece comes in I think more so again from just anecdotally um where block will be working currently with clients we have to walk forward to the FCA and essentially discuss the risk of a protocol and say look this is this is the current uh risk profile or you know look at the tokenomics and say FCA this client is looking to do this we'll have a you know a three-way conversation for the FCA to get comfortable with that and so education sort of underlines that yeah I think what's really exciting is that blockchains are supposed to be self- sustaining economies um and then if there's more activity in the network it also means they can like be a short-term rise in for example uh staking rewards towards the uh like yeah digital work providers Sten providers and so on and that's really exciting I think if we ask about the question like yeah will uh the staks go down or up um in the long term I think it's a matter of like yeah what type of work will be provided in the end and how important is the work in general um and there I would say like the the basic work provision of like validating and so on um would probably be like yeah mostly commoditized in that sense but there will be a lot of additional risk buckets um where staken service providers can tap into providing additional work for the blockchains um and uh expose the guarantees to a little bit of a higher risk to earn higher rewards as well he thanks I want to touch on technology in a second and just advances there but I just wanted to step back to I think we were looking at yield generation and so where at the fundamental piece uh element of staking is to support um a protocol um so you delegate to a protocol to ensure the efficiency um of the transactions that happen on that blockchain there's other yield Generation Um commentary around staking and it if we want to sort of touch on that slightly so if we're looking at you know potential yield pools or Structured Products or other like what is the what is the view there um that also you know touches on the question above in terms of rise and rise and for but also the risk profile of staking U fundamental and then the other other classes perhaps so running validated notes and a network is the first deal generating sort of layer on on in this stack on on the blockchain now those digital assets represent an inherent value that you can then start to work with from a structured Finance point of view which means that you can start building derivatives on top of that you can start building Structured Products on top of that you not unlike what you see sort of you know in in in traditional Finance but this is just you know we're talking about digital assets but the staking itself represents the lowest risk threshold as well because you have no credit risk you have no liquidity risk necessarily depending on the network and how deep the market is but theoretically that should be the case once you then start to build uh different types of yeld generating products on top of that you will introduce counterparty risk and this is I think what um northsec is focusing a lot about a lot will focusing on which is how can you ensure that you understand thoroughly understand that counterparty risk because um from a decentralized blockchain point of we like to build a lot of you know interesting know products that can sort of tie in together from a from a network perspective try to build everything at the protocol level uh which is great but those products are not sort of mature from an institution point of view for at least you know 5 to 10 years so uh we focus a lot on ensuring that we have uh a solid foundation with regards to uh the staking and valid dat notes themselves and then we have to turn to sort of offchain uh Concepts in order to build the next layers of of of um derivatives or structured Finance products thank you I'm going to actually just segue that straight onto technology uh with time and so I guess just with generalized sort of Technology advancement so I guess all of the firms that are working sort of in that node space validator space are trying to create better efficiencies um the protocols themselves and you know we can highlight ethereum um in the next piece is where you know they naturally will say look we are currently at you know 32 ethereum for one validator that potentially will change in you know the coming months um I'm going to pass to you merco because you know this is your sort of space and how do you see this see this changing and just generally discussing the uh the advancements in the industry in technology infrastructure yeah definitely I think what's really exciting and maybe also to come back to the other topic a little bit because I think it's very much aligned together um with like for example liquid staking being the bridge between like the technology and like the base layer staking um where like players like North stake come in in and um providing like very solid infrastructure and then on the other side it's uh basically yeah um the composability with defi uh allowing it to build Structured Products and financial products um and everything else on top of that using the base layer staking rewards um and I think this is where most of the value acral will Happ them going forward with like the technology like the the blockchains um will kind of optimize their efficiency more and more over time so the base layer yields will go down because most of this will be commoditized and probably a lot of the blockchains also overpaying for security right now um so those rewards will go down um but on the other hand there will be a lot of um yeah products um that optimize um and go a little bit higher in Risk bridging it to like the defi space and bridging it to the uh trefi space as well um and there will be like much higher yields and uh I think what is really exciting is that the technology allows us to build on top of it um so there is composability in it um yeah which is yeah uh permissionless and trans transparent and so on so that's what's really exciting about the technology I think that it's yeah very flexible and composable to build a whole financial industry on top of that okay thanks Mo um another point we were looking at is just generally the the adoption um or wider adoption so where perhaps you know there's some individuals looking at staking now and I stole some numbers from staking rewards this morning so current sort of staking market cap is just North of 100 billion um of which I think ethereum is probably close to 50% of that and then you know there's next top 10 and probably holding uh the market share um all that ethereum so close to 50 billion state that is only 20% of you know the ethereum market where does that go and I get it lines on to I think the next thing we just asking like what's what's the pathway forward you know the next 1 billion person adoption um I just I was going to POS it to you because you we discussed it beforehand like sorry I mean if you believe in web 3 and the econom is being built on chain um you want to have a long position in in in in crypto a long position means uh that you will forgo the staking yeld if you just hold it I.E you would need to stake it in order to ensure that you're holding this investment in a capital efficient way um what that means is that in and around itself staking yields will will drive more validat notes as more institutional Capital come in comes in and that poses from a technical point of view uh some issues because the more validated notes you have on the network the slower it becomes you have to figure out what can you do in order to ensure that balance now we like to think that um the networks need to to figure out how to create those balances themselves and we will then uh adapt to that um not unlike I think what we' seen in sort of other financial markets um yeah I hope that answers the question no I think it doesn't I think the it was more about that fundamental pathway and opening up for the rest and wider adoption so they're comfortable coming into the market points of access um another question is going to fall out of that and I'm going to throw it open and we didn't talk about this one beforehand but where where where's the balance where's the balance between two minutes too where's the balance between um fundamental support of blockchain infrastructure and the requirement of staking to other Market participants coming in potentially the traditional markets coming in saying actually I don't want to do the fundamental work I want to go into a product that's outside of this ecosystem that's regulated um and sponsored by perhaps you know a bank or a or other you know financial institution that provides some of those Securities around their asset being put forward forward I mean this is what we see now also play out let's say in in with finma in in in Switzerland how Regulators um are struggling to sort of figure out how to manage this um what I would like to say is that the the way that that institutional adoption will will drive this we have to figure out they have to figure out how can they partner with the right people like yourselves and norak and others that understand how to operate from the ground up so ring fencing node infrastructure from an AML perspective how do you how do you then afterwards ensure that the yields that you generate can be reported in a way from a tax perspective and so on so forth right and all of these things are now clashing because we just fundamentally need um legal definitions of of what crypto is what staking is and why we do it that will in turn lead into to uh a greater adoption and um yeah we're running out of time you're looking at the clock yeah um so we're very we're very bullish of of course in North State that um staking will be the pathway for institutional uh adoption I.E that will lead to um a billion users on chain eventually okay yeah if I can just say it quickly so I think the adoption of staking is very much aligned with the adoption of crypto as well but staking can still be like an accelerator for the crypto adoption um because I think passive income and like earning rewards is always like a a great incentive for people to come in um but it's always it's it's never a way of okay I should just stake um for the sake of staking uh it's more like staking is an activity that you do if you are a long-term believer and investor into a certain asset so that's a really important differentiation I think um and then I think what's holding back the general crypto adoption is definitely like um it's a matter of uix providing like the best possible uix for institutions for retail for everyone to on board to the industry from like um the whole stack from like finding the right tokens like yeah um finding the best stacking options seeing like how does it work um and then having the tools for like reporting uh taxes and all of this and yeah um I do hope that um sewards will play a key role in doing that for the uh staking uix going forward yeah per I think we're going to get we we are timed out but I've got one more but I guess fundamentally we need for any of the tokenization conversations that have probably been going ahead today with you know with regards to Banking and looking at real world assets being tokenized they're going to be on a chain on this blockchain that needs to be supported by delegated assets is it going to be the banks that you know buy up you know loads of ethereum or other other asset to then support that chain that allows the tokenization to be achieved perhaps um but there's also going to be people in the market that are actively you know holding that asset wanting to delegate to the chain as well so I think that was number one I mean there's loads if we had another half an hour I think we' get answer something we could probably talk forever on staking I think so last point is what's the what's the key takeaway um of the title we staking yours rise or drop in the future on the spot Jesper let's go who knows it will go up and down okay well I think the the base rate will go down um and apart from that it will go up um so there will be tons of Structured Products and uh product building on top of the base rate um where I think there will be much much more additional products and like much much more products and for example in trefi um because blockchain just allows us to be like very very composable with other products and then um I think we'll see a lot of adoption from there and uh I'm I'm really excited for the space going forward awesome thank you very much guys please thank jesser America [Applause] here