The Staking Economy | European Blockchain Convention

foreign [Music] hello everybody thank you very much let's start this panel on the staking economy my name is Michael gaulkler I'm Chief product officer at Bitcoin Swiss and hosting together with this wonderful panel participants Eva you want to start your introduction let's try this much better hi everyone my name is Eva Lawrence I am the head of Amir for figment we are the complete institutional staking provider we help hedge funds asset managers custodians Banks you name it put together a staking strategy for non-custodial protocol staking and execute on that strategy I have been in crypto now for four and a half five years and prior to that I worked at Morgan Stanley as an equities Finance Trader thank you even Robert uh hello everyone my name is Robert Ellison I work for all nodes similar to figment we run staking proof of stake staking specifically we run about 33 000 nodes on the network across about 65 proof of stake protocols my background is in crypto in encryption and working with protocols probably I don't even know how long over a decade we focus a lot on retail and we're growing out our institutional capabilities as well cool thank you Robert uh just to make it very clear what we're talking about we want to start with our understanding and definition of staking Robert you want to continue There what what are we talking about sure um so uh really important because it's in the news as as everyone's uh probably aware staking um is a term used all over crypto and and I think it's important to be quite specific on what it actually means uh I often pinch myself because it's it's in the name proof of stake right it's it's essential for how protocols on proof of stake networks work uh what that means is as a token holder as having ownership of part of the network uh the security of that Network depends on you staking to the protocol uh and that that staking or that what's called that delegating your tokens is non-custodial in nature typically that means you're securing the network um what does securing the network mean it means that your your improve the health of the networks it means they're decentralized it means you're attesting to blocks and and it's part of the core functionality of you know a proof of stake Network like ethereum um I could continue to sort of do some comparables or um it might be also good to mention the fact that in terms of the the non-custodial protocol staking that we're referring to the reward is determined by the protocol um it's not plucked from thinner it is determined by the protocol and then passed on to the the owner of the token so that also works alongside the the non-custodial element you're not transferring the title of your tokens and the return is passed through to you that or the institution as a token owner via the protocol yeah uh you know technically speaking when a new block is created when a validator like all nodes or figment a test in the new block on behalf of the delegator you get a reward you're securing the network and and in turn for that your reward is some yield based on that transactional gas fee um and that reward is directly tied to your non-custodial wallet so you really own it so there's a direct relationship between sort of yourself and the blockchain um I think compare and the reason why there's some sort of confusion around this issue is people use the term staking all over the place uh you see it in defy and it's not the same thing it's important to differentiate there when you see some defy using the term staking they're not protocol staking what they're doing is possibly lending they're possibly um creating liquidity pools with your token uh it usually works with a smart contract but there's no actual protocol behind those that functionality there's no real direct relationship with your non-custodial wallet and the protocol thanks Robert for that very detailed explanation we see it the same way it's Bitcoin Swiss and we see it especially important to have this definition when we design products that are robust against regulatory scrutiny so moving on to what it is now who's using it Eva can you explain and from your experience who has the most interest so I think um people would be surprised about the different types of Institutions and how many different institutions are looking at staking so it could be from a VC hedge fund asset manager that holds tokens perhaps they've invested in a project and they're holding tokens as part of that investment and then they look to stake those tokens to secure the secure the network and and rewards then you have custodians exchanges trading platforms that want to offer staking to their underlying clients whether that be hedge funds asset managers individuals and then you have everything from Banks um to you know family offices private wealth funds who are also looking to get into staking um I think as you know as time goes on as we get closer to the Shanghai upgrade we're seeing a lot more interest from those larger institutions who want to who want to get involved and want to prep themselves to be ready for the upgrade and look at exploring ethereum as well as Solana polka dot and and other uh coins to stake but I think we'll see that institutional focus and that demand increase once we have passed the the upgrade as I think for a lot of people they're waiting for that that time cool exciting times we've covered what it is we covered who's interested and now let's go dive down into the rabbit hole what's God's taking and the staking economy to do with minor extractable maximum extractable value and the censorship discussion where does this come in sure so um it's a bit of a rabbit hole it's called Mev um technically that stands for a minor extractable value it's it's pretty popular I guess popular not being the best word on ethereum it's part of now the functionality of ethereum but it also applies to other protocols what it is is sort of in financial terms I think it does two two really good things for users um if anyone's familiar with Wall Street and Front running um where Traders could could basically manipulate trade orders uh in front of the users this was also happening in in cryptocurrency so on ethereum as as transactions are added to What's called the mempool you had miners who were able to manipulate the the transactions and and this is why for example last year you saw very exorbitant gas prices um so in order to sort of solve for that solution you have platforms or almost a whole new cottage industry of what are called memory layers the most popular one or the most famous one being flashbots so what does flashbots do and and now the landscape is filled with probably about 10 Mev uh relayers they protect the consumer so they protect against front running and sandwich attacks because they basically um bundle the transactions in the mempool and auction them off to the validators so they can't manipulate the price points anymore or the actual transactions and then the added benefit there is the end users the stakers if you're staking get increased yield because they're auctioned off to the validators at usually the highest price point so really two two positives in in in the Mev relay or landscape thanks for the explanation you want to add either or shall we go to the next one because we can see in like quite a rabbit hole of complexity and sometimes things then are built layer and layer on top and are misunderstood and then we have cases like recently SEC Kraken and I heard earlier at the coffee machine SEC band staking and that's of course not true I think it's important to understand what exactly is going on either do you want to want to comment so the SEC made a decision in relation to Kraken which was not a band which was not a law which is not a change in regulation as they don't have the the scope to do that in any case but they made a settlement in relation to Kraken and they're staking um uh their staking program offered to retail investors in which the assets were pulled and co-mingled with some of Krakens um with with some of kraken's tokens and then Kraken were determining rewards uh the rewards which were passed back to the consumer and there was a lot of um ambiguity or in the sec's view anyway there was ambiguity um around the fees and what those fees were um but I think you know this this kind of comes back to the main points here which is Clarity around definitions as we were just talking about um people throw the word staking around and they use it to refer to a whole manner of things if I said to you I work in mining you'd say well either that's not enough information is it gold mining you know coal iron ore what kind of materials do you use how's the waste um what's done with waste after the mining process to just use the word staking and throw that around and not be precise about what you're referring to I think is is the issue that causes both confusion um and um bold headlines well I would say it causes instability in the marketplace as well exactly exactly and we're very good in crypto at you know putting a label on things or having a nice acronym and I think um you know in many areas we need to be be clearer about what we're talking about and staking is definitely one of them and and for us we are focused on non-custodial protocol staking and and that mission hasn't changed yeah I'd add to that I think it's important to mention with with the ruling against Kraken that it was very specific to not just what's called pool staking but specific to kraken's management of pool staking and so what that ruling will it will it won't be able to be applied in a legal sense to other platforms it's just very very specific and and and As Eva says sort of the the sky is falling on Twitter and and social media in the media um it's important to be very I guess it's important for us to educate people on what staking is um this doesn't affect all nodes as business model we're at the end of the day a technology company and figment as well um so yeah some clarity is needed there cool thank you for these explanations quickly in the middle uh recap the storyline so we defined what it is staking as in securing the proof of stake blockchains we looked into details that there's a additional Rewards or work to be done with Mev and we talked about the special case where the product of Kraken maybe wasn't built in the right way so we have participants that want to stake we have service providers like here on on stage helping it and now we're going another layer up what is liquid staking how does this fit into the picture on top of it yeah um so we've seen interest from institutions to be involved in staking ethereum as we we touched upon earlier um and a number of Market participants have been looking at how to provide this uh uh ethereum staking to them without locking up the token so obviously at the moment as as you may know we have to have tokens locked up until the Shanghai upgrade so a number of Institutions say okay that's great I want to stake my ethereum but I don't want those tokens to be locked up how can I still have liquidity um so a number of Market participants got together to to look at an offering for institutions so that they could be able to stake without uh effectively having to lock up those tokens and what we've seen in the past has been kind of an alphabet soup of of what what you would get in return for your ethereum and what we have tried to do at figment along with some others in in the industry is put together a a Consortium that have a liquid Collective um name bundle I guess you could say who are offering the token a staked token in return and then uh this token is not something that has absolutely no utility um they have you have a liquid Market uh in which you can um in which you can utilize that token so I think as we come closer to uh to the merge we're going to continue to see more uh institutions interested in in staking ethereum so hopefully looking at um getting involved in uh in liquid Collective I don't know if that um is what you've seen as well from Bitcoin Swiss yes I think I should add that Bitcoin Swiss has announced that it will join the liquid Collective and work together with figment and coinbase so launching a product that allows liquid staking using the the liquid token as a collateral or to create liquidity before the unstaking is possible um yeah that's fantastic I think I think there is just so much potential there um what's interesting about the liquid ethereum Market specifically is as most people probably know Lido is sort of the Lion's Share of that right now um I think what the industry needs is more diversity um in that landscape so at all nodes we support rocket pool um that is a liquid uh token as well um but it it's more retail focused so it lowers the barrier of entry for participants um right now you only need 16 eth to run up a rocket pool node and soon it will only be eight ethereum but if if I just look at the whole industry um you know there's going to be more liquid staking providers and so there's just a lot of growth and opportunity there including with liquid Collective cool thanks for that addition um we're nearing the end of the the panel uh let's do one more round with like the what's your your main takeaways from all these various topics what's the one thing the audience should remember going on um and meeting us maybe later for a coffee to catch up the conversation um so I would say not not all staking is created equal the be aware of differences we need to focus on an industry education and clarifying definitions and we will continue to see institutions develop and grow into into staking that definitely wasn't one thing that was probably three but I think that's that's the clearest uh summary about what I would like um the the members in the room to walk away today with the in their minds I agree 100 um especially with what's happened in the last week with Kraken I think we need more awareness more education about how staking works it's pretty complicated it's it's we always struggle with explaining it um and especially when people are using the term for for different things that aren't staking I think maybe the thing to end on for me is is ethereum um right now if you look at ethereum approximately 14 of ethereum is being staked uh and the and that's low if you look across other protocols it's usually between 35 all the way up to 60 percent the reason it's low is because the Shanghai upgrade is is recent um for the last three years there's been a lot of uncertainty with ethereum unstaking right like who's going to stake their tokens if you don't know when you can get your tokens back um so that's been a huge barrier to entry when Shanghai is released very soon uh we'll see that number most likely rise from 14 percent to above 50 um and I think it will go up to 60 because institutions are so interested in ethereum staking and it's so such a stable Avenue for them yes thanks for me the staking is really the centerpiece of the proof of stake blockchains where the economics and the technology touch and that fuels all these additional layers on the blockchain and the applications that will happen and we need good products where investors can participate in securing the blockchain and creating their share of the revenues in a compliant safe and usable manner thank you everybody um catch us at the coffee machine if you want to continue thank you [Applause]