The secret of Ethereum liquid staking - Darren Langley

[Music] All right. So, we'll uh kick this off. So, so today I'm Langers and I'm from Rocket. Uh you can tell that because I'm wearing a very subtle shirt. All right.

So, today we are talking about the secret of Ethereum liquid staking. So, it's a very sensationalist title. Um, but we we'll kind of go through, uh, what the talk cover. So, uh, we're going to cover what is Ethereum staking, what is liquid staking, how does it work, um, what are the risks, uh, you know, what does the Shanghai hard fork mean for um, staking, and what does, you know, what to look for in a liquid staking provider. Uh finally, why rocket ball?

Obviously, and then we have a uh an important announcement at the end, uh which you'll hang around for. Thank you. There's a lot of Rocket Ball people here. Thanks. Okay, so uh what is Ethereum staking?

So, in theory, anyone with ETH can stake their ETH and participate in Ethereum's proofofstake system. In other words, they can help secure Ethereum. Now when Ethereum transactions kind of get formed into a block, uh that's actually done by Ethereum validators staking their ETH. Okay, the stake is kind of like a good behavior bond. If you do the right thing, uh then you if you do a good job as a as a validator, then you'll be rewarded with new Ethereum essentially.

in the unlikely event that you try to attack Ethereum uh your stake is kind of penalized or what we call slashed. So you know how secure is Ethereum? So Ethereum today um is this 16.7 million ETH that's being staked. Um when I did these slides that was worth uh $28 billion.

I don't know what it is today. Um, but uh you would have to risk $18 billion to uh pose a threat to Ethereum. That's kind of what we call economic security. It's how uh proof of stake works. Now, in reality, there's some significant barriers to entry uh for staking your ETH.

So, the first thing is you need a fixed 32 ETH per validator that you spin up. So, that's about $55,000 um uh dollars. uh you need technical knowledge to run an Ethereum node. Um and also staking currently um is a one-way thing. Uh you can deposit uh but you can't actually withdraw but uh that will all change when the Shanghai hard fork happens uh which is coming very very soon.

Okay. So what is liquid staking? So liquid staking is the simplest way to stake your ETH. Uh if you have ever swapped a token uh then you can stake your ETH. So you you just need to swap ETH for in our case our our ETH token and uh you can do that um with any amount of ETH.

Uh you can you don't need technical knowledge. You don't need to run a node. Um you just need to swap with the token. uh while you're holding that token the um the rewards that's being generated by node operators who are actually staking it uh actually acrru to the token itself. So essentially you uh earn those rewards through the token.

The simplest way of saying it is that you deposit ETH and you get our ETH as a receipt. Uh you hold that for a certain amount of time and when you swap it back you'll get more ETH than what you put in. That's it. So even though withdrawals are not technically implemented, you can also unstake with um uh liquid liquid staking. So there's a couple of ways of doing that and I'll go into that.

But you know why is it called that's that's basically why it's called liquid staking because you can unstake. Uh the additional benefit of liquid staking is that you can take that token that receipt token and you can use it in DeFi. So, you could take that token and put it into a liquidity platform and earn trade fees on that. Um, or you can put it into a lending platform or you can do your options. There's a myriad of things that you can do.

So, how does it work? So, when you stake ETH, you get issued our ETH as a receipt. Okay. The ETH is matched with a node operator um who then um you know stakes that within the proof ofstake system. The ETH then kind of earns staking rewards and then that ends up kind of acrewing through the the the token.

When you want to unstake uh you either unstake in our case you can unstake through Rocketport itself um or you can exchange it on a decentralized exchange whatever whatever one you want. So what are the risks? So these are kind of like the risks in general uh for all liquid staking providers whether you know you're with RocketPool or any other provider. So smart contracts. So as a D5 protocol uh there's the smart contract risk uh that's kind of mitigated through extensive audits uh testing um and and a bug bounty program as well.

There's also kind of slight value risk in terms of so in a true liquid staking protocol every ETH that's deposited is staked by a node operator. Okay. And um but on an open market you know this the the token might vary in in price to the underlying kind of thing. So uh it's affected by a kind of like supply and demand. So it might at times there might be a slight liquidity premium or there might be a slight liquidity discount depending on what time it is and the the way that's mitigated is through kind of the protocol incentivizing liquidity.

So there's lots and lots of liquidity out there um and also having kind of um you know arbitrage opportunities for node operators. Uh Shanghai also helps with with that one as well. So lastly, there's kind of slashing risk. As I said, you know, there is a chance that a node operator does something, you know, nefarious uh and their um their bond is slashed. But uh this is actually migrated in a number of ways.

Some protocols offer insurance which cover a small percentage of what could happen. Um we prefer to uh have our node operators provide collateral which 100% um uh protects against most slashing risks um and it basically is the the best um case scenario for this. So with RocketP you have a very very minimal um slashing risk. So what does Shanghai mean for staking? Um the Shanghai hard fork is a is a big deal.

It's like the culmination of uh proof of stake. So, we had the merge a few months ago, which was fantastic and it it worked so smoothly, but this is kind of like the last piece of the puzzle. It means that um proof ofstake validators can actually access their rewards and they can uh also withdraw if they want to. So, this is a big deal because there's a lot of people who obviously don't like the fact that you're depositing things and not being able to withdraw. um from from Shanghai onwards, you can stake, you can earn these rewards, you can secure Ethereum, which is the most important thing.

Um but you can also withdraw when you whenever you want to. Um now with RE again, sorry, liquid staking tokens, but RE in particular, you can already unstake today. Um you can do it directly through RocketPool um or you can go onto a decentralized exchange and and swap it on the open market. Um, with Shanghai, uh, there'll be more liquidity coming back and so it'll be much easier to be able to withdraw. Uh, there might also be slightly higher rewards because um, you'll be able to kind of like restake um, ETH and so that generates a little bit more rewards.

So, what to look for in a liquid staking provider? Okay, so athereum.org actually has some great criteria for choosing a staking provider. uh RocketPool is the only one that gets green ticks across the whole thing. So the first thing is open source and verified.

So the smart contracts need to be available to everyone to see, everyone to look at, everyone to check and so they have to be open source and they have to be verified. The protocol has to be audited. Um and so it has to be audited by reputable audit firms. Um and they have to have their audit reports made public. That way everyone can see um what the audit has covered um and any potential issues and anything that they found.

The protocol has to have a bug bounty. Um what this does is it allows white hats to uh get rewarded for um basically improving the security of the protocol and it's very very important. Battle tested is pretty simple. It's got to be battle tested. Uh trustless.

Now this is this is interesting. So you know many different um staking providers in some cases you have to trust the node operator with your funds. You have to basically give over custody um of your funds to a node operator. You know do you have to trust them? Do you have to trust them to perform?

Are they economically aligned with you as an RE holder or token holder? um are the uh is there in as I came to before is there insurance or is there collateral that's backing uh any slashing risk or anything like that so that's the trustless part permissionless node operators so can anyone run a node within the protocol now this is important because it supports Ethereum's decentralization only permissionless node operators can be decentralized and that means like uh kind of geographically decentralized uh jurisdiction decentralized and all of that sort of thing. Um how many entities are running those nodes. Okay. So diverse clients so are the node operators themselves running different kind of client accommodations for maximum resiliency.

Um are they in different geographic locations or different uh jurisdictions? And lastly, do they have a liquidity token which basically enables you to be really flexible um and use the the token in DeFi? So why RocketPool apart from the fact that we have orange um significantly in our brand and why why would you uh use RocketPool? So the first thing is that uh so we released in November um 2021 um and it's gone pretty well so far. Uh we've got over 2,000 node operators um operating in 100 different geographic locations.

We are staking about 400,000 ETH which represents something like 2.4% of all the staked ETH um that's being staked today. Um if you're staking ETH today with another provider um and Shanghai um the Shanghai hard fork happens, you'll have the opportunity to uh move your stake teeth to another provider. Um, I'm just kind of hinting on where you might want to put it. Uh, the grass is not greener.

It's not just greener. It's orange. So, so thank you. Thanks, Whack. Uh, we also have a very uh passionate um community uh of rocketeers.

Uh, so if you if you if you love Ethereum, if you love uh kind of uh uh if you love Ethereum in general, then come and join our discord. Atlas. So today we are officially announcing our Atlas uh release. So Atlas is a big deal for us. It's um it's actually been the culmination of a lot of work.

It's a it's a a kind of a rocket pullwide effort, not just the core team. Uh we could not have built Atlas without the community. Uh it's a result of a huge amount of discussion, analysis, research, governance, voting, development, testing, and auditing. Uh, and then we're we're going in and we're actually releasing it onto our test nets um in the next couple of weeks. And so our community and anyone else Yeah.

is happy to kind of come along and test it for us. So a big thank you to everyone in our community that's kind of contributed to Atlas. Um, we couldn't have really done it without you. So what does it include? So it includes a bunch of stuff.

Um most of this stuff is uh node operator specific and I'll kind of come to how it affects liquid stakers in a minute but there's it supports Shanghai withdrawals. So it means that our node operators can actually withdraw their ETH. Uh it supports this is the big one uh eight ETH minip which basically means that so today um as a node operator you need to supply 16 ETH as collateral but we're actually reducing it to eight. So we're lowering that barrier of entry but still giving our ETH holders the the best um kind of coverage in terms of um you know slashing risk and and that sort of thing. So we also did an optimized minipool Q which basically just means that we we can process things a lot quicker.

Uh we have a solo migrator a solo staker migration which means that um as a solo staker if you are running your solo staker m u you know solo staker today you have a one-time opportunity to migrate to rocketpool. Uh there's a lot of reasons why you might want to migrate and if you want to know more about that then come and talk to us. Uh lots of gas reductions the dynamic deposit limit and assignments which I'll cover in a second. Okay, so what does this mean for liquid stakers? So it means that getting hold of our ETH is going to be much easier.

So with the Atlas upgrade, we are going to 3 to 6x our capacity um which means that we'll be able to um kind of take on more deposits. We had to take on more deposits. We'll be able to take on much larger deposits um because uh of these kind of efficiency improvements that we've made. Um we we've also made the protocol more efficient as well. And so we should kind of see slightly higher rewards as well.

Okay, that has been me. Uh I've been Langers. Uh if you want to know more about RocketPool, uh that's our website, rocketpool.net. Uh we are just around the corner at in in the DeFi section.

So if you if you want to come talk to us about um either liquid staking or running your own node, um then come and come and find us. We'll be happy to talk to you. Cheers. [Applause] [Music]