Ethereum Staking Services - Increasing Access While Keeping Stake Decentralized - Alex Wykoff

[Applause] hey thanks everybody so um yeah i'm alex wyckoff i'm the head of product at stake fish and i've been there just a little bit less than a year uh i'm also the creator and organizer of distributed.camp and that was a three-day set of workshops on decentralized technologies aside from that then i'm also in the rare pizzas pizza mafia for those of you who are familiar with that nft project i'm the pizza concieri and a box artist i'm not a financial analyst and i'm not a lawyer so please don't take anything i say is guidance in those directions so uh just an ask please give feedback after the talk i always appreciate critiques and corrections please avoid ad hominems don't call my dog ugly that kind of stuff but i'm here to learn too so about this content uh the intended audience is less technical if you're familiar with this kind of a graph uh this is you know if you've been on any ski slopes around here this is just kind of a little bit of guidance to say that this will be high level we're not going to get too far into the weeds but it's just meant as a light comparison of different staking services none of these observations are diss they're not meant as a diss we're really just going to take a look at them as they are and we're going to focus on non-custodial services if we're lucky we'll even take a look at the product arc of one of them so just a little refresher on ethereum staking if you didn't see the talk by colby colfax sorry colfax shelby yesterday it was brilliant and i highly recommend you check it out but if you didn't see it and this is your first time to hear it then i'll do it for you one validator requires 32 ethereum on the beacon chain that staked ethereum and the rewards that come with it are locked until withdrawals are implemented after the merge which is going to be a little time in the future and overall validators have this kind of a life cycle to them right they're deposited that's when you have the 32 eth gathered then they're pending as they're joined to the network itself later they become active and then at the tail end they're exited and after they're exited that's when you would think about withdrawals so some thoughts on why people should stake of course it helps to secure the network the more validators that we have participating that means lower chances of collusion and manipulation and the demand is stable right if we're all moving to the beacon chain and in proof of stake is the way that we're going demand for staking is going to be consistent and lastly it's rewarding there's a number of different ways that validators actually earn rewards including slashing so on the counter side what are some examples of like why people shouldn't stake the ether is locked right from now until withdrawals are enabled you're going to be waiting a while to get that back out and it's expensive right operating a validator requires 32 eth and lastly it can be complex right required knowledge is very technical and i think that colfax actually did a really great job i stole this from his presentation yesterday so thank you so much for this uh and many thanks to the production crew for getting this up on youtube as fast as they did so that i could actually sneak this in but yeah it's involved right now i'd like to take another step back and also look at why does decentralization matter right i mean we take it as a gestalt that maybe that's something everybody should know coming in but it's worth talking about when you have a centralized system you have a centralized point a single point of failure or manipulation right and when you have a decentralized system you have more robustness in your network right and if we see this it's much harder to take down a network that is spread over geographies and spread over different types of technologies just as a little kind of uh trivia question for the crowd does anybody know what this particular graphic is there we go this gentleman in the front said arpanet brilliant yes that's right so the thoughts behind these technologies aren't new and in fact actually this diagram comes from a white paper back in 1965. so we've been doing this for a while thinking this direction only now are we making it practical and people are flying into denver to talk about it right here's another way that decentralization manifests itself right i'm showing you both a biological example and a practical example that we have many different layers in our stack that we can think about we can have hardware decentralization many different types of hardware that are actually running the validators right we can have different types of transport layers and if you saw i think that it was just in the fall of this year bitcoin added uh the invisible internet project as one of its routing options into its core protocol that's actually quite compelling and then of course lastly we have all kinds of application and presentation layers which are all the wonderful apps that you all enjoy right and not to mention the client software itself i'm going to make the argument that staking access is a form of decentralization that you want to have more people participating in staking not just the people that can afford it from the start so if we look at when the beacon chain first launched the ethereum price was about 598 dollars six hundred dollars and that validator then the value inside of it was approximately nineteen thousand dollars right a year later the ethereum price is 4 500 and the total cost that it would take to get a validator up and off the ground is equivalent to a suburban house right and then as of this morning i did my best to get it close to the number this isn't a like a live trade number so don't don't trade off of this but um it's still quite high right this is beyond the limit for a lot of average folks right and just to try and kind of drive it home here's an example from stake fish's deposit contract so if you've ever used stake fish in the past you would know that you could deposit 32 eth and we'd run a validator on your behalf just tracking the action on that smart contract that manages it you can see that the total deposited ethereum tapered over time right and if you look at the transactions by amount because we allow you to spin up multiple validators in one call the vast majority of them were at the 32 eth level so what does that tell us it tells us that there's a natural limit to the amount of people that have 32 eth available any one point in time and it also tells us that by and large there's a lot more folks with 32 with or less right so for this particular presentation with all that background out of the way i'm going to talk about staking options for less than 32 weeks and it just really drives toward this access issue first i'm going to look at liquid or tokenized staking and that includes lido stake wise and rocket pool there are others out there these are just kind of the three i picked and then we'll look at kind of non-tokenized or vanilla staking and that's what steak fish does so first up with lido you exchange your eath for steak teeth and if you want to get it back out you would have to go to a third party liquidity pool so something like curve balancer etc now what lydo does under the covers is a lot more complex than that but from the participants perspective right all that you really did at the front of it is the exchange the staked e3 bases on a daily 24-hour basis to reflect the ethereum staking rewards so just holding it means that you benefit your amount of stake teeth will go up just from holding it and stake these can be used in many defy apps which is actually pretty cool if we look under the covers the initial set of their node operators there's 22 of them they were selected by lido and for full disclosure steakfish is one of those operators and then if we look at their client distribution this has been a hot topic lately right we can see that they have a little bit less than 50 prism usage and again if we're talking about decent centralization knowing about the amount of operators and knowing about the clients that they use is also important so next we'll talk about stakewise in stakewise's case you can exchange eth for stake e2 as heath 2 but you receive your rewards in our eth2 and that's kind of compelling because you're able to have one thing that is kind of your basis like your collateral and then another thing that is your reward on the other side and so if there if you wanted to take the re2 sell it for eth and then restake you could do that or um you could actually you know just kind of not put all of your collateral into different liquidity plays so that reduces some risk of impermanent loss and then for stakewise this is under review so don't take this as gospel but it does seem like their prism usage is above average and their node operators are stakewise employees so to compare that versus lido for example right they have multiple different operators under the cover and in stakewise this case they have one set of operators which is themselves next up we have rocketpool and rocketpool is another really popular choice you can exchange your eath as low as 0.18 for our eath and the rocketpool will group fractional eth with operator collateralized nodes and i'll talk about what that means in a second rewards are then given out to the participants when the reef is redeemed for eth so it doesn't rebase the way that lydo does and it also doesn't separate the state deep versus the rewards in the way that stakewise does their node operators are permissionless so where lido kind of made their original choice of like who's going to operate um rocketpool actually has like this really interesting mechanism that it gets operators come in and participate so what they do is as an operator you'll put in 16e plus an rpl token as your kind of collateral and saying i will do a good job as an operator and then the user's exchange ds will fill in the rest and their prism usage is quite low which is really great so just to kind of summarize on liquid or tokenized staking there's some thoughts about assumptions you have to make about the token value and the liquidity right because in every one of those cases you're making some kind of an exchange and then you're thinking to do some kind of a d5 play afterwards right and so you know what's going to happen inside of those scenarios you're required to interact with those liquidity pools to exit if you're going to try and do anything kind of pre-merge pre-withdrawals and your defy options require more active management right you can't just make a play and then sit and walk away now i'll talk about what state fish does you can stake with as little as 0.1 eth the ethereum is deposited into a contract when the deposit contract reaches 32 eth then a validator instance is spun up so from there that's it you're staking there's no exchanges there's nothing else that's done you your rewards and your stake teeth will sit in there until withdrawals are enabled right so you'll get your original stake back plus a percentage of the validator rewards minus our commission the node operators are stake fish employees and the gas might be more expensive than other options participants will of course have to wait a while before they can withdraw and receive their rewards right we have to wait post merge post withdrawals but as you can see our prism usage is also considerably low so these are all factors to consider right who's operating the actual validators what are you actually doing with your staked eth and what kind of clients are running right and here's the comparison as a glance right you can see roughly how much prism client is being used on any one of these offers what the relative commission rates are the commission rate on rocketpool changes on a regular basis i checked it this morning it could be different by this afternoon so thankfully we have a little bit of time left so i'll give you a look under the hood and kind of talk about why did steakfish choose to do it this other way so for a review we saw that the amount of deposited eath was tapering over time and the overwhelming majority of what was being deposited was at the lowest possible amount that you could do which was 32 eth right so how do we encourage more participation participation pardon me we want to lower the barrier and let people less than 30 to eat this thick it's kind of obvious but it's just worth saying out loud so we did an exploration initially we brought on a technical advisor and they reached out to some folks in the ethereum foundation and elsewhere and their suggestion was let's do this out in public let's do this with the community as a whole and make an eip and we thought through this okay well what are some business models how is this going to work how can we make it so that it's incentivized positively for all the users the operators etc right and what kind of complications would come up should we do tokens or not and how can we make this as simple as we can right things are complicated enough in the staking world how can we make this from a ux perspective as easy as can be so this was our first pass we had this idea that we could do a pool list and we could it's very similar in a way to rocketpool where you would have a whole list of different operators that could come in and say this is our commission this is what we're doing and you could choose to participate in it and so right pool party let's do this right this is a great idea well we took it back to our advisors and they said no actually you need to think more carefully um who would be the originator of that relationship what kind of terminology would they use what are the different kind of risks that steakfish is being exposed to and this is especially thinking inside of like a regulatory aspect so we decided to bring this into an in-house project rather than a community project and we refined our ui over time to make it as easy as we possibly could make it we even had a little app that you could get when you tried it out we had it out on the go really test net and you could try it out from thanksgiving to christmas of this last year and we ultimately shipped in january so if you go to state.

fish right now you can see it the option is available uh hopefully it's as easy as as you think it could be from the test net we were able to get over 700 people to participate and we even had a real innovation with an auto faucet that we created so we were noticing that testers were having a problem because you have to go to the faucet and make a social media post and all this other stuff and we said why don't we just give them the test eth for showing up so if you showed up and you had zero go really eating your wallet then and we never gave you any before we would just dump some into your wallet so that you could test it out and i think that that was quite helpful overall i'm super proud of what the team accomplished however i think we took a wrong turn so what could we have done differently when we noticed that the risk was going to occur to stake fish individually in the operator as coordinator role that was really the right time to like take a pause and bring it back to the community and make a proposal right this is just me thinking in hindsight so as the next steps i wanted to bring this up obviously there's a desire like we have so many different options that exist already for how to stake under 32 eth it makes sense for us to open a discussion and take these examples as well as others and offer a proposal for an enhancement to ethereum and so i would recommend and it just so happens that like right as i was putting this presentation together there are a few of the different things that hit my radar uh number one is look at the distributed validator specs this is something that has come up recently and there are some really great examples in ssv of course visit the a staker community and chat with everybody else that's in the room here and out in the hallways right so in summary more individuals staking means more activity they're paying attention to the fundamentals of our ecosystem right because we need validators to operate for everything else we want as many people as possible participating in that so they're thinking at that level and that will create a healthier blockchain thanks so you can find me at alex underscore wycoff on twitter or alexwykoff.com we have probably time for one or two questions yeah that'd be great