LiquidStake - Andrew Keys & James Slazas | Meet the Nation

🚀 SUBSCRIBE TO NEWSLETTER: http://bankless.substack.com/ ✊ STARTING GUIDE BANKLESS: https://bit.ly/37Q17uI ❤️ JOIN PRIVATE DISCORD: https://bit.ly/2UVI10O 🎙️ SUBSCRIBE TO PODCAST: http://podcast.banklesshq.com/ 👕 BUY BANKLESS TEE: https://merch.banklesshq.com/ ----- 📢 DEFI BUILDER? APPLY TO FILECOIN ACCELERATOR FOR $20K GRANT http://bankless.cc/filecoinapply ----- GO BANKLESS WITH THESE SPONSOR TOOLS: ⭐️LEDGER - BEST HARDWARE WALLET TO SECURE YOUR CRYPTO https://bankless.cc/ledger-20 🚀ARGENT - GET THE MOST SIMPLE AND SECURE DEFI WALLET https://bankless.cc/argent 💳 MONOLITH - GET THE HOLY GRAIL OF BANKLESS VISA CARDS https://bankless.cc/monolith 🤖YEARN - YIELD-SEEKING MONEY ROBOT THAT FARMS DEFI FOR YOU http://bankless.cc/yearn ------ LiquidStake - Andrew Keys & James Slazas | Meet the Nation DARMA Capital is a fund that is perma-bullish on ETH, and the entire fund is focused on producing ETH-denominated returns for their investors. DARMA has rolled out LiquidStake, a Staking-as-a-Service product that enables ETH 2.0 stakers to access liquidity during the unknown ETH lockup period. Article: https://www.coindesk.com/ethereum-heavyweights-launch-liquidstake-loans-to-ease-eth-2-0-lockup Andrew on Twitter: https://twitter.com/AndrewDARMACAP?ref_src=twsrc%5Egoogle%7Ctwcamp%5Eserp%7Ctwgr%5Eauthor ------ Don't stop at the video! Subscribe to the Bankless newsletter program http://bankless.substack.com/ Visit the official Bankless website for resources http://banklesshq.com/ Follow Bankless on Twitter https://twitter.com/BanklessHQ Follow Ryan on Twitter https://twitter.com/ryansadams Follow David on Twitter https://twitter.com/TrustlessState ----- Not financial or tax advice. This channel is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. This video is not tax advice. Talk to your accountant. Do your own research. Disclosure. From time-to-time we may add links in this channel to products we use. We may receive commission if you make a purchase through one of these links. We'll always disclose when this is the case.

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:07David Hoffman?

  Si estimez un wallet mobile pour garder et accéder à votre crypto, vous devez aller sur argent.xyz et télécharger l'application de wallet smart contract de leur Smart Contract Wallet directement sur votre appareil Android ou iOS. Argent est la façon la plus sûre de garder de l'argent sur votre appareil en même temps que d'accéder à des services DeFi que nous connaissons et aimons sur Ethereum. Par l'argent, vous avez un accès direct aux appes de DeFi aimées comme Compound, Uniswap, Aave, et vous pouvez même investir directement dans des actions générant des gains directement de votre wallet Argent. Crucial pour la maintenance de la sécurité sur vos actifs est le service Guardian d'Argent, qui vous permet de utiliser un ami pour s'assurer que vous pouvez toujours restaurer accès à vos fonds en cas de perte de téléphone ou de bricole sur votre appareil.

• 0:52David Hoffman?

  Vous pouvez aussi utiliser un wallet local de matériel pour s'assurer que vous pouvez toujours restaurer accès à vos fonds vous-même. Une des nouveautés d'Argent est leur capacité à faire des trades par 10 échanges décentralisés, y compris Uniswap et Kyber, pour s'assurer que vous recevez toujours le meilleur trade sur vos actifs. De même, en poussant le fold sur ce que nous pouvons faire sur Ethereum et DeFi, Argent a répété certains des services financiers legacy que vous attendriez de votre banque, mais les a mis directement dans les mains de l'utilisateur, comme les livrages limités et les comptes en liste blanche. En garantissant que si quelqu'un était capable d'accéder à vos fonds dans votre wallet Argent, ils pourraient seulement envoyer jusqu'à une certaine quantité et seulement pouvoir les envoyer à des adresses approuvées, ce qui crée l'un des environnements les plus sûrs pour garder vos actifs,

• 1:35David Hoffman?

  ce qui est pourquoi les gens ont mis des millions et des millions de dollars dans le wallet Argent qu'ils utilisent sur leur appareil. Pour voir l'argent Argent en action, allez sur argent.link/banklist et téléchargez le wallet Argent sur iOS ou Android aujourd'hui. We're also brought to you by Monolith. Monolith is your cool new DeFi account, your DeFi savings account, your DeFi checking account. Except the cool thing about the Monolith DeFi account is that it gets software updates, right? You actually get to increase the usefulness of this over time. So here are some of the features. Monolith is a smart contract wallet with a lot of the features that you would expect if you've come to know DeFi and what it is. You can, you can add money to it.

• 2:16David Hoffman?

  You can put that money to work in Compound and accessing yield. But you can, and you can also swap through Uniswap. What was cool with Monolith is that they will send you a very sexy Monolith Visa card that connects to your Monolith smart contract wallet on Ethereum. So it's a really awesome tool to live a bankless life with a savings account that gets software updates. So this is something that you're never going to find out in the real world, but you can still do real world things with, you know, real money and like buy your groceries. So that's just fantastic. Coming soon to Monolith, actually already here to Monolith, is now you can buy, die, and get it sent to your wallet directly, right? So it's also being an on-ramp.

• 2:58David Hoffman?

  So you don't have to go through your centralized exchange like Coinbase or Gemini or wherever. You can just go straight from your bank account, right into your Monolith checking account smart contract wallet. So check them out at monolith.xyz. Welcome, Bankless Nation. We have Andrew Keyes and James Slazas, who is the, Andrew is the president and co-founder of Dharma Capital and Liquid Stake, and James is the CEO and co-founder of Liquid Stake. And we have them on to talk about exactly what Liquid Stake is, why this product is getting built, what it is useful for, and who should be using it. So James and Andrew, welcome to the Bankless Nation.

• 3:41Speaker 01

  Pleasure to be here.

• 3:43Speaker 02

  Thanks David and Ryan.

• 3:44David Hoffman?

  So yeah, as the the deposit contract is here, the conversation has inevitably turned to staking Ether. And you guys have just put out your guys' introduction, your your announcement about Liquid Stake. So if you guys want to just kind of give us the the quick elevator pitch of Liquid Stake, so we could have some foundation about what this is, then we'll move forward and get into some more nitty gritty details.

• 4:08Speaker 01

  Great. Yeah, I would love to. And and basically, just there's two different, two two different offerings. We we wanted to obviously support Ethereum's movement from proof of work to proof of stake. And and so we saw that need of, well, if all these assets are going to be locked up, how do we get liquidity? And so we created Liquid Stake to help individuals to be able to provide to to do that. And Dharma Capital is helping institutions to to do essentially the same thing. And the I would say the form is is a little bit different between the two, but essentially

• 4:49Speaker 01

  gets you to the same spot. So for an individual, they can stake any amount of Ether that they want.

• 4:57Speaker 01

  The and it looks just like any other type of collateralized loan. They send in their Ether, they get a loan against the collateral value of that Ether. The big difference is that instead of if they had already staked it somewhere else, well, then we can't access those private keys, right? So so they need to come through Liquid Stake. We then ask them of our, you know, three preferred, you know, validating service providers,

• 5:29Speaker 01

  Bison Trails, Codify, and Figma, which do you like? And then we stake that through there, right? So we have those those keys. And they can, like I said, they can put any amount that they want to, so it doesn't have to be a full 32 lot pool. Additionally, all of the stakers that choose the same validating service provider, they can, they basically have an aggregated pool. So they don't have one specific pool risk where one one pool might get slashed or or not. Instead, it gets aggregated across the, you know, everybody that's in each of those.

• 6:08Speaker 01

  And in addition to that, a little bit more technical, but we we basically commit our own capital to ensure that all of those pools are always topped up to thirty two. So if there were to be any type of slashing, we just want to maximize the amount of reward rate that that each of the stakers are going to to receive.

• 6:29Speaker 01

  All of this is done in a traditional collateralized loan format. And and so is the you are website will have a dashboard tracking all of your collateral and things like that. For the institutional side, institutions deal with our our Dharma Capital, which is a CFTC-registered investment fund. And and there we are a swap firm. And so we enter into a swap with the with our institutional client. And the reason that we we do this is essentially non-security swaps have been around for several years. And so there is a lot more regulatory and tax clarity on how to treat a swap.

• 7:14Speaker 01

  And so there's a lot of different issue issues that are going around. Posta Proof of Stake Association has done some phenomenal work on being able to, you know, do we? We don't actually know today that if we move from ETH one to ETH two, is there a step up in basis? Are the reward rates taxable in the current year or when you dispose of those those rewards?

• 7:38Ryan Sean Adams?

  By James, just to clarify, step up in the basis, you mean a taxable event of some kind, basically in the US? Yep.

• 7:46Speaker 01

  And and so for institutions where they can, they obviously know how to treat a swap. They're they're just receiving the the swap, you know, returns. And so it really alleviates a lot of those kinds of of questions.

• 8:03David Hoffman?

  So James, this seems to be a product that, you know, we in the DeFi universe, we can really resonate with because in DeFi, if you have an asset, you can generally put that into an application and then receive a loan based off of that asset. Like this is what Maker Dow does, this is what Compound does, this is what AVE does. And so I guess in the grand scheme of finance, we're kind of spoiled here because any asset that we have, we can generally get a loan out of. And this is what you guys seem to be doing with Liquid Stake, except it's for a very specific instance, which is staked Ether, which is very much unlike any other asset in the DeFi and Ethereum ecosystem. And so the goal of this is just to be able to, you know,

• 8:47David Hoffman?

  provide, I feel like a similar comparable level of service as all the other DeFi applications, but specifically with staked Ether. Is that right?

• 8:55Speaker 01

  Right. And the big difference, right, is that all of those assets are able to be moved. All right. So typically what happens is somebody goes and takes their crypto asset, sends it in as collateral, receives their loan. On the other end of it, you know, that that group is then lending it out to someone else, right, so that they can borrow that asset and, you know, an additional, let's say, interest rate is earned. Here, the asset is locked up, right? So we can't, there isn't any type of rehypothecation that goes on or anything like that. It's just, it's held in the deposit contract. And then there is this loan or, you know, leverage effect from the swap.

• 9:41Speaker 01

  The unique part of why we're able to offer this out is essentially because Dharma is such a large player within the Ethereum ecosystem. Even though that this, these assets are locked up in the deposit contract, Dharma itself can help when there's a liquidity event. So, so let's say that someone has to be, you know, that they didn't meet their collateral calls. There's a liquidity, liquidation event.

• 10:12Speaker 01

  Dharma has enough capital that it's willing to basically step up and say, "We will buy that staked Ether that's locked up." And it really just becomes almost a journal entry to our account. And so this is how we were able to solve this solution for being able to provide liquidity. It's a lot, you know, we, it's kind of funny, I laugh about saying it this way. We're using a centralized approach to really push decentralization. And, and I would say that we really feel strongly that, given that this is a short timeframe,

• 10:51Speaker 01

  we only have a year and a half, three years until we reach, you know, phase 1.5. This solution basically helps bridge that gap so that we can continue to innovate. Because as people have more liquidity from their staked ether, now they're going to be able to do additional things with their assets.

• 11:11Ryan Sean Adams?

  Super cool. All right, so a bunch of questions pop up in my mind about this. First is just a quick detailed question. So when, when somebody deposits their staked ETH, right, and you mentioned James collateral calls, right? So how are those calls made? People in DeFi are used to collateral calls in Maker, for instance, and that's all sort of, you know, bot arbitrage, oracle feeds the price, and you just get liquidated if you're in too long. People familiar with something like a BlockFi, for instance, they will email you, they will call if they've lent on OTC desks, it's sort of similar. How do collateral calls work in the liquid stake system?

• 11:54Speaker 01

  It's, it's literally the same thing. Right, we're, we're looking at this as different trigger levels. And, and so then we, you know, whatever forms that we can get a hold of, of the borrowers at, obviously it'd be email notifications of saying you're X percent away from a, a margin call, you're, you know, and then each, each level getting closer and closer until a liquidation event.

• 12:27Speaker 01

  Part for us, obviously because this is an asset that is locked down. Once we do have a liquidation event, right, we do have to then liquidate the loan. So, so in our documentation, it's, you know, send us in a stablecoin, Bitcoin, Ether, any of those to be able to obviously satisfy the margin call.

• 12:54Ryan Sean Adams?

  Interesting. Okay. So, so that's how that side works. And if I'm understanding, maybe breaking up kind of the retail piece and the more institutional piece, right? So the problem you're solving with liquid stake on the retail side is, I guess, a few fold. One, with liquid stake, you could stake with less than 32 ETH, right? Of course, folks that have been listening to Bankless know that if you're spinning up your own validator, you must at least have 32 ETH, which is the equivalent of, I don't know, 15K in capital. So with liquid stake, one problem solved is you can stake with less ETH than 32. Is that correct?

• 13:29Speaker 01

  Right.

• 13:30Ryan Sean Adams?

  Okay. So, and then another problem that you're solving is in this first phase that we talked about, all the way to phase 1.5, which could be a month, could be a year, could it be up to three years? Maybe we'll, we'll be optimistic. Maybe it's two years. There is no liquidity on the ETH that you deposit as collateral, which means it is essentially locked inside of ETH2 until the rest of the Ethereum network is bridged over. So you guys are providing liquidity there, and that will come in the form of a collateralized loan. I imagine it's, it's got to be over collateralized. So what percentage over collateralization are you guys doing? It's like.

• 14:09Speaker 01

  It works out to be a little bit more than 50%.

• 14:13Ryan Sean Adams?

  Okay, so 50% over collateralized loan, but in return, you get USDC, which is essentially a very liquid stablecoin, almost as good as, as having.

• 14:33Speaker 02

  is you have the optionality of a collateralized loan.

• 14:37Ryan Sean Adams?

  You don't have to.

• 14:38Speaker 02

  So you don't have to take it on day zero. You can take it in increments on, let's say, day 30, day 60, day 90, day 180. You can take it on day 180. So, so I think an important consideration to make is that if you do not stake with Liquid Stake at inception, your staked ether is ineligible for liquidity.

• 15:07Ryan Sean Adams?

  Right.

• 15:07Speaker 02

  Because we don't have a perfected interest in the collateral. If you do stake with Liquid Stake, you are able to have liquidity in the form of a loan

• 15:22Speaker 02

  at any point between phase zero and phase 1.5.

• 15:26Ryan Sean Adams?

  Which Andrew is kind of nice because look, all of us here, we're ETH bulls, are we not? I mean, nod your head if you're an ETH bull.

• 15:32Speaker 02

  Yeah.

• 15:34Ryan Sean Adams?

  Okay, so, so I, I may not want that liquidity when price is at 400, when I deposited it, right? But I may want that liquidity when ETH shoots up to 2,000 because wow, that's a lot of locked capital and now I want to start taking out my loan. So it solves that problem. And I think the third problem it solves, again, I'm just sticking on the retail side because I know Dharma is solving some other things. But on the retail side, the third problem it solves is basically like, oh, boy, I have to run a validator, right? Okay, like I have to buy some hardware, run it. It's easy, guys, we have a guide for it, you could do it. But if you don't want to get into that, you are essentially connecting them with a SaaS based validator providers.

• 16:18Ryan Sean Adams?

  So, and, and I want folks to know who are thinking about like, like staking on something like Cosmos or, or EOS or something, those models are all a form of delegated proof of stake, which is different than what these SaaS providers are providing. You're not delegating your private keys to these SaaS providers. They're just providing you the infrastructure, essentially. They're providing you the, the hardware, only it's, it's cloud based and they manage it in exchange for, I don't know, some sort of fee. But it, it solves that problem for retail as well. So it's kind of those three problems that Liquid Stake is solving. Is that a roundabout, right?

• 16:56Speaker 02

  I, I, I think that's very accurate.

• 17:00David Hoffman?

  I'd actually like to add another problem that I think, well, maybe it's not a problem, but it's definitely a perk. And so you guys at Liquid Stake are enabling non, non multiples of 32 as deposits, right? And so not only can you deposit less than 32, but you can deposit something in between 32 and 64 and still get the ROI on that, whatever is above 32, which, you know, if somebody is staking 32 ETH on their own, they're going to be receiving ETH dividends. And so maybe by the end of one year, their 32 ETH grows into 36 ETH or something. But that extra 4 ETH isn't compounding,

• 17:41David Hoffman?

  it's just that first 32 ETH, right? And so, and from what I'm gathering, because you guys enable partial deposits of 32, you guys are actually enabling perhaps an increased ROI by enabling people to have just more capital efficiency by that extra deposit. Is that correct?

• 18:00Speaker 02

  Yes. And in addition to that, your collateral grows. So in real time, your collateral will grow and you could, in effect, take more fiat out or USDC out against that. And we do journal that accordingly.

• 18:18Ryan Sean Adams?

  Now, I want to zone in on this, right, to make sure I understand this, because I said it, but I just want to make sure it's true. If I am retail staking in Liquid Stake, am I giving my private key to anybody here? So I've got ETH. Do I have to give custody to Figment or Codify or anybody else?

• 18:40Speaker 01

  So you're actually sending your ETH to us?

• 18:44Ryan Sean Adams?

  Oh, we are, okay.

• 18:45Speaker 01

  Right? So, so it is that, you know, you're giving us your private keys, or you're really just giving us that ETH or?

• 18:52Ryan Sean Adams?

  You'd have to have that, I suppose, because you've got to be able to liquidate.

• 18:57Speaker 02

  Yeah, we have to have a perfected in- in the collateral.

• 19:00Speaker 01

  Yeah, the perfected in- in- is the big part there, right?

• 19:03Ryan Sean Adams?

  Got it.

• 19:04Speaker 01

  It's, obviously, if you gave us your private keys and you held them, right, there, there would be a...

• 19:10Ryan Sean Adams?

  Yeah, yeah, you can't, you can't come to my house and get them. Of course.

• 19:15David Hoffman?

  That brings up an important difference, because we, we were talking about how, like, a, a liquidation event might occur if somebody borrows a bunch of USDC, but then the price of Ether drops, and so therefore the loan becomes underwater. You guys said that it's very similar to how, you know, Maker Dower, Ave, does, does this with their liquidation events. But on, on, something like on-chain, on Ethereum, there's a transaction that actually happens, that occurs, that liquidates the Ether from those applications. Is that also true for liquid stake, or is this something that you guys have your own internal ledger for that kind of operates not on Ethereum?

• 19:54Speaker 01

  Yeah, so this would be, so essentially what would happen is, at a liquidation event, right, there is this price trigger. And, and that's what I was referencing is, that Ether's already locked up, it's already under our, like we were saying, private keys. So it essentially becomes a journal entry of moving the assets under the borrower's, you know, account to Dharma Capital. And, and so Dharma Capital becomes the then buyer of those, of those assets. I'll just say, late, in a, in a later state, after, you know, depending on how much this grows.

• 20:34Speaker 01

  That's something that we absolutely want to reach out to the community and say, if others want to be a part of this, being a, you know, saying, here, I'll, I'll be a buyer of those staked assets. But that's going to be a future state to, to those.

• 20:48Ryan Sean Adams?

  Okay, so, and I do want to get back to what you said, James, was a centralization by decent, with like, centralized to decentralized, because I think here's what you're saying here is, you know, you, you guys would custody the private keys, of course, because you have to, in this, in this model, in order to provide the liquidity. But you are not doing the validating yourselves. You are essentially, I guess, decentralizing that to some staking as a service provider companies like Codify and Figment and Bison Trails. And I imagine you could add and maybe will add others to that list. Is that what you mean by decentralization?

• 21:29Ryan Sean Adams?

  That like you're not all, you know, staking it yourselves and validating. You're just distributing it to this network of SaaS staking providers?

• 21:39Speaker 01

  Well, I meant more of helping push proof of stake in general.

• 21:44Ryan Sean Adams?

  Ah, I see.

• 21:45Speaker 01

  In the community. And yes, you can, you know, we absolutely are, you know, the way that we look at is, you know, we vetted those three validating service providers and they're awesome. We know that.

• 21:58Ryan Sean Adams?

  Yeah.

• 21:59Speaker 01

  And, and so we use them and, and as you said, give over to them just that, that the, the tech stack to be able to manage the, the staking side of things.

• 22:13Speaker 01

  You know, we, so there becomes this, you know, you could say decentralization for all the different staking providers that, that we then connect to. But more so just, this has been a project where, okay, Ethereum has an issue. We, we've come up with an innovative product to be able to solve this. And something else that I'd just love to, to be able to share about that is we've really worked with a lot of different partners in the ecosystem to bring this to market. You know, so, I mean, just our loan and swap documentation, that's all been codified through OpenLaw.

• 22:55Ryan Sean Adams?

  Yep.

• 22:55Speaker 01

  And then OpenLaw ends up, you know, encrypting the hash onto Filecoin.

• 23:01Ryan Sean Adams?

  Ah, cool.

• 23:02Speaker 01

  Right, we're, we're getting to use all the different parts of the system. You know, we have, you know, obviously the validators. And then we also use Luca for basically making sure that all of that, that regulatory data and compliance is all met. Alright, so it's, it's basically saying here is blockchain in action, delivering it, you know, in a, what I would say, a simple, you know, innovative financial product.

• 23:27Ryan Sean Adams?

  Very cool. Alright, so those are the wins for retail on the liquid stake side. On the Dharma side, you are also providing staking through a similar mechanism, but it has a different kind of regulatory interface, right? And here's the problem I think you're solving there is that institutions are leery of staking this early because, in the same way retail is, the liquidity issue, that's one reason. But other reasons are the ambiguity, the possible ambiguity of the tax situation, right? Maybe retail's willing to accept that sort of risk, but large institutions with stockpiles of ETH may not be. So with Dharma, you guys are providing essentially a bridge,

• 24:11Ryan Sean Adams?

  a way to unlock all of that institutional capital, like all of the ETH that a, maybe a Polychain owns or something. You can essentially unlock that to be available for staking. Is that correct?

• 24:25Speaker 01

  Right. So all of these, these swaps, you know, they're, they're driven off of an ISDA Master, so International Swap Dealers Association Agreement. So it's a standardized agreement. And there's 30-plus years of history of how do you treat a non-security swap? So it's very, I look at it as very cookie cutter. And, and so for an institution who says, you know, we don't even need to borrow against this, but we want to know what is, we want to have that clarity.

• 25:03Ryan Sean Adams?

  Yep.

• 25:04Speaker 01

  Could be just that, right? So it's, it really is much more just, the institution gets to go, okay, great. I don't want to have to have this kind of vagueness on how do I treat these things? There's already enough, you know, almost hair in how do I deal with these type of assets? And so having the swap is a very standardized format. We actually have a facility where we, it's called an SDR, Swap Data Repository. So we work with the CME. And we submit all of our swaps into them, which goes to the CFTC. And so the regulator is able to see all the different swaps that exist.

• 25:46David Hoffman?

  Do you guys have a sense of the proportion of ETH that's held by institutions versus say like quote unquote retail?

• 25:54Speaker 01

  Not, you know.

• 25:55Speaker 02

  Saying that we have $50 million worth of interest today, based on this, based on this news.

• 26:03David Hoffman?

  That's on the institution side?

• 26:05Speaker 02

  Just in today's, notwithstanding what we've committed, we've got institutions with, with, with, with that on, let's call it day zero, hour three, that have reached out.

• 26:22David Hoffman?

  Very cool.

• 26:23Speaker 02

  And, and, and I think that, you know, this may not be the coolest decentralized finance data today. But what we are doing by employing best practices and things like ANL KYC and using a swap dealer repositories, we are bridging that gap. For the institutions to be able to really enter this market confidently, tax clarity, regulatory clarity, proper procedures, ANL KYC. And there, there's, there's a time and a place for both the radical experimentation and the regulatory compliance.

• 27:04Speaker 02

  And we're really sitting on that regulatory compliance side to pave the way for institutions to participate.

• 27:11David Hoffman?

  Andrew, did you say $50 million as in $50, $50 million of potential ETH deposits into Liquid Stake?

• 27:20Speaker 02

  So it wouldn't be into Liquid Stake, it would be into the Dharma swap facility. But just since this, this news, it's, it's been over $50 million, you know, aside from the $50 million that's been committed already by us. That, that has reached out to, to have a conversation, basically institutions that have that amount of Ether in the, in the first three hours.

• 27:47David Hoffman?

  Wow. Well, that's, that's a fantastic, fantastic news. Do you know how much demand or how much demand are you guys expecting to have for Ether deposits in Liquid Stake? Have you guys done any research or, or information on that?

• 28:02Speaker 02

  We haven't modeled per se, but just in the first four hours since we've launched this news, the interest has been overwhelming.

• 28:16David Hoffman?

  That's good to hear. So tell us about the signup process. What's that like? Like, say, say I want to come and give you guys some of my eith to you guys. If you want to live a bankless life, you need to get a hardware wallet. There is no alternative for storing your crypto in a self-sovereign fashion. That's why I have four ledgers that I use to manage my different crypto assets using the Ledger Live account as well. Ledger Live is like your home base for managing your Ethereum, DeFi, and crypto accounts. It does a really good job of aggregating all of your different Ethereum wallets if you are the type of person that uses more than one, but you can also add other cryptocurrencies like Bitcoin or Cosmos or whatever your preferred blockchain is.

• 28:58David Hoffman?

  And then it will display an aggregate portfolio of all your accounts at the main page. One thing that Ledger is doing a really good job of is enabling all the money verbs that me and Ryan talk about with the Bankless Skill Cube enabled in the Ledger Live app. So right now in the Ledger Live app, you can buy, sell, lend, swap, and stake your crypto assets, which is doing a really good job of fulfilling all of the money verbs in the Bankless Skill Cube. Something that's new to Ledger Live is Ledger Swap, where you can swap assets one for another directly inside the Ledger Live application, ensuring trustlessness in your financial activity on Ethereum and on Bitcoin. If you want to learn more about what you can do with a ledger, go to the blog post, "The Power of Ledger Live" on the Ledger website, where they share some of the more

• 29:43David Hoffman?

  advanced things that you can do with your ledger that you might not have known about. There's a link in the show notes that will take you to the Ledger shop where you can get your preferred Ledger hardware wallets. I personally like the Ledger Nano X, but I also have both. They're both great options. When you own a ledger, you own your own assets in the way that they have been designed to be held by the user and the user alone. So go get your ledger today to make sure that you are as self-sovereign as possible. The Bankless State of the Nations are brought to you by YARN. YARN is DeFi's first self-building, community-run project, which I just get really, really excited about. YARN is a system that seeks out yield in DeFi, and it does that in a number of different ways.

• 30:27David Hoffman?

  A very aggressive way is with the vaults, where you can deposit your preferred asset of choice, and different DeFi experts will come in and generate a strategy for what to do with your deposited token. And so it'll go find ways to get yield in that deposited token in DeFi. For those who want to just earn yield on their stablecoins, the Earn system is for you, where you can deposit your preferred stablecoin, and YARN will go and figure out which money market on DeFi. And DeFi is producing the best interest rate, whether it's DYDX, it's Compound, or AVE. It looks around DeFi to see where the yield is coming from, and it directs stablecoins automatically, so you don't have to. Check them out at yarn.finance to get started. And also check out the stats page to see what other people are doing as well. It's good to hear.

• 31:12David Hoffman?

  So tell us about the signup process. What's that like? Like, say I want to come and give you guys some of my ETH, so you guys can stake my ETH for me, so I can perhaps later pull out a USDC loan. How do I sign up for this?

• 31:26Speaker 02

  So as of today, you can register and onboard through an AML KYC service provider named Shuf Dapro. It's almost completely keyless, meaning that you will have a picture taken of your face through your laptop, and you can upload your driver's license and passport. And once that happens, you're able to choose your preferred validating service provider. And when that is done, you have a seamless dashboard that shows your collateralized Ether. It will show your updated Ether rewards that you're earning,

• 32:12Speaker 02

  and basically, the increase in your collateral as you continue to earn staking rewards. And then you'll be able to draw US dollars coin against that.

• 32:23David Hoffman?

  In the, because we know that this is the biggest use case of something like Aave or MakerDAO, at least historically, has been to deposit Ether, pull out dollars, buy Ether and deposit more Ether. Is that something that is possible with liquid stake?

• 32:40Ryan Sean Adams?

  Yeah, of course.

• 32:41Speaker 02

  One is able to do what they want with those US dollar coins.

• 32:46David Hoffman?

  So the answer is, yeah, sure, if that's, if that interests you.

• 32:49Speaker 02

  And really, and really, what I would say is that prior to this liquidity product suite for Ethereum 2.0, you really had, people had basically bifurcated their Ether stack, if you will. And there was basically two hands, and one hand would say, I am comfortable with taking the risk of Phase 1.5 coming in either 18 months, or 12 months, or 36 months, and I want to earn those rewards. And then, I don't really want to sell my Ether, but

• 33:32Speaker 02

  I need liquidity to pay my rent, or to pay my phone bill. And, and, and basically, it was a tale of two cities. Now, we introduce the ability to earn staking rewards on all of it. And if you need that monthly payment for rent and the phone bills, or if you want to withdraw US dollars and buy more Ether, or buy Filecoin, or buy Bitcoin, or buy a house, you're able to do so in this regard. So basically, what I believe that this is solving is that one-way street problem. And it's solving it both at a retail level and an institutional level.

• 34:14Ryan Sean Adams?

  It's interesting that you guys are first out of the gate with this. Like, I don't think I've seen any exchanges offering this, this kind of thing, right? I guess that was pretty intentional to be first here?

• 34:24Speaker 02

  Well, we don't care about being first. We believe in the vision of proof of stake, and we believe that a strong Ethereum is foundational to a strong society. And we are here to encourage that evolution.

• 34:43Ryan Sean Adams?

  So say someone has deposited Ether, pulled out a loan, bought more Ether, deposited more Ether, and maybe they got a little bit too excited and they did too much and then Ether price drops. Do they have an ability to unwind or is it kind of a one-way street with their Ether deposits?

• 35:02Speaker 01

  So their Ether is deposited into the contract, right? So it is locked up.

• 35:09Speaker 01

  It would really just be more of saying, do they have enough collateral to substantiate it, reduce down obviously the exposure? I was also going to say though, the part alluding to of like, you know, being first out of gate, it really isn't, yeah, it isn't that. It's just that Dharma kind of sits in a very unique spot, right? That it's actually willing its investors want to be long Ether. So this time horizon of holding for a year and a half, three years.

• 35:42Ryan Sean Adams?

  You guys don't care. You're long-term holders, you don't care. You're bullish. Permables.

• 35:48Speaker 02

  Permables.

• 35:49Speaker 01

  To be able to journal over that staked Ether, right? Really becomes, you know, becomes a much easier thing than if an exchange were to say, here, we can, we're going to go and do this and then we're going to commit our own capital to being staked in Ether.

• 36:06Ryan Sean Adams?

  Yeah, exchanges are a little bit more neutral, right? They are not necessarily permables, any asset over another. They're about the transaction fee. Yeah, so, but by the way.

• 36:16Speaker 02

  We are thematic, we are thematic investors in the Web3 stack.

• 36:20Ryan Sean Adams?

  Yes.

• 36:21Speaker 02

  And we believe Ethereum to be the connective tissue to that entirely.

• 36:27Ryan Sean Adams?

  By the way, the thing that David was talking about hypothetically about like margining your Ether, guys, I just want to say, I know that was hypothetical, David, but like, don't do that.

• 36:36Speaker 01

  Yeah.

• 36:37Speaker 02

  Don't do that.

• 36:37David Hoffman?

  Yeah, don't do that.

• 36:38Ryan Sean Adams?

  Don't do that. Too volatile. I've seen many get liquidated prematurely on assets they didn't want to sell by doing that. So be very careful.

• 36:46David Hoffman?

  I do have a question about design choice that you guys seem to have made with Liquid Stake. Some staking as a service providers, or at least it's theorized that some staking as a service providers will, if you deposit your Ether with them, they will return you a token that resembles a credit on that deposit, which would be like a staked ETH token, where the token itself has the interest baked into the token in the same way that Compound has their C-DIE or their C tokens. Have you guys thought about issuing a token like that?

• 37:19Speaker 01

  So at this stage, we looked at that and you think of the world in, here's how big the liquidity is of Ethereum, just freely traded Ether, right? And then when you start to tokenize subsets, so now let's just take the Bison Trails pool. Okay, now that world has gotten a little bit smaller. Then you've tokenized that and now the people that want to participate in the creditworthiness or the volatility of just that token, right? That becomes, creating a token doesn't create liquidity, right? It's, that can be just more of a, you know, you have this representation, but there is no then bid-ask market.

• 38:04Speaker 01

  So now, if I'm a lender and I have to go and sell that token, well, what's the bid, right? The bid will be by appointment and there really won't be enough there to substantiate lending against that asset. So that's why we avoided going through the tokenize these, like we, obviously what we could do is tokenize all the things that we bring in. Now that's a subset, we then have that as a way that people in the marketplace could, you know, lend against it.

• 38:36Speaker 01

  What I would say is, call it future state, it will be more of as Ether opens up and is now, has reached 1.5.

• 38:47Speaker 01

  Now, we would be able to provide that, right? So that's where I kind of alluded to that today. It's almost like we have to sort of shepherd that part of the of the risk along. Once the development catches up, now we're in a great spot for everybody to participate in this.

• 39:04Ryan Sean Adams?

  So I know you guys are permabulls on Ether and on Ethereum. And I know that the decentralization of Ethereum is very important to you. What would you say to somebody who looks at the solution and says, yeah, but guys, you're you're doing AML KYC. You're requiring custody of our private keys. Wasn't the original design of ETH2 so that I can run my own validator in my own home and maximize decentralization? Is this a centralization vector? What do you say to that person?

• 39:34Speaker 01

  Well, I would.

• 39:36Speaker 02

  They're still welcome to. They're still welcome to absolutely do that. We want to solve the one-way street problem of liquidity. And and we believe that that will further enhance Ethereum 2.0. And we think that we'll be a small part of the Ethereum 2.0 proof of stake evolution. James?

• 40:04Speaker 01

  Yeah, exactly that. And the end. This is really just supporting so that decentralization can occur, right? So let's do certain stepping stones for the next year and a half, three years. And we can really set up and position Ethereum to be this complete decentralization. But you know, there's different parts where you can help, you know, basically be a pillar. Hope, you know, holding this up here and now, great, now we can build from there. And, you know, both Andrew and I did that, you know, at ConsenSys. They've done a phenomenal job of of really.

• 40:48Speaker 01

  Almost peppering the ecosystem with a ton of different types of products and projects that enable you to just hold it up, right? And then it can take it to the next spot. Yeah, I mean, I spent a tremendous amount of time with central banks, regulators, banks, and all we were doing is to say, I want to just move you from here, one step over. I don't want to get you all the way into a centralized world. I just want you to understand this technology. Let your regulations catch up. Let your understanding of this technology catch up so that we can do a lot more, right? Today, we're working off of, you know, ancient

• 41:29Speaker 01

  type of regulations. Think about, oh, I have a tokenized asset that's earning a reward that is on a new blockchain, but that doesn't really compute for a regulator. And so this is really, you know, we just look at it as, here, we're taking these stepping stones.

• 41:46David Hoffman?

  The way that I see this is that with adding liquid stake into the staking ecosystem, you're not pulling away people from staking at home. You're actually just adding more total options available for people who want to stake, right? And so there are people who are going to stake, stake at home, stake their 32, 64, 128 Ether. They're going to do that at home. And just because liquid stake exists doesn't mean that they're going to stop doing that. Liquid stake existing means that it's going to be easier for a wider subset of people to stake their Ether. And while it might be in a centralized fashion, there's going to, as a result of liquid stake, there's just going to be straight up more total Ether staked to Ethereum 2.0, which at the end of the day is how we provide

• 42:31David Hoffman?

  security to Ethereum.

• 42:32Speaker 02

  Agreed. And again, this is a temporary solution for a temporary moment of time from phase zero to 1.5. And this is our best attempt at financial engineering intersecting with blockchain bleeding-edge technology to help solve what we believe to be a major issue in the Ethereum 2.0 ecosystem: liquidity.

• 43:03Ryan Sean Adams?

  Yeah, I think that's the thing to zone in on. This is maybe sort of a solution for the next eighteen, twenty-four months or so because of that bridge problem. Because depositing ETH to ETH 2.0 is just unidirectional at the moment. So it's good.

• 43:22Speaker 02

  And if I may, this is Liquid Stake 1.0.

• 43:26Ryan Sean Adams?

  Right.

• 43:27Speaker 02

  Just like, you know, everything has to start from a centralized manner. I'd be remiss if I didn't say we've already been researching ways to decentralize multiple aspects of this concept.

• 43:42Ryan Sean Adams?

  Very, very cool. That's exciting. So we actually haven't talked about this yet, and I would also be remiss if we skipped over it. How does Liquid Stake make money?

• 43:53Speaker 01

  We're doing this for free. This is a charity.

• 43:58Speaker 01

  Exactly the same way as a collateralized lending facility, right? So, you know, our model is that we'll charge an interest rate. We'll charge a percent of the rewards rate. What we're, what we're doing with the rewards rate side of things is basically saying we're going to charge a 5% of the rewards rate on top of whatever the validator service provider is charging. We're not, and we're not basically call it saying here, we're going to change it a little bit from for this validator versus that validator or anything like that.

• 44:41Speaker 01

  It's just to make it across the board that is an evil, even playing field for people to understand. Here's, here's the cost of, let's say, optionality of being able to get a loan, right? And then, and then from the lending side of things, it'll just be an interest rate, which we're going to, we'll come out with just as, as the market goes live.

• 45:07Ryan Sean Adams?

  Are you guys absorbing any of the risks, like the slashing risks, for instance, right? So there is inactivity kind of risk when validators are down. There's also, of course, double sign risk, which I'm, I'm hopeful all of these SaaS providers would never do that. But there's always the possibility, who takes, who incurs that risk?

• 45:27Speaker 01

  So you were saying before that we're aggregating all those pools, right? So for, you know, validator that you choose. But whatever those, that slashing or whatever those pools aggregate, right? That's going to be passed on to, to the individual. So it's, you stake your ether, you had another thousand other people into that same, you know, validator service provider. And if some was slashed, you know, here or there, then, you know, part of your returns would be lower. We are, you know, adding to make sure that every pool has 32 ether, if any are slashed,

• 46:09Speaker 01

  so that it is maximized at least for the reward rate that it would earn. But, but it is a pass through of basically whatever happens there, happens there.

• 46:19Ryan Sean Adams?

  Very cool. All right. So guys, I want to ask you another question. This is sort of tangential, but also I think related and definitely within your, within your wheelhouse. I would say you guys talk to institutions a lot on the Dharma capital side, of course. You know, even, even with sort of staking. Do institutions with, with ETH 2.0 going live with ether as an asset, turning into a productive, yield-bearing instrument? Consensus put out a white paper, we've talked about it on a bank list. This is like a new internet bond, basically. That's what ether is. And I love that analogy. It's, it's kind of like, you know, it's like the T bill, right? So it is a bond that provides yields. Institutions seem to understand Bitcoin.

• 47:04Ryan Sean Adams?

  That like over the last three years, they've started to miraculously enough. When I got in the space originally, they hadn't, they thought it was for criminals and drug lords. Right? Now they get it like, oh, Bitcoin is new gold. Okay, I get that. Are they any closer to understanding ether as an asset, as an internet bond? And will this help?

• 47:22Speaker 02

  They're getting there. They're not there yet. You are you are light years ahead of them.

• 47:28Ryan Sean Adams?

  Oh, good. It's still a good time to buy. Okay.

• 47:32Speaker 02

  And and and the bottom line is that Bitcoin is now 11 years old. And and I would say a much simpler concept and and has potentially a TAM of gold. And Ethereum has a TAM of a multiple of the global economy right now as we digitize all assets. And that becomes a substrate and settlement layer for the clearing settlement and automation of assets and agreements. And and that's a lot to process. And we will get them there. And and that's what we're here to do. And that's how we hope to serve the ecosystem.

• 48:18Ryan Sean Adams?

  It's hard to get.

• 48:19David Hoffman?

  It's hard not to sound crazy when you say like, yeah, everything is going to become digital and it's all going to be on Ethereum. And then we have like this internet native bond market. And it was like, that was already like three bytes to that were huge.

• 48:35Ryan Sean Adams?

  Brains explode at that.

• 48:36Speaker 02

  Exactly.

• 48:37David Hoffman?

  And and to this day, like it's like you said, it's like we're 11 to 12 years into Bitcoin. And people are now just dipping their toes in the possibility of Bitcoin as money. Like the the average average legacy world is is, you know, still still kind of like not really sure what the hell is going on in this Ethereum thing.

• 48:54Speaker 02

  We we like to say that we like to live ahead of the curve and in the gray area.

• 49:00Speaker 01

  You know, but I would I would also add with with Bitcoin, not just that it's been around for 11 years. But just think about what happened this summer. Right? So the OCC has now said that US banks could custody cryptocurrencies, right? That's an enormous step forward in in the marketplace. Then they also then came out after that to say you can hold the reserves for these stable coins to be issued. Those are huge statements for our marketplace, right? It's not just Ethereum, but to look at, you've had over, you know, I keep always looking at the institutional infrastructure, what's being built, right?

• 49:44Speaker 01

  I'm excited about what Fidelity has done. I love the investment that the CME and ICE have done. Those are really important for institutions to be able to access these assets, right? They don't have the systems in place to hold these kinds of assets. And then when you have the regulators backing them up, the New York DFS, you have the Confederate State Bank Supervisors coming out with expediting different ways for money servicing. These are all huge steps that lay that infrastructure, right? So an institution can buy it.

• 50:24Speaker 01

  So after their regulatory clarity occurs, then they start to look at liquidity. Obviously, it's the same thing as what we're doing with this kind of product, is that how liquid is this? And so Ether, Bitcoin, those two have market caps and liquidity that enable an institution to be able to make that type of investment, right? And they don't want to buy something where they're like, well, I'm 20% of the issuance. Yeah, right. It doesn't really help me. So I would say that, you know, there are, you know, a lot of that infrastructure is now it's maturing, there's more parts being added on to it.

• 51:09Speaker 01

  You know, I think we'll probably be speaking to you guys in less than a month about something else that's going to be a really amazing institutional product. And again, it's basically pushing people to, here is opening the doors and handholding those legacy institutions to understand it. Absolutely.

• 51:30Ryan Sean Adams?

  Guys, these guys aren't saying it, but I am. I mean, you want to buy Ether bonds before Paul Tudor Jones buys them, right? And that might be in a three to five year time horizon. He's just now wrapped his head around Bitcoin. So give him some time. Give him some time. We're early. Guys, thanks so much. Andrew James, it's been a pleasure. We appreciate what you guys are doing in this space. Always a pleasure to have Dharma Capital on and this liquid steak thing is pretty cool. We will include notes in the show notes as usual. David, anything else we should say before we conclude this meet the nation, my friend?

• 52:08David Hoffman?

  Yeah, Ryan, I can't remember what video it was, but you, we talked about the likelihood that enough ETH gets deposited by December 1st in order for Ethereum Phase Zero to get launched. I gave my, my guess, I think, I think I said 85% chance that we'd meet it. You said 95% chance. I'd like to bump my numbers up.

• 52:29David Hoffman?

  If I can change mine.

• 52:32Ryan Sean Adams?

  Yeah, it's okay.

• 52:34Speaker 02

  David and Ryan, the community thanks you for the high quality content and education you put on. We really, from the bottom of our hearts, appreciate all that you guys do day in, day out, every Tuesday. I love listening. I love watching. Thank you.

• 52:52David Hoffman?

  Cheers.

• 52:53Ryan Sean Adams?

  We appreciate it. We do it. We love it. It's fun. We work for the protocol and the Bankless Nation. That's who we work for. Guys, risk and disclaimers. As usual, ETH is risky, of course, so is DeFi and Bitcoin. But we are glad you are on the journey with us. This is the frontier. It's not for everyone, but thanks for joining us on the Bankless journey.