ETH Staking Panel | Coinbase, Lido, Rocket Pool

ETH Staking Panelists: Darren Langley (Rocket Pool) Vasiliy Shapovalov (Lido) Ejaaz Ahamadeen (Coinbase) With Ethereum's switch to Proof-of-Stake around the corner, a full spectrum of staking options has emerged. Many who want to participate will not be able to run their own self-custodied 24/7 validator node, and not everyone has the required 32 ETH. For these folks, Staking-as-a-Service allows broader participation in the PoS consensus mechanism. To discuss this, team members from Coinbase, Lido, and Rocket Pool come together in this panel to explore their approaches to the world of ETH staking! ------ 🚀 SUBSCRIBE TO NEWSLETTER: https://newsletter.banklesshq.com/ 🎙️ SUBSCRIBE TO PODCAST: http://podcast.banklesshq.com/ 🎖 CLAIM YOUR BADGE: https://newsletter.banklesshq.com/p/-guide-2-using-the-bankless-badge ------ BANKLESS SPONSOR TOOLS: 💰 GEMINI | FIAT & CRYPTO EXCHANGE https://bankless.cc/go-gemini 🔀 BALANCER | EXCHANGE & POOL ASSETS https://bankless.cc/balancer 👻 AAVE | LEND & BORROW ASSETS https://bankless.cc/aave 🦄 UNISWAP | DECENTRALIZED FUNDING http://bankless.cc/uniswap ----- 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 I may add links in this newsletter to products I use. I may receive commission if you make a purchase through one of these links. Additionally, the Bankless writers hold crypto assets. See our investment disclosures here: https://newsletter.banklesshq.com/p/bankless-disclosures

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

• 0:09Ryan Sean Adams?

  Hey, hey, Bankless Nation. It is time for another Bankless panel. This one I am super excited about, couldn't be more excited about. This is the ETH staking services panel. David, the fact that we can even do this is so massive. After all the time we've been waiting for ETH staking, I came in December of 2020 and I just looked at the stats, over 6 million ETH staked, 6.3 million. We were just talking about this on the roll-up, David, about like how at the very beginning, when ETH2 went live and staking went live, we were worried that we wouldn't get enough stake. It took like half a million to launch the chain and there was some concern

• 0:51Ryan Sean Adams?

  that we wouldn't get enough. Here we are with 6.3 million. We've got an expert panel. Why don't you tell us about the panel, David?

• 0:58David Hoffman?

  Yeah, we have the three staking as a service products, companies, teams, projects out there. We have Coinbase, we have Alita, Lido Finance, and then we also have Rocketpool. And these are three different approaches to staking as a service or ETH staking. And so we are bringing in the people that are building out different projects, approaching ETH staking differently, to ask them about their product and ask them about like the trade-offs that each product has made. And hopefully the listeners and the viewers come away with a little bit more information as to the world of staking from the staking as a service perspective. And maybe staking as a service is the right product for them. Maybe they want to stake themselves. But we are going

• 1:38David Hoffman?

  to find out all the different, you know, variables and nuances and trade-offs that go into the decision-making behind ETH staking.

• 1:46Ryan Sean Adams?

  Guys, this is all about options, optionality. Of course, if you can stake at home, like stake at home, stake yourself. But this is another option for you. And as David said, it's kind of the spectrum of like custodied to more decentralized and less custodied. We're covering it all today. And these are really the experts in the field. Of course, these are not all of the staking service providers. Out there, but we picked these three because we feel like they they represent different points on on the spectrum of self custody versus and more decentralized versus more custodial and a bit more centralized and kind of the full trade off mix. So strap in guys, this is going to be a super exciting panel.

• 2:30Ryan Sean Adams?

  Before we begin, we want to thank the sponsors that made this bankless episode possible.

• 2:37David Hoffman?

  Balancer is a powerful platform for flexible automated market makers. Typical AMMs just have two tokens inside of one liquidity pool, which can lead to fractured liquidity across the many pairs in DeFi. With Balancer, you can access the full power of multiple tokens inside of one single AMM, which unlocks an entirely new playing field of possibility. This makes Balancer an awesome building block for so many different use cases. Balancer pools can make asset indices, but instead of paying fees to portfolio managers, Balancer lets you collect the fees from traders who use your portfolio for liquidity. Additionally, Balancer smart pools can be programmed to have properties that change according to predetermined rules, such as changing the swap fee based on market conditions, or even liquidity bootstrapping pools, which can help you launch and distribute your token

• 3:22David Hoffman?

  with day one liquidity. At Bankless, we use a liquidity bootstrapping pool to sell our BAP t-shirts to much success. Balancer V2 brings powerful new features that makes your money work even harder for you. In V2, idle tokens are capable of generating yield in DeFi without sacrificing liquidity in the pool using Balancer's asset managers. Balancer's vault architecture lets you trade between Balancer pools at a fraction of the cost versus trading on other platforms. Balancer's mission is to become the primary source of liquidity in DeFi by providing the most flexible and powerful platform for asset management and decentralized exchange. Dive into the Balancer pools at app-balancer.fi.

• 4:05David Hoffman?

  Gemini is the world's most trusted cryptocurrency exchange. I've been a customer of Gemini since I first got into crypto in 2017, and it's been my main exchange of choice to make my crypto buys and sells. Gemini is available in all 50 states and in over 50 countries worldwide. And on Gemini, there are markets for over 30 various different crypto assets, including many of the hot DeFi tokens. And it's one of the few exchanges that has liquid DAI markets. Gemini just launched their Earn program, where you can earn up to 7.4% interest on 26 various crypto assets. If you're tired of paying fees in DeFi, or you don't want to worry about DeFi exploits, but you still want to earn interest on your crypto assets, Gemini Earn is the product for you. Another product I'm stoked to get my hands on

• 4:48David Hoffman?

  is the Gemini Crypto Back Credit Card, which gives you 3% cash back on all of your purchases, but paid to you in your preferred crypto asset. When I get my Gemini credit card, I'm going to make sure that I get my cash back in ETH. So whenever I buy something, I get a little bit of ETH bonus back to me at the same time. You can open up a free account in under 3 minutes at Gemini.com/goBankless. And if you trade more than $100 within the first 30 days after signup, you'll be gifted a free $15 Bitcoin bonus. Check them out at Gemini.com/goBankless.

• 5:25Ryan Sean Adams?

  Welcome back, everyone. This is the Banking Staking Services Panel. We have a packed panel for you.

• 5:32David Hoffman?

  The Bankless Staking Service Panel?

• 5:35Ryan Sean Adams?

  Well, no, we are not. Bankless is not offering staking services. It's on the Bankless Media Channel. That's why it's Bankless, David. All right, so let me introduce the panels for you here. We've got three staking service companies represented best in the business. We've got Coinbase, we've got Lido, we've got Rocketpool. EJAS is the product manager at Coinbase. We've got Vasily, he is the co-founder of Lido. And we've got Darren, who is the general manager of Rocketpool. We are going to get into staking services first. Everyone, welcome. How's it going?

• 6:13Speaker 02

  Going well. Thanks for having me. Great to be here.

• 6:16Speaker 03

  Yeah, great to be here.

• 6:17Ryan Sean Adams?

  It is so cool to have you guys. I think it was such a bear to schedule this, actually, because all of us reside in different time zones and different corners of the of the world. This is maybe one of the most difficult bankless panels that we've ever scheduled. So like, the timing is inconvenient for just about everybody on this panel, except maybe David. He's smiling.

• 6:38David Hoffman?

  I'm in the middle here.

• 6:40Ryan Sean Adams?

  He's doing okay. So I appreciate you guys.

• 6:43Speaker 02

  It's great for me.

• 6:43Ryan Sean Adams?

  Well, it's good for Australia, too. So it's good for Darren. But we appreciate you guys making time for this. It's a we've never done a kind of a staking episode that's dedicated to it. So I think there's a lot to unpack for the Bankless Nation. I guess maybe I'll just I'll just throw an overview out here. Both Lido, Rocketpool, and Coinbase, all three of them, they're all staking as a service products. Each of them have staking as a service products. Each approaches ETH staking a little bit differently. And as with everything in this world and crypto, there are trade offs when it comes to ETH staking of the various approaches. We want to dive into some of those trade offs and actually understand

• 7:26Ryan Sean Adams?

  the the points on the spectrum where you guys are coming at it from from a staking solution perspective, so that we can give Bankless listeners some information when they're deciding who to stake with. Let's start with some high level introductions from from each of you and your overall approaches. I want to start with Lido, Vasily, with you. How does Lido approach ETH staking, Vasily? So what things are you guys prioritizing over other things? What trade offs have you made in your staking services design? Vasily, why don't you kick things off?

• 8:06Speaker 03

  So Lido is a DAO that builds liquid staking on different blockchains, including and starting with Ethereum. We have headquarters on Ethereum. That's our like homeland, heartland. So liquid staking means that people stake with Lido and get a token that's on, and that token can be traded or used as collateral or used in other ways. It's liquid and transferable. So we think that for liquid staking, there is some kind of winner-stake-smost situation, like with stablecoins or

• 8:47Speaker 03

  ROPA coins like WBTC or stablecoin, there will be one, one big provider of the thing and other smaller. So what we think we're doing is the best possible solution for liquid staking that can win, that is actually can be at the same time a winning solution and also decentralized, safer Ethereum and easy to use. So that's what we're building here. That requires, I'm sorry, one minute. That requires like a number to make, like to launch.

• 9:28Speaker 03

  Earlier, we had to use a first-class signature for withdrawal that in that currently Lido deposits are like under a risk of collusion for first-class signature cosinus. And we've got the permissionless, permissioned validator set, not operator set for Lido to make it safe through the initial period of ETH when Ethereum is taken when the protocol is development yet.

• 10:01David Hoffman?

  Yeah, so and we definitely want to go more into details on Lido specifically because I think it's got some of the most nuanced position on the various spectrum. But Vasily, you emphasize liquid staking and importantly, Lido is the only product that has a staking derivative token yet out onto the market. Would you say the main focus or main priority of the Lido ecosystem is really to produce that secondary staking token, a tokenized deposits of ETH? Would you guys say that that is your main priority or main focus?

• 10:34Speaker 03

  So we want to make a liquid staking that is easy use, safe and decentralized. So that's, that's, that's our mission. That's our goal. Yeah, we focus on liquid staking. Yes.

• 10:48David Hoffman?

  Cool. All right, guys, let's go ahead and move on to Rocketpool. Rocketpool. So Darren, can tell us a little bit about Rocketpool, how Rocketpool works and the trade offs that it has made in order to produce its taking as a service system.

• 11:03Speaker 02

  So our approach aligns with the principles of Ethereum. So we are fully decentralized, non custodial and open source. So essentially Rocketpool aligns the interests of people who have Ether but don't want to run a node. We call them stakers and people who have 16 ETH but have the technical capability to operate a node. So we call them node operators. So our smart contracts match a node operator with 16 ETH from stakers to make up the 32 ETH needed for Ethereum staking. As a node operator, they only need 16 ETH, which is great. They earn commission on the

• 11:43Speaker 02

  matched ETH, which is even better. And they also get RPL rewards, which RPL is our token. But they get that those rewards for providing RPL as collateral. As a staker, it'll be super simple. So you essentially just swap ETH for our liquid staking token, which is our ETH, and you can participate in all the DeFi glory. And then anytime you can swap it back for Ethereum plus the rewards. And that's essentially how that kind of works.

• 12:15David Hoffman?

  Very good. We'll get into all of this some more with Rocketpool. I want to throw it over to EJAS with Coinbase. What is Coinbase's approach to staking? What have you guys really optimized for, EJAS?

• 12:28Speaker 04

  Yeah, so I think there's really two core principles we consider when we approach our staking products. And one of them is ease of use, so a simple UX, minimum barrier to adoption. And then I think the second one is security or safety. And from there, we do our best to optimize between the two. For example, how do we achieve minimum risk exposure without compromising the product experience for a user? So if we take examples of previous staking products that we already have launched, for example, Tezos and Cosmos staking for our retail users. The user experience is pretty intuitive. So you deposit into your account and you can start earning APY periodically.

• 13:11Speaker 04

  You don't have to worry about running the infrastructure or delegating or anything. For ETH2, as you all know, there are some very unique challenges that differentiate this from any typical staking product. For example, there's a minimum 32 ETH that you need to deposit typically if you're running this on your own. You need to manage hundreds, potentially thousands of validators instead of just a few. And there's a lockup for stakers until phase 1.5. There's massive risk of slashing, correlated slashing, and not to forget like the centralization risks. So we need to take all of this into account when designing these products. And I'd say that the kind of core problem that we've looked to prioritize above others

• 13:54Speaker 04

  in our staking solution for ETH2 is de-risking the staking implementation as much as we can. And I think that means decentralizing different layers of the infra stack as much as we can. And we can get into this later if that works. But ETH is one of our largest assets held in the custody, so we need to make sure that user funds are safe. There are a few trade-offs that this creates. Largely, a lot of them happen under the hood, so it's not actually exposed to the user. But one public example is we've launched a waitlist and we've been gradually rolling people off of it as we scale up our service. We really want to make sure that our implementation can handle the volumes we're putting it through and that our quality of service is maintained.

• 14:37Ryan Sean Adams?

  EJAS, just a quick follow up on this. I'm curious, since Coinbase has been staking with other proof of stake networks in the past, what would you say are sort of the main distinctions between other proof of stake networks versus ETH2 right now? What are some of the differences? The contrast points?

• 14:57Speaker 04

  Yeah, I'd say it's the two points that I mentioned earlier. Let's take Tezos for example, right? The way that it generally works is it's simple enough to delegate Tezos tokens to a baker, which is like a stake, right? And you typically only need to operate one or two of these things to accommodate quite a large amount of principal. And the slashing risk is much lower than ETH, right? You can't get 100% slashing with Tezos. Now, when you compare this to ETH2, you have a minimum deposit of 32 ETH per validator. So now, if you want to scale this up massively,

• 15:37Speaker 04

  you now have to run thousands of these things, right? And it's a non-trivial task to kind of maintain all of these validators to make sure that they're up kept at the same kind of quality and security bars that you have for like some of these other staking chains, right? And I think just like in general, like the principal is so much more higher, the staking and slashing risk is so much more higher. So there's a lot more, if you pardon the pun, at stake with ETH2 versus some of these other chains.

• 16:06Ryan Sean Adams?

  All right, very cool. I think I'm starting to hear some of the priorities you guys are making. Coinbase talking about user experience, ease of use, UX. Lido talking about liquidity, making sure there's liquid. Rocketpool talking about decentralization, making sure this is open, permissionless. Some of these things are starting to come through. Let's turn to business model for a second. I want to stay with EJAS on this because Coinbase, of course, just went public. Obviously, you've got shareholders. They're looking for profits, this sort of thing. What is Coinbase's business model when it comes to ETH staking?

• 16:47Ryan Sean Adams?

  How is Coinbase expecting to make money off this? And give us some guidance on the fee structure that prospective stakers can expect.

• 16:57Speaker 04

  Yeah, absolutely. So put quite simply, for our retail consumers staking through our main app, we take a percentage of the rewards that they earn from their principal that's staked. Currently, that fee is set at 25%. We follow a similar model with institutional clients, but it varies depending on client and chain and through the path that they might stake with us. But for retail customers, it's 25% of rewards.

• 17:28Ryan Sean Adams?

  Very good. And a quick poll here, because I'm curious, off the top of my head. EJAS is Coinbase staking available to everyone, or is it kind of a select group right now? Is it generally available?

• 17:40Speaker 04

  So.

• 17:40Ryan Sean Adams?

  Kind of waitlist beta-ish?

• 17:42Speaker 04

  Yeah, so. Yeah, so for our existing assets that we have right now, Cosmos, Tezos, and ETH2 for our retail consumers. Cosmos and Tezos are rolling out to the majority of the geographies that we support. There are obviously some geographies that we can't always support, jurisdictions within the US that we can't support. But we're working very adamantly to be able to provide support to the users there. For ETH2, we've taken a more gradual approach. So we're currently serving users within the US off of our waitlist. And we're very soon hoping to expand into international geographies as well.

• 18:25David Hoffman?

  So as we get into the world of things on-chain with the world of Lido and Rocketpool, we still have business models in the world of on-chain economics, but they're a little bit different. And so I want to throw this question to Vasili. What's Lido's business model? Where does it capture value? Who gets to earn rewards? And what is overall the business model for Lido?

• 18:53David Hoffman?

  Vasily, you are muted.

• 18:55Speaker 03

  Yeah, so Lido is pretty straightforward in that regard. We've got people stake with us. They receive stake token and they receive rewards. And Lido takes 10% fee. That 10% fee is getting cut into three directions, basically. One is paying out the node operators. Because they do all the work here invalidating the network, etc., etc. And they have to be paid. And currently, it's half of that 10% fee. So 5% goes to node operators. And the rest goes to Lido treasury that can be used for different things.

• 19:40Speaker 03

  For, for example, buying cover for stakers like we do it at this point. And

• 19:49Speaker 03

  the

• 19:52Speaker 03

  maybe the development, the personal costs, etc., etc. So it's spending is voted on by the LDO token holders.

• 20:06David Hoffman?

  Very cool. Wait, so you said they would split off into three directions. One direction goes to the node operators. One goes into the community treasury. What was the third?

• 20:15Speaker 03

  The cover, one goes to the treasury straight and one goes to buy the cover.

• 20:20David Hoffman?

  Ah, OK. So there's like a little bit of an insurance fund, kind of like baked into the Lido system?

• 20:28Speaker 03

  Yeah, it's been discussed right now because it's been

• 20:33Speaker 03

  very expensive to buy cover lately. And we might to switch to some kind of self cover like our or something. But that's currently on discussion right now.

• 20:47David Hoffman?

  And Vasily, when you say node operators, validators is also another term for that. One and the same, yes or no?

• 20:54Speaker 03

  So when talking about Ethereum, we use node operators because validator is like one private key that is validating the one basically stream on signatures. So Ethereum has, what, I don't know, 200,000 validators right now.

• 21:16Speaker 03

  But only maybe like a thousand node operators. So to be completely clear here, we use not operators as entities that manage validators. Individual validators.

• 21:28David Hoffman?

  Right, right. So there are a handful of node operators in the Lido system. I like, I think 10 or 11, but there are thousands of potential validators because that's the number of the deposits, the ether deposits into the Lido contracts.

• 21:43Speaker 03

  Yeah, we've got nine right now, but we are playing an expansion.

• 21:47David Hoffman?

  Okay, cool. All right, let's turn the conversation to Rocketpool and Darren. Darren, can you kind of give us the broad, like overarching? What is the business model or the crypto economic structure of the Rocketpool system? Where does the value transfer? What's the fee structure? Tell us about these details.

• 22:03Speaker 02

  So within Rocketpool, value is captured in two ways. So we have Ethereum fees from stakers, which I'll kind of touch on in a minute. And then RPL rewards. So RPL is our token and it has a kind of inflation rate of 5%. And we use that to incentivize actors within the protocol to work in its best interest. So to break that down to the specific actors, so we've got stakers who receive Ethereum staking rewards from the beacon chain, as you'd expect. Then we have node operators who are really the hero of our story. They provide the hardware and skill to operate a node. So they receive the majority of the value created by the protocol.

• 22:46Speaker 02

  They receive, they earn beacon chain rewards, commission from stakers. And then they get this share of the RPL inflation as well for providing RPL collateral. We also have two DAOs. We have an Oracle DAO, which is a kind of a broad group of high profile Ethereum stakeholders from kind of three target areas. So community, ecosystem and industry. They play a supporting role. So essentially they oracle information from the beacon chain into our smart contracts. And for that, they get a share of the kind of RPL inflation.

• 23:24Speaker 02

  The protocol DAO, which is the other DAO, is basically to fund open source development of Rocketpool going forward. So it gets a small kind of share of the Rocketpool inflation to kind of drive that forward. In actual fact, we've actually got a really great explainer series on our medium about everything about how Rocketpool works, specifically our tokenomics, and our fantastic community have actually put together some videos. So it's made it really easy to digest. In terms of the fees, so node operators don't pay any fees, but they earn a dynamic kind of commission structure. So it's based on supply and demand because we're a decentralized protocol.

• 24:06Speaker 02

  We have to kind of promote participation when we need it. So we have a commission structure that varies between 5% and 20%, but we target 10% essentially. So stakers or RF holders, they actually get or they actually pay an average across the whole protocol. So which should be around 10%.

• 24:31David Hoffman?

  Okay, so with you, you have the RPL token inflation to pay out certain parts of the Rocketpool ecosystem. But the only people that are actually capturing ETH fees, fees denominated in Ether are the node operators. So the Rocketpool DAO doesn't charge any, any Ether fees, it's just the node operators, right?

• 24:53Speaker 02

  That's exactly right. And we found that that's the kind of, you know, least rent-seeking sort of option. And so we, we kind of stay out of it and we, the money goes to the node operators. Because essentially they are doing all the work to, to, to put this together.

• 25:10David Hoffman?

  You said there's a supply, demand, balance equilibrium that needs to be struck. And I'm kind of reminded of the issuance schedule of Ether, the asset as a function of whether there are a lot of nodes on the system. If there's a lot of validators on Ethereum, Ethereum will actually issue more Ether, but rates will be more competitive and therefore be lower and then vice versa. If there's not a lot of validators in the available in the system, Ethereum will issue less Ether, but it will be more rewards per validator. And that's how kind of Ethereum finds balance equilibrium between the supply and demand of security. Rocketpool kind of follows that same sort of structure, right?

• 25:49Speaker 02

  Exactly, yes. So if the demand strips capacity for, so basically if there's more in our Harish deposit pool, then we have capacity on the operator node operator side, then the commission rates kind of go up so that it kind of incentivizes people to participate within the protocol world and so level it out. So essentially, we get this equilibrium, exactly as you said.

• 26:18Ryan Sean Adams?

  So Darren, because I asked EJAS this question, I'm gonna ask you the same question. I know, I know Lido is live and rolling right now, accepting stakers and it sounds like Coinbase is in kind of a limited rollout right now, rolling out fast. What is the status of Rocket Pool? When can folks start staking with Rocket Pool?

• 26:43Speaker 02

  Yeah, that's a great question. So we're not on mainnet yet, as you've said, but we are one step away. So we'll be releasing our release candidate to the Praetor testnet on the 2nd of August and then following on from then, we'll go to mainnet. So this is a massive milestone for us and we're really excited to be able to finally share the kind of the work that we've been doing with the broader community.

• 27:08Ryan Sean Adams?

  Are you sharing that right now? So is that, is that sort of an August date that you're sharing now?

• 27:13Speaker 02

  I wish, I wish, I wish I could give that to you, but we actually announced it earlier on in the week, just like.

• 27:19Ryan Sean Adams?

  That's good.

• 27:20Speaker 02

  Sorry. We do, we do love you guys, but.

• 27:26Ryan Sean Adams?

  Breaking news for some, but maybe some already saw that. All right. You know, I think this next question is really important. I'm gonna, I'm gonna keep with you Darren and Rocket Pool because there is sort of with staking, there is, I guess, incentive alignment and, you know, a selfish profit motive for the individual staker, right? But then there's also this public good that all stakers in aggregate are providing to Ethereum, the network. Let's not forget why we stake. Let's not forget why we are validating. For the continued decentralization of this Ethereum ecosystem, this Ethereum economy is super important. So I'm going to ask you this question. If Rocket Pool is successful,

• 28:11Ryan Sean Adams?

  how does your project impact the centralization or decentralization of Ethereum? That that public good that I was just talking about?

• 28:23Speaker 02

  Yeah, so obviously, we spent a considerable amount of time building this decentralized staking protocol. Because we strongly believe that centralization is a huge risk. And you can, that problem you can see in the beacon chain deposit address graphs. With Rocket Pool, anyone can operate a node. So essentially, we're going to be mobilizing a decentralized army of individual node operators to perform validation. So Rocket Pool is permissionless, so anyone with 16 ETH and 1.6 ETH worth of RPL can operate a node and be in the Rocket Pool protocol. So from Ethereum perspective, we are no different than solo staking.

• 29:07Speaker 02

  We provide the same level of decentralization. The aim is to have thousands of individual node operators kind of operating within the Rocket Pool protocol.

• 29:16Ryan Sean Adams?

  Why is that important? Just refresh everyone on why decentralization of Ethereum is important.

• 29:23Speaker 02

  So there's a, there's a few benefits to that. So first of all, there is no centralized control. So in proof of stake, it's very important, particularly with MEV. We're going to talk about maybe MEV, but um.

• 29:41Speaker 02

  So with MEV, if you have centralized operators, the problem gets worse, much, much worse. So there's a few things like that. There's also just a resistant, a kind of.

• 29:54Speaker 02

  It's more robust. The network is more robust because you have different setups, different machines. And so you can't have like a whole part of the network that gets destroyed. And Ethereum goes down, it'll just keep running because you're so decentralized.

• 30:12Ryan Sean Adams?

  We'll indeed talk a bit more about MEV, that is maximum extractable value. You've also heard of minor extractable value. We'll talk about that a little bit later, but I want to throw the same question to you, Vasily. So what's Lido's take on this? How does Lido's project impact the centralization or decentralization of Ethereum? What's your philosophy here, Vasily?

• 30:35Speaker 03

  So I firmly believe that with Lido, the decentralization of Ethereum is better than without it. So we are building like not the best solution, we build the best possible solution, the best solution that can actually win. And that's like a big difference. There are a lot of staking models that give bit better decentralization and ideal work where people use them. But we, the staking is a product, product that can be better on loss. And there is a baseline liquid staking product that is already pretty good. It's liquid staking offered by exchanges.

• 31:15Speaker 03

  And we've seen it in the wild, in the other staking economies of two exchanges to take a big share just because it's convenient. And while it's custodial, it's convenient to use and easier. And that's like pretty, pretty good baseline. So decentralized protocols should be competitive and preferably better. They have the means to be better by being vertically integrated into DeFi and neutral and

• 31:50Speaker 03

  decentralizedly governable and, well, they can be better for both stakeholders and for the protocols. But there has to be afraid of made to make them competitive. And I think that without, without Lido,

• 32:12Speaker 03

  Ethereum would be in a worse place than it is. For example, we've got like about 10% share right now of Ether that is distributed between nine node operators.

• 32:23Speaker 03

  The Kraken exchange has got like 12%, 40% of all is taken right now by themselves.

• 32:35Speaker 03

  So that's yeah, that's that's what I think about it.

• 32:40David Hoffman?

  So let me run this by you and make sure that you agree with with my take on on Lido.

• 32:47David Hoffman?

  Lido is a it's a Dow model, right? And so there's community governments, community treasury, community ownership. And so your take is that there's certain amount of trade offs that need to be made as a staking as a service. You said that staking as a service is a product, a product that needs to be provided. And so the trade off with the currently nine validators that are operating in Lido in the future, a few more, that is a democratizing more access to more people who are able to stake more ETH because of Lido and that community owned, community operated kind of Lido DAO is how we manage that those trade offs between fewer fewer validators, but more access to staking services. Would you agree with that characterization?

• 33:32Speaker 03

  Um, I I'd say that the the DAO is more is more like guiding force here. So it's it's not like a final arbiter here. It's it's guiding the the Lido through the initial period where the beacon chain is about as as useful as a potato where you can stake and you can not stake. And that's like what you can do. And the spec is changing that that the like the construction side, you we are a hot head going through construction side and Lido is that governance is that hard hard head for now. So but the like the final form of liquid staking that can actually

• 34:13Speaker 03

  win is first ossified, not not upgradable, not governable, well, slightly governable, maybe, but not not not not not very. And it has to be permissionless with not operators. It should be shouldn't be a whitelist. It shouldn't be a like a limited amount of not operators, but that can only happen when when we the the playing field is not like changing under you, right? So our trade off is not that we have a wide list forever of small number of proprietors. It's that we have to to launch on a minimal amount of future that can actually make a good

• 34:55Speaker 03

  stake in product that is sufficiently decentralized for now and have chances to become better than that in the future. And Lido Dow is the guiding for that will guide Lido from like a good product on the start to the best possible product and best for Ethereum, not only for stakers at the end.

• 35:19Ryan Sean Adams?

  The beacon chain on its own is about as useful as a potato. That's a quote I'm going to highlight takeaway for this conversation for sure. IJaz, how about you? So give the case for why an exchange makes for a good staking services provider and specifically on this topic of centralization versus decentralization of Ethereum as a public good.

• 35:43Speaker 04

  Yeah, plus I think it's a great question and I actually echo a lot of what Darren and Vasili has said so far. Like, listen, Ethereum is at its best the most decentralized, the more decentralized that it is, right? And I think there's often this notion or perception of exchanges that, you know, we're kind of trying to be the big bad wolves that try and centralize everything. And I'm here to say that that's not, most definitely not always the case when we approach our products, particularly with Ethereum. And I just think that like incentives are just different for exchanges in the way, but it's definitely aligned with the kind of principles of Ethereum in general.

• 36:26Speaker 04

  So in terms of, you know, whether we're towards a centralized and decentralized philosophy, we want to make sure we decentralize Ethereum as much as we can, right? But if I go back to one of the original core principles, to one of the earlier questions that you asked in terms of like what we consider when we design these taking products, it's ease of use. And so we want to make sure that we balance this decentralization for users with easier accessibility to be able to stake. My kind of thinking and my Coinbase's thinking as well is, yes, one could go out and set up their infrastructure themselves at home.

• 37:07Speaker 04

  And they're encouraged to do so, but often it's quite tough to do so for anyone that holds thirty-two ETH or more. And so we want to be able to balance and create a solution that enables that. And there's ways that we push forward that decentralized ethos. I mentioned it earlier and we can dig into it now or later if you like, but we look at like our infrastructure stack when we do that. I don't think just because Coinbase is the company that offers ETH to staking for our users. That means that we are, we should be considered a single infrastructure entity, right? I think there's ways that you can decentralize that, whether it's using multiple clients, whether it's using multiple staking providers.

• 37:50Speaker 04

  And I think there's a path forward there. So definitely pro decentralization.

• 37:54David Hoffman?

  Yeah, I definitely want to echo the fact that I think centralized exchanges get a bad rap when it comes to staking. That's a little bit unfair and I want to make the case for staking inside of Coinbase or staking inside of a centralized exchange at all. In the world where we, say in like twenty, thirty, forty, whatever, the future. And that Coinbase has never ever, or any centralized exchange, has never ever maliciously gone after Ethereum. Well, in this world, which I think is actually the most likely world, then all of these centralized exchanges and Coinbase, what they have done is they have made the ease of Ether distribution as maximally accessible as possible.

• 38:33David Hoffman?

  And so, you know, I don't really think, there's no reason for in any, any centralized exchanges self-interest to harm the network that is, that is the staking network. Therefore, if that version of the future plays out, then all Coinbase would have done is they've been able to democratize more and more of the Ether staking and Ether issuance to a broader and broader set of people, because that's really what Coinbase's core competency is. It's user aggregation and ease of use. And so, you know, so long as the incentives of Coinbase plays out, then they will actually be one of the most democratizing forces of Ether staking rewards of all time. And so I think that's a decent perspective about centralized staking that I don't see or hear echoed all that much.

• 39:17Speaker 04

  Yeah, I mean, you listen, you honestly hit that right on the head, right? Like, the ethos or foundational ethos for blockchains are decentralization, right? We've seen that with Bitcoin, we've seen it with Ethereum. And like, our mission at Coinbase is to create an open financial ecosystem, right? To enable paths and funnels for users to be able to access all of this, right? And, you know, there's brand and reputational risk that is tied to all of this, right? Um, and I think like when we build these products, it's definitely with the mindset of enabling this wider decentralization. Um, and it's through the aggregation effort, it's through ease of use, it's through a safe and simple means for the majority of users that may not want to, you know, set up and

• 40:02Speaker 04

  run their own infrastructure and that's really what we we want to help pitch and create for.

• 40:08Ryan Sean Adams?

  I want to turn the panel to this question. We'll continue with you, EJAS, for the moment. This is around like validating an architecture, like specifically who is doing the validating? And that's a question for Coinbase. So it seems like the model for Coinbase versus both Rocketpool and Lido here is that Coinbase is sort of running the the validating infrastructure. I want to ask about that, but then I want to ask like more broadly, if I'm staking my ETH with Coinbase, what a what trust assumptions? In what ways do I have to trust Coinbase? I have to give up my private keys, right? And we we've heard, you know, not your keys, not your crypto sort of thing. What are the other trust assumptions here?

• 40:55Speaker 04

  Yeah, so let me take the first part of your question and then can touch on the last. Um, yeah, so, you know, as you're all aware, ETH2 staking was designed in such a way that encourages the decentralization of its inherent staking infrastructure. Like, right, so like the 32 ETH minimum, multiple staking clients. And so we really wanted to build our solution in a way that upheld this whilst also making it easier for our users to stake. And so one of the Core focuses was to decentralize the validating part of our solution. And we can do this through a few few ways, one of which is to use multiple staking providers that meet our levels of security and quality.

• 41:41Speaker 04

  This is safer, it minimizes centralized risk exposure, so we reduce the chances of triggering splashable offenses. Bison Trails, who we acquired earlier in the year, is one key example of a partner, but we also focus on using multiple providers. And then, in terms of, I guess, how our validators are incentivized for maybe things like maximum uptime and stuff like that. Like, we have a high bar for quality and security requirements in general for each provider that, you know, needs to be met before we integrate them. But we also have things like SLAs in place of service level agreements that ensure that our providers meet at least a minimum level of service. And these can account for things like

• 42:23Speaker 04

  maximized uptime, using multiple staking clients, minimum overlap between providers, infrastructure, etc. And like, another way I like to think about incentives for for these providers, because I think it's it's actually quite an interesting topic, is you know, if a provider integrates with Coinbase, that's almost guaranteed eFLOW for them to stake, right? And there's also reputational risk for providers itself that we use if they don't maintain a quality of service. So so that's kind of like the the outlook there. And then in terms of, I can go on about the infrastructure, but I want to answer your your second question, which is around like, what are some of the trust assumptions? Yeah, inherently, you know, Coinbase is a custodial solution.

• 43:08Speaker 04

  And users that, you know, place their ETH with Coinbase in our accounts, place it within Coinbase's trust, risk and safety parameters and usability. So, you know, they don't have their private keys, but we kind of like maintain and manage your private keys. We manage the kind of like staking process and there's like a specific way that we do that to make sure that, you know, Coinbase does this in a in a very careful and managed method. So that's largely the the main trust assumption that's made there.

• 43:38David Hoffman?

  So I want to turn the same question to you and with Lido because Lido's got, like you said, has nine validators and it looks looking to add a few more in the future. How does Lido go through the selection process of who gets to validate for Lido? And how does Lido also incentivize uptime? Because uptime is really, really important when it comes to instaking as a service. So who are the validators? How is that process decided? And how is uptime incentivized?

• 44:04Speaker 03

  So with Lido, we've got currently nine node operators and the process we have been used, we've been used to two different processes to select them. One was when we, before launch, we talked to every basically would not operator, operator out there. I'm coming from a validator background, so I'm CTO of P2P, a pretty prominent stake provider.

• 44:41Speaker 03

  So we talked with just about everyone good and found five very good ones who wanted to be part of Lido and start with us. It's steak, fish, turtles, churros, and steak and facilities, all very good. Some people had legal concerns, some people had like some other concerns, didn't want to be part of liquid steak or something. So we've got five very best operators to start. The second lag was when we had a process to select additional, a few additional ones.

• 45:24Speaker 03

  We launched a Google form where people could make an admission and not the existing node operators had like some kind of council vote on who's going to be in Lido. The next lag is probably be the same one, but that's like a stopgap solution. We use a community of node operators to select other node operators for now. That's working out pretty, pretty good for us, but that's not a permanent solution. Why we do that right now that way is that either is basically hostage with not operators

• 46:09Speaker 03

  on Bitcoin chain right now. There are no withdrawals. They are not coming for half a year at least. And the staking is locked, the rewards are locked. There is no way to do anything is not operators go rogue or out of business or something. So until that hostage period is over, the whitelist is very important to Lido. The incentive here to be a good not operator comes from like the fact that all of them

• 46:47Speaker 03

  are very respected and very experienced not operators and they have in total, I think, a few about short of 10 billions in staking in all the networks they're operating. So they are very experienced, they are very good, they are aligned with the ethos of blockchain and Ethereum in particular, and they want to maintain reputation for a long time. So that's how it works for now.

• 47:23David Hoffman?

  And I want to ask, what's the long-term plan for staking or being a validator or node operator with Lido? Are you guys looking to open that up to just a broader, broader set of participants over the long term? Like, how many node operators do you think Lido will have in like, you know, one year, five years, 10 years?

• 47:44Speaker 03

  So it's a hard problem to design around. We need to balance the quality of not operation with permissionless nature of the protocol. We are making draft right now, drafts many of them, and I think it will take like at least half a year to have something actionable here. The billion blocks we have for this process is

• 48:15Speaker 03

  Mostly like the the history of how people operate in Lido, that's one brick. The other is the stakeers' opinion on operators. So stakeers has have to have a say here as well. The people where the the operator that Ethereum stakeers considers to be good ones should be like put

• 48:42Speaker 03

  more front and center than one they they don't. And

• 48:49Speaker 03

  something like safety model where people can stake their funds with a node operators and say that if if they screw up, that's my money on the line, but I won't share for what's here.

• 49:03David Hoffman?

  Very cool, very cool. Okay, all right, let's go on to to Rocket Pool as well. So so Darren, I I know that Rocket Pool's goal is to open up staking to as many people as possible. So I want to ask you a slightly different question. Who does Rocket Pool really go after? Or who do you guys find in your community that is part of your validator set? And how do you how does the Rocket Pool system incentivize uptime?

• 49:29Speaker 02

  So we're permissionless, so anyone can can be a node operator. But we have kind of rational incentives. So our node operators have skin in the game. They have 16th of their own funds earning rewards. So they want to maximize their return. And so consequently, they are maximizing staker returns as well. That it's an equal amount essentially between state, the the amount that they are owning, the amount that they have with their own funds and the amount that they get from the pool. So what we get is a natural alignment of incentives. So they essentially ensures that they perform well.

• 50:14Ryan Sean Adams?

  So I want to turn this to kind of the staked ETH token, right? It's like the idea of tokenizing stake ETH, tokenizing departments, this tokenizing deposits. This is a superpower of Ethereum, right?

• 50:30Ryan Sean Adams?

  You know, we're all familiar with the article superfluid collateral and all collateral has become on Ethereum somewhat superfluid in that it can be used in all sorts of DeFi applications. So the token, it seems, the staked ETH token starts to become much more important. And Darren, you mentioned that Rocket Pool has something called Art ETH. I'm curious how Art ETH might differentiate itself from other staked ETH tokens, if at all, and just in general, your thoughts on how this landscape will play out? Will there just be a ton of different versions of staked ETH tokens in the wild?

• 51:15Ryan Sean Adams?

  Or would this consolidate to a few? Or will we have like wrapped versions that contain multiple? How wild and crazy is this going to get? And how is it going to evolve?

• 51:28Speaker 02

  Yeah, so eventually you'll be able to use Art ETH across the entire kind of DeFi landscape. So liquidity pools, lending protocols, yield farming strategies, Art ETH derivatives and all of all that crazy stuff that we haven't invented yet. That's, that's, that's all out there. But a big difference, I guess, the big differentiator, I guess, with Art ETH is its design. So it doesn't rely on balance rebasing to deliver rewards. So the amount of Art ETH is actually static, but we have this ever increasing exchange rate, which accomplishes essentially the same thing, but has some significant benefits.

• 52:09Speaker 02

  So first of all, it is much more compatible with exchanges and other protocols who are not really expecting balance rebasing. That's basically updating the token balance automatically on a daily or a daily basis, essentially.

• 52:25Ryan Sean Adams?

  Ampleforth or Yam followed this model as well, yeah.

• 52:28Speaker 02

  Yeah, yeah, yeah. So, and second of all, there's a concern in our community around the tax implications of owning these tokens. And the RETH design is much easier to track from a tax perspective because rewards are not continuously being pushed, creating these taxable events. So obviously, every tax jurisdiction is different, so get some professional advice. But in general, if people want to have questions about RETH and how it works, we're happy to answer them in our Discord.

• 53:02David Hoffman?

  Vasily.

• 53:03Speaker 02

  That's essentially the difference.

• 53:05David Hoffman?

  Vasily, I want to give credit to Lido as they actually the only project that actually has a staked ETH token out there in the wild. So I want to get to you, but first, Ryan already brought up Dan Ellitzer's Superfluid Collateral article. Another article that Dan Ellitzer wrote was "The Death of Ethereum", and "death" was actually D-E-T-H, and he said a "D" for delegated ETH. And this was actually a possible scenario that Dan illustrated in this article that, well, if there is a staked ETH tokens out in the wild, like Lido has a staked ETH, Rocketpool has our ETH, and then in theory, any centralized exchange like Coinbase or Kraken could issue their own delegated ETH, except there's this concept of liquidity begetting liquidity.

• 53:50David Hoffman?

  And so while there might be many, many staked ETH derivative tokens out there, it's likely that only a handful, or maybe just one, really just becomes the dominant form of staked ETH collateral in DeFi. Largely kind of how we see USDC as the dominant, you know, stablecoin in DeFi. And so, EJAS, my question to you is that why will the death of Ethereum not happen? If Coinbase does actually absorb a lot of ETH, and I'm assuming, and also baked into this question is, is Coinbase going to issue a staked ETH token? And then also, if they do, why would it be not the death of Ethereum?

• 54:33Speaker 04

  Okay, so that's a good question. So let's touch on wrapped ETH2 first, right? So I think firstly, I'll say, I've got to be careful. But I think firstly, I'll say we definitely intend on offering liquidity for our users, right? I think it's a core component for our staking experience that users are able to withdraw, send, or trade their assets. And ETH2, of course, is unique in that the transition to proof of stake is phased, right? So there's a lockup period, as it were, right now. In terms of how, we've been and still exploring a number of options for enabling liquidity.

• 55:18Speaker 04

  And the wrapped ETH2 token is one of them. Another option that you could consider as well is something along the lines of like an internal order book, right, of sorts, where users that have a staked ETH2 position could potentially trade out of that position with someone who wants to enter that position, right? And to be honest, there's pros and cons between all of these options, right? For example, an internal order book might be simpler to implement and use, but it makes it so that stakeholders can't move their stake off platform, right? Because there's no token. A wrapped ETH2 asset, on the other hand, is, as you said and as Dan Elitzer says in his article, much better capital efficiency, as you can hold it, take it off platform, use it in DeFi protocols.

• 56:03Speaker 04

  But I would say trickier to implement technically and compliantly with a holistic product experience. So that's a way we're kind of like thinking about liquidity, very important and focusing down onto a solution now, as we've been kind of looking into that. And then in terms of like, was your question, David, around why it wouldn't be the death of Ethereum? Do you mind helping me understand that last part?

• 56:27David Hoffman?

  Right, so the concept, the idea, the thought process is that all of these liquidities, staked ETH tokens will compete for liquidity. There will be one dominant winner. If that one dominant winner is a centralized exchange, then we have one centralized exchange growing and growing. Why would you come and stake your ETH in any other platform if, you know, you want to get liquidity on that? So you choose the platform that has the best liquidity on that staked ETH. If that's Coinbase, then that's a centralization factor onto one centralized exchange.

• 56:58Speaker 04

  Yeah, good point. I guess.

• 57:02Speaker 04

  The way that I'm viewing it is, I honestly, and this is my own opinion, I honestly don't think there is a world where it's necessarily just going to be one staked ETH derivative that kind of rules all. And the reason for that is I think optionality is important, right? Like if you ask yourself, why do people use USDC over DAI? Or which is like, you know, theoretically a more decentralized stablecoin, right? There are different uses and purposes for that, right? Whether that token is used as collateral to back a certain thing, whether you use it as collateral in AVE to kind of like pull out credit on that, or whether you use it for something else. You know, it depends on the user and the use case in particular.

• 57:48Speaker 04

  And then in terms of liquidity, I think it'll, you know, there's a high chance that it plays out quite similarly to stablecoins if I'm want to state it, right? So you could have a dominant centralized exchange that has a wrapped ETH to token, but you could also have a decentralized version, you know, whether that's the likes of what Rocketpool are doing or what Lido is doing as well. So I think that optionality is important. I don't think liquidity would primarily be an issue there, in my opinion.

• 58:14David Hoffman?

  Basili, as the representative of the team with the only actual staked ETH token out in the wild, tell us about that. What's that like? Is the Lido staked ETH token, is that collateral in any application? What's the the strategy behind growing liquidity? Overall, what is the approach towards, you know, growing the market cap of Lido's staked ETH token?

• 58:39Speaker 03

  One correction, that we are not the only liquid staked token. There are, like, I think, four more. We are dominant, like 75% of the liquid staked market, but not the only one. And the rest has a lot of lethal as well, so.

• 59:00Speaker 03

  There is Stakewise and STK, and the credit is, whereas credit you, we are not the only one, so.

• 59:08Speaker 03

  We are honestly in the bucket of there will be like a dominant

• 59:16Speaker 03

  liquids taken token here and the runners up. And that the dominant token can change, but the equilibrium here is there is there is a domination on the market because that's how the these things work when when the products are not very differentiated and liquids taken tokens are not very differentiated to most users. They they they want an other with with some sticky words on top and every every liquid taken talking provides more or less that. When they are not sufficiently differentiated, the

• 59:54Speaker 03

  the one that has a slight edge will get used more and slight edge may might be liquidity, might be like better words or something, but there is a place for for domination here. I think so. And then the liquidity improves.

• 1:00:11Speaker 03

  We we have a positive feedback loop here, so I I'm pretty sure that the the domin- the the the this will be a market where the winner takes most. And the winner can change at at times, but the the equilibrium is one dominant coin and other less prominent.

• 1:00:33Ryan Sean Adams?

  Guys, what a what a what a fascinating panel so far. Diversity of approaches, also diversity of perspectives on some of these issues. Guys, we have a few more things to cover that you are not going to want to miss. We're going to talk about MEV. We're going to talk about insurance. We're going to talk about what keeps these panelists up at night when it comes to staking. So a lot more to unpack here. If you are enjoying this conversation, if you want more bankless panels and you want reminders sent, notifications sent, make sure you like and subscribe to this channel right now. Just hit that like button, subscribe. We are going to get to the sponsors and then be back with these panelists in just a moment. But thanks to the sponsors that made this episode possible.

• 1:01:19David Hoffman?

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• 1:02:46David Hoffman?

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• 1:03:43Ryan Sean Adams?

  Alright guys, we are back with this excellent panelist ETH staking providers. We've got Coinbase, we've got Lido, we've got Rocketpool. These guys are the best in the biz. We've covered so much so far. One topic we haven't addressed and we absolutely need to is this topic of MEV in an ETH staking world. This is no longer minor extractable value. This is maximal extractable value. This is basically the idea of being able to front run transactions because validators have the god mode, superpower of transaction ordering. They can order transactions and benefit certain parties over another, maybe receive a fee for providing that transaction ordering benefit.

• 1:04:28Ryan Sean Adams?

  This is almost like a, we've talked about this so much on Bankless. We've talked about this as sort of a Moloch problem. We've talked about this as kind of a coordination problem. It's something that's very pernicious on Ethereum. I want to start maybe with EJAS. Tell me about MEV, the structural issue that you think staking service providers are going to have around this and how Coinbase plans to approach it. And the last thing I'll say about this is this could really impact the yields that stakers get.

• 1:05:09Ryan Sean Adams?

  If one of you guys, one of you service providers are able to extract more MEV and give that back to stakers, you're going to be able to offer much more competitive yields and rates. So what's Coinbase's approach to MEV, EJAS?

• 1:05:26Speaker 04

  Yeah, really, really interesting question. So I think...

• 1:05:33Speaker 04

  Firstly, I think MEV could be a huge opportunity for us and for Coinbase. But it also comes with many interesting challenges that we need to consider, right? So, given Coinbase's position, you know, running, you know, loads of validators for a number of proof-of-stake networks. Coinbase now has the opportunity to capture MEV, like you said, right? And this revenue stream could potentially be substantial. As an example, I think some experts have predicted that MEV after Ethereum proof-of-stake mergers happened could enable each two validators to increase their earnings by as much as like 60 to 300%, right? And those all sound like, kind of like, DeFi summer-type APYs, right?

• 1:06:17Speaker 04

  And I'm pretty sure it would consolidate, it would consolidate down pretty succinctly. But, you know, there's definitely a marginal opportunity to increase to APYs. So that's one core incentive, right? And to your point, Ryan, like, if one provider does this, right? Now there becomes a competitive disparity between other providers, and so they might want to do it, right? And so there's a number of options to consider for how we proceed with MEV. Everything from, you know, creating proprietary strategies to maybe even purposefully opting out of MEV and maintaining a neutral stance. At present, the full scope and implications, in our opinion, are unclear. But we're working towards, we're working pretty hard to come towards a conclusion here.

• 1:06:59Speaker 04

  That being said, what I can say is our intention is to pass these MEV rewards through to our customers. Another interesting thought that I had is like, there's also just some really interesting concepts and paths that you can consider for, like, different products that we have, right? So let's say we could use MEV, let's say hypothetically, for Coinbase wallet users, right? So Coinbase wallet is like our non-custodial option where users can kind of like hold assets there and interact with different apps. We could theoretically have like something like front-running protection, right? So let's say, for example, a user wants to send a Uniswap transaction. Instead of going to a public mempool, you know, you could go via Coinbase in the block that we propose and a private mempool.

• 1:07:44Speaker 04

  So some really interesting thoughts there. We're still trying to nail down what our proposed kind of like solution strategy might be, but it's just a fascinating topic to learn about, to be honest.

• 1:07:56David Hoffman?

  I want to throw that same question to Vasily and Lido. Vasily, can you kind of speak to the validators that Lido currently has and works with? And how does the validators there, are they equipped to be able to capture as much MEV as possible? And what are the intentions? Can you speak to the intention of the validators and how it relates to the state ETH token?

• 1:08:19Speaker 03

  So you can, in that regard, you can think of Lido, like more or less, the not operators union. So organize not operators. I think it's pretty likely that Lido will adopt a unified approach to MEV and enforce it across all the validators, because that's like in the best interest of both not operators and users. And stakeholders. So I think that MEV extraction, actual extraction, is something that not operators are not to keep it to make themselves.

• 1:08:58Speaker 03

  Because it's something that's basically a field, a job where you like work without sleep for three months straight, and then you burn out. And not operators are like the long game players. They play their game for years and decades. So it will be probably looking like right now with mining pools and flashboards. So there will be a service providers that handles the extraction, the gritty parts of it. And not operators will be like doing the high level things like setting it up and maintaining and monitoring.

• 1:09:43Speaker 03

  And maybe like doing the selection of the service providers. But the service itself should be provided by the very competent and

• 1:09:56Speaker 03

  Uh people who who don't need to sleep ever like. Yeah. Uh there is not, not, not a lot of them right now. I think that's uh that's where it end up for, for most of the um. Of the, not operators. And it it's more or less uh with what we see with uh mining and M V. Uh same, same thing, I think we have a mistake in. With the one important uh difference, uh well, maybe two important, two important things that will change from uh on transition from mining to, to staking and M V. One is that staking is much more aligned, uh ma- makes the uh alignment between uh Ethereum holders

• 1:10:40Speaker 03

  and uh extractable value extractors much more uh strong. So uh it's essentially the stakers who decide uh how M V will be extracted right now. And stakers are its holders. And uh unlike hash power uh owners currently who are uh, well, they mostly are Ethereum holders too. Uh either holders too, but uh in much less uh amounts and quantities. So uh the value line was much stronger here after, after, after the stake. Uh st- staking uh after the merge, basically.

• 1:11:20Speaker 03

  And that will change the landscape because uh that changes the caution and that mean that um um over extraction of M V will be no longer in the best interest of the um, of the validators. So that's, that's one thing. And the other that's taken will provide uh multi-block uh reorganizations and the ma- ma- multi-block uh um uh M V extraction. Right now, that the only feasible uh way to uh to do it is within, within a block, with one block as an atomic thing, but after the merge is in, uh we will know the schedule for, for block producers.

• 1:12:04Speaker 03

  And the block producers will, will, will know that, oh, okay, I've got three blocks in a row. I can uh like reorgani- organize the transaction for three blocks in a row straight. And that changes uh uh the opportunities very significantly.

• 1:12:19Ryan Sean Adams?

  Does that make them the opportunities more like, does that increase the opportunities for providers? In which way does it change it significantly?

• 1:12:30Speaker 03

  So right now, a lot of protocols are designed with a with a certain mind that the only atomic thing there there is in the view is a block. And between blocks, you

• 1:12:43Speaker 03

  there, there is no sure way to ensure that you've got three blocks in a row. For example, Uniswap or based oracles, tops, that they take the last price of asset in a block as a data point. If you've got only one block to produce and you don't know who, who, who has to produce the next block, you can't manipulate that because the next block can be your adversary. And if you like, for example, unbalanced price, like put either to to like $200 to to force liquidation, the next block producer can like buy it out and have you

• 1:13:29Speaker 03

  like take, take all your money here. But if you have two blocks in a row, you can in one block unbalanced price, get at what point on chain, and then use that what point to to force liquidation. So when you can reliably string two blocks in a row, the Uniswap two oracles are no longer as secure as they used to be.

• 1:13:52Speaker 03

  And yeah, so many protocols are beaten assumption that one block is an atomic thing that can happen. And that will be no longer true, and that makes that MEV more more dangerous.

• 1:14:04Ryan Sean Adams?

  So what's interesting is, on the one hand, the MEV becomes more dangerous in a fully merged ETH 2, and some DeFi criticals are going to have to redesign around these new parameters. But on the other hand, some of what you said made me actually optimistic, Vasili, right? You said that basically you think that node operators won't try to extract MEV themselves, but this

• 1:14:29Ryan Sean Adams?

  Will be somewhat commoditized and you know, they might plug into solutions like like flashbots, which is actually, I think, a good setup for minimizing the damaging impacts of MEV. And you also noted that, hey, validators aren't like miners. They are long-term incented toward the health and decentralization of Ethereum. So both of those things made me optimistic. You know, Darren, what's your take on all of this? MEV, what's Rocketpool's design parameters and what's Rocketpool's take?

• 1:15:04Speaker 02

  So we've taken a look at this. We've done considerable amount of research into this recently and it spurred a conversation within our community and also some of the Ethereum core devs as well. So we've recently posted a Medium article about our position. But actually, first of all, I just want to touch on something that Vasili said. So he was kind of saying about the blocks, how the blocks are produced. So decentralization is especially important when you have MEV. Because with centralization, the chances of collusion between validators within an epoch, this is Ethereum-based kind of proof of stake,

• 1:15:48Speaker 02

  actually intensifies kind of the potential for evil. So having a large centralized provider, having lots of validators, means they're more likely to have multiple blocks within a epoch, which means that they can actually do more damage than either kind of on purpose or by accident.

• 1:16:15Speaker 02

  So our position is basically that we wish MEV didn't exist. But if it's going to be part of proof of stake, then we can't really ignore it. We'd prefer it to be democratized, transparent and ideally somewhat responsible. We're collaborating with Flashbots to see what that looks like. And we've got kind of some ideas around some mechanisms to incentivize the fair sharing of MEV rewards with our stakeholders.

• 1:16:50Speaker 02

  Essentially, MEV post-merge is a very emerging space at the moment. So it's certainly something that's going to kind of develop over time.

• 1:17:04Ryan Sean Adams?

  Hey David, you're muted.

• 1:17:05David Hoffman?

  There we go. Sorry about that. Importantly with MEV and Rocketpool, MEV goes to the actual person that is running the node, right? Not the actual validators, or not the ETH stakers, but the people actually taking in the ETH and actually running the node. Can you go into a little bit more detail with how Rocketpool plans to incentivize the Rocketpool node operators to put the earned ETH back into the overall pool of Rocketpool earnings, which ultimately goes into the RE token?

• 1:17:35Speaker 02

  Yeah, so it's kind of broken down into two parts. There's like a detection mechanism and the actual incentive. So, and we've got both incentives and de-incentives, I guess. So the detection mechanism is essentially this collaboration with Flashbots in the sense that you'll only kind of be able to do MEV through them. With the incentivization and disincentivization, essentially if you do MEV outside of that, and which means that you haven't shared with the RE holders, then we have a slashing mechanism that enables us to kind of slash them based on the activity.

• 1:18:20Speaker 02

  We're also looking at other, we're also looking at the carrot as well as the stick. So we're also looking at ways to incentivize the sharing as well as this kind of slashing.

• 1:18:29David Hoffman?

  Does the misalignment between Rocketpool ETH stakers and Rocketpool node operators, that misalignment with MEV, there's a little bit of, you know, the node operators want to capture more of the MEV and kind of want to hide the MEV that they capture under the table, while the stakers are like, hey, we want all the MEV as possible. Does that misalignment concern you at all?

• 1:18:52Speaker 02

  Not on the surface, like a lot of the people that we've spoken to would actually do the right thing. It's just the fact that because we're a decentralized protocol, we have to design for people defecting essentially, for people not doing, not doing, not doing what the protocol requires of them. So we have to design that into place. But speaking to a lot of people, if they're operating within the Rocketball protocol, they're willing to do the right thing. They're willing to share it with the, the higher stakeholders because they know they're going to get significant benefits from operating within the Rocketball protocol.

• 1:19:36Speaker 02

  One of the incentives actually that we're looking at doing is essentially like a staking or a smoothing pool. So very similar, so MEV is very similar to proof of work in the sense that you can, you can get these big payouts every now and again. But you can also get kind of small payouts. So it's very inconsistent. And so what we do is we put this smoothing pool together so that we can actually even that out. So instead of having like a, getting a lower kind of return, they actually get a higher return because they're, it's a, it's a kind of a flat return rather than this kind of go for gold and sort of scenario.

• 1:20:21Speaker 02

  So from a long-term perspective, that's much better.

• 1:20:25Ryan Sean Adams?

  Guys, this has been a, just a fantastic panel, mind-blowing on a, on a number of levels.

• 1:20:31David Hoffman?

  Shout out to the YouTube chat playing the drinking game while we, while we have this panel.

• 1:20:37Ryan Sean Adams?

  Yeah, as we're saying keywords, I think people are drinking. I don't know what the keywords are, David. What are they?

• 1:20:42David Hoffman?

  The, I think the words are private keys, trustlessness, and decentralization, which are really aggressive words to play a drinking game with.

• 1:20:50Ryan Sean Adams?

  Well, you know, we'll, we'll try to avoid those words in the last question so that, so that people aren't too intoxicated while they absorb this information. The last question to the panelists. And I want to pack two questions in one because I think this is important.

• 1:21:06Ryan Sean Adams?

  The first is, tell us what keeps you up at night with respect to ETH staking? So that's kind of the negative worried side of your brain. And then secondly, what's the thing that makes you most optimistic about ETH staking? So that's kind of the bright side. We'll start with you, Darren. What keeps you up at night? What makes you most optimistic?

• 1:21:34Speaker 02

  So, living in Australia means I get to wake up at night a lot, talking to the US and Europe. But so, thank you. Thank you for doing this daytime call. I guess getting Rocket Pool to mainnet safely and securely, that's the thing that I am very passionate about. And very, that's the thing that's kind of driving me at the moment. In terms of the optimistic side for Ethereum, I think Ethereum proof of stake is a fantastic invention. And has a, in the broader kind of finance sort of spectrum, has a lot going for it.

• 1:22:17Speaker 02

  So I think that is something that drives me as well, the potential, I guess.

• 1:22:23Ryan Sean Adams?

  Visili, same question for you. What keeps you up at night and what makes you most optimistic about ETH staking?

• 1:22:30Speaker 03

  So, I've got like this existential that of as a tech lead on the protocol that has about like 9% of stake teeth in it. I, when we launched Lido, we did a lot of planning for failure, for bad thing. What we will do if there is a disaster, what the recovery process, et cetera, et cetera. But it turns out we didn't plan for success, right? And when in March it hit me that we're just very, very big already. We've got a lot of stake. How do you keep it safe? How do I keep it aligned with Ethereum? That's what drives me currently.

• 1:23:13Speaker 03

  So we've got at the point where we are impactful and we should, Lido should wield this power well. So that's what I'm working for right now.

• 1:23:29Ryan Sean Adams?

  Where's the optimism coming from? Are you optimistic about that on the other side too?

• 1:23:33Speaker 03

  One thing that is actually, I think, underappreciated, underplayed right now about the merge and it's taken off is that Ethereum holders will have a much higher political weight right now in the Ethereum governance. They are now not just holders, the stakeholders are making Ethereum secure and they are taking the role that miners used to have and still have.

• 1:24:09Speaker 03

  And that makes, well, that's a tectonic shift that is not still processed, I think, by the community. But it will change how Ethereum operates and I think it will change how Ethereum operates for good.

• 1:24:27Ryan Sean Adams?

  Yezz, take us home with this question. What keeps you up at night? What makes you most optimistic?

• 1:24:32Speaker 04

  Well, yeah, I mean, aside from this amazing podcast that's keeping both you and I up, Ryan, on the East Coast. There's a few things, like, one of them is a topic we've already covered, which is MEV. Like, I just think it's such a fascinating development that's playing out. And, you know, probably has the potential to be one of the most controversial for Ethereum, depending on how we all approach this as a community. And I think, like, that being said, it's such an interesting challenge with so many different possible outcomes. So, you know, I've been trying my best to wrap my head around the latest developments around that. And I think, like, secondly is, probably echoing this at least point,

• 1:25:14Speaker 04

  I sometimes, like, before I'm going to bed, literally, I'm thinking about, you know, how much we have, you know, staked. And, you know, I can't be mentioning figures and stuff, but it's just, you know, it's a significant amount. It's a non-trivial amount and it just can't help but keep you...

• 1:25:33Speaker 04

  Awake and thinking about how we can maintain that infrastructure, about how we make sure that this is done in the most optimized and best way for our users. Now, if I were to flip that over and look at like the optimistic side, I mean, guys, like similar to you guys, I've been an Ethereum fanboy for years now.

• 1:25:54Speaker 04

  In my prior role at Consensus, I used to be on the ground, like working alongside a lot of these different depths and protocols. And actually, one of the main reasons why I moved to Coinbase is, okay, I've seen all the awesome innovation that's been built out. How do I enable it in such a way that, like my mom, who thinks I work on magical internet money, and she's, you know, she's kind of not wrong, can access and use all of this, right? And I think like, you know, ETH to staking in general is just one major way to be able to do that, right? We're seeing Ethereum's decentralized ethos and vision come to life right now. And being able to empower that is definitely motivation enough, I think.

• 1:26:36Ryan Sean Adams?

  Hejaz, Vasily, Darren, thanks so much for joining us. This has been a fantastic panel. We appreciate it.

• 1:26:44Speaker 04

  Thanks for having us.

• 1:26:46Speaker 02

  Thank you for having us.

• 1:26:48Ryan Sean Adams?

  Bankless Nation, ETH, the internet bond, ETH, the triple point asset, ETH becoming a capital asset. These are regular themes. Staking enables all of that. Such an exciting topic. We hope you got a lot out of this panel. I certainly did. I know David did. Of course, risks and disclaimers. ETH is volatile. ETH is risky, so is staking. All of crypto is risky. You could lose what you put in, but we are headed west. This is the frontier. It's not for everyone, but we're glad you're with us on the bankless journey. Thanks a lot. Also, like and subscribe if you enjoy this panel. Make sure you do that. Take care, guys.

• 1:27:28David Hoffman?

  Hey, we hope you enjoyed the video. If you did, head over to Bankless HQ right now to develop your crypto investing skills and learn how to free yourself from banks and gain your financial independence. We recommend joining our daily newsletter, podcast, and community as a Bankless Premium subscriber to get the most out of your Bankless experience. You'll get access to our market analysis, our alpha leaks, and exclusive content, and even the Bankless token for airdrops, raffles, and unlocks. If you're interested in crypto, the Bankless community is where you want to be. Click the link in the description to become a Bankless Premium subscriber today. Also, don't forget to subscribe to the channel for in-depth interviews with industry leaders, Ask Me Anythings, and weekly rollups where we summarize the week in crypto and other

• 1:28:13David Hoffman?

  fantastic content. Thanks, everyone.