 Hey folks, my name is Vasili Shapovalov, I work in Lido and what I want to talk about today is what I think will be the future of liquid staking. I really love the crowd, by the way, there's so many of you. A bit about us and about me, why I'm talking about this. I'm a tech lead at Lido, which is a DAO that headquartered on Ethereum that makes liquid staking protocols, and it maintains the largest liquid staking protocol in existence, Lido on Ethereum, which has a bit more than 4 million ever in it. Currently the number two DeFi protocol by TVL, and I'm co-founder tech lead, so I guess I know a couple of things about staking. For folks who are not really familiar with this topic, liquid staking is when a staker gets transferred by voucher, when they lock up the staker in a staking protocol. It can be used in DeFi, it can be transferred, sold, bought, collateralized, etc. Liquid staking is a small but growing and pretty significant in size part of staking economy, in all the staking economy without 80 billions, and liquid staking protocols together are about 8 billions or so. And if we add to the liquid staking protocols also liquid staking on exchanges, which I think we actually should count among the liquid staking options, it will be closer to 20 billions I think, so large but not overwhelming part of staking economy. So I'm not going to do any deep insights here. I don't pretend there is something I'm going to say that is not pretty obvious I think, but I'm going to say it anyway. I'm going to make three predictions. Basically one is that protocol-based liquid staking will grow alongside DeFi ecosystem. When DeFi ecosystem grows, liquid staking protocols grow with it. When it doesn't grow, when it stagnates, that like liquid staking will not, protocols will not grow, like there will be people who use staking exchanges instead. There will be a lot of options for liquid staking but few of them will be winners. Who will be the winner? Who will be the winners? Will be determined by stakers. They will be the one who vote with the money about what the future would look like. Now in a bit of more details, every of this statement I'll talk about it. So our experience at Lido, building liquid staking protocols, many chains. We have one on Ethereum, one on Solana, on Polygon, on Polkadot. The thing is, liquid staking protocol growth is driven by DeFi ecosystem growth. When there is low amount of DeFi penetration, liquid staking will also be pretty small. When there is a very strong economy like on Ethereum, liquid staking will be very popular. There are other factors, but that's primarily the thing. When people want to use the other in DeFi, they will rather use some kind of staking liquid staking token in DeFi. When they don't want to use other in DeFi, they don't care about staking the other, rocket pull other, etc. The main competition are the wallet gardens of DeFi. Exchanges have liquid staking since forever. It works very seamlessly. It's very easy for the user. They just deposit the tokens that they are used to if they are working with exchange, and it's automatically staked. It can be often used as collateral for margin trading. It has most of the users that people want liquid staking for. If you don't care about being in decentralized finance, if you don't care about these being not your keys, it's perfectly serviceable. The product is just better than regular staking. Liquid staking is better for users than regular staking. There are adoption barriers that a major problem for liquid staking protocol growth is smart contract risk, governance risks, and sometimes tax implications. The smart contract risk and governance risk on one hand go down with time, so with time people are starting to trust more the protocols for good measure because they haven't been hacked, they are less likely to be hacked in the future. Same about governance. Still, it's not worth it if you're not using to use the token in DeFi. If you're not going to trade it or collateralize it, you don't want to take a traditional risk. There are multiple options for building liquid staking protocols, like the second in general, not just protocols, that exist already or will be existing going forward. To talk about them, we need to understand what is liquid staking as a product, like who are the users, what do they want. There are three kinds of stakeholders for liquid staking. One is the stakers, they are most important here. They want staking rewards, they want security, they want liquidity and usability in finance, basically. Protocols community want the best-validated set for the protocol, that is decentralized, sensation-resistant, and not operators in protocols. They want to run a stable staking business if they are professional, and if they are hobbyists, they want to be like, I don't know, respected, they are not rational, they just do it for the fun and for the feeling of contributing to decentralization, which is great. The options that are available, will be available in the future, are broadly its custodial option, the exchange-based liquid staking, or custody-based liquid staking. It's protocol that are based on risk management. It's protocol that are based on bonds for security. They are hyper-compliant protocols and marketplace-type protocols. I'm listing them in the order of adoption. Custodial liquid staking, like exchange-liquid staking, is the largest one, even on Ethereum, but if you combine together all the exchange-staking options, it's like a lot of market share. They exchange your custody-based. It's very simple to use for users, because centralized solutions are very good for user experience. Usually, you can do a lot to make it simpler. They have no additional risk if you already tried the exchange in question with your capital. Often, they have included the options for margin trading, lending, money markets, et cetera. Because the operator of custodial liquid staking, like a change or something, they are double-dipping, so they are getting staking rewards, like fee-on-staking rewards, and they are also getting fee-on-trading or maybe cost-defeats or something like that. They can offer very competitive rates compared to others. This option will likely win on profitability going forward. It's not the case right now, because Coinbase takes a lot of fees, but they have much more options to go lower on fees because they can double-dip in vertical integrations. They have usually sub-parvalid datasets, so they don't provide as much value as they could for the protocol, because they select few operators with little diversity in jurisdictions, physical locations, et cetera, et cetera. And it's not transparent, and they are susceptible to regulatory capture because C-FI solutions are extremely regulated. Risk management-based protocols are non-custodial. They manage slashing risks protocol-wide by creating credit-valid datasets that minimize slashing risks. Therefore, they are usually capital-efficient, so they are easy to grow, they are easy to accept stake. And for the competitive advantage on the user side, they rely on DeFi ecosystem, so when DeFi ecosystem is better than any single wallet garden of exchange, they can offer a good alternative to centralized exchanges. Valid dataset they have are very different in design and in quality. They can be big, they can be small, they can consist of one operator, which is the same protocol operator, basically. And that's because the managed protocol set, the valid dataset, is basically the major part of the product here, and that's where they differ very much. It can be good, it can be bad, it depends on the protocol. Bonded protocol are also non-custodial. They manage slashing risks by acquiring valid data bonds. That makes them capital-efficient, because valid data, like the not-operators community, they don't usually have a lot of money. And when they are required to provide bonds, this is limited by basically the amount of capital of operators or the amount of debt they are willing to take from outside sources. And the valid dataset management is left to the market. Basically, if you have capital, you can participate as an operator, you can provide your own validation, and that's the only thing that is required, which I think at scale delivers centralized related assets, because capital is centralized. If you take a look at the Gini coefficient of Ethereum, for example, which is one of the best ones, it's really high, like most of the wells are worldwide, like a few dozens of wells. When the protocol is at scale, they are either providing a loan or they operate themselves at scale and take the majority of the valid dataset. This option of hyper-compliant one is not very different in tech side from risk management. It's a different approach, because it's a selling point, and the main feature is that the valid dataset is extensively KIC-ed and certified and regulated, and they are likely to not deliver valid dataset that the protocol community want. And I don't think there will be much liquid usable, because usability in DeFi requires... They make clients are people who are very scary of regulations. I think that's like selling through lawyers type of things that are averse to participate in much of the DeFi. And the last type is marketplace, is when there are multiple options for staking in one place, different risk profiles, features and costs, and when they do a liquid staking token, they have to fund it in some way, either they do risk management on options like to make a fungible basket of different options in marketplace, or do the bond type, or just do a naive, like assuming every risk profile is the same. Current state on Ethereum is that risk management is the largest protocol, like it's LIDO, its risk management type. The second by size is custodial, but it will very quickly jump to one by one when withdrawals are possible and on every any exchange can be staked more safely than right now. And the third type is bonded, it's rocket pool, it's a third position. And by growth beat right now, coin base, liquid staking token growth, the fastest. LIDO has the second place and rocket pool is the third, so this is the current trend. I think that the only non-custodial trust minimized options can be designed with the can't do evil principle in mind, so liquid staking protocols that are sufficiently limited in what they can do to take valid data set, selection to to force or entice operators to operate in a certain way when they are limited in that, they can be entirely harmless for the protocol and not a threat. Custodial solutions can't do that because they can act with their values, they are extremely susceptible to regulations which can be not aligned with companies. I think that only risk management-based protocols can deliver a good valid data set at scale because at scale the main thing that you deliver for a protocol is a good valid data set and if you don't have an opinionated selection algorithm that says that the good valid data set should be defined, should be diverse, should be diverse in jurisdiction should be pretty flat in distribution of stakes, should be diverse geographically and in cloud and on-premise operations, et cetera, et cetera, that's essentially what risk management is. You manage the risk for the protocol as well. I think there are two possible outcomes for the future of Ethereum. One is that most of the stake is in the risk management protocol that provides a good valid data set. Minority is in Custodial and Bondata is on the third place. The best outcome is vice versa when most of the stake is Custodial and the rest is in protocols. So anyway, whatever I think of that, it doesn't matter much because I am not the one who decides who will win and who will lose and what will be the base, the largest options. It's the stakers who decide the outcome. Not operators, they are agents. They operate either very small amounts of their own stake or large amounts of other people's money. They do not decide who is going to be the winner. It's not stake aggregators like protocols or Custodies because users' stakers actually decide which aggregator to use. It's not protocol researchers or developers because they design a neutral protocol that can be used by other people, which are stakers to have the desired outcome. It's not voices on crypto, Twitter or protocol governance. It's going to be their stakers. Current state of Ethereum staking is the direct result of stakers making their choice in the past. Why is Lido big? Because people stake with Lido. Why is Coinbase big? Because people decide to stake with Coinbase. The future will be a result of stakers making the decision going forward. So, what I'm asking you folks is to select the best stake based on your ethos, your needs, your capabilities. If you want, then you can run your own node, run your own node. If you see a good option for staking with a protocol, like stake with a protocol or with a not operator you trust or something like that, because like stakers will be deciding the future of a validator set on Ethereum, like how Ethereum will be operating in the future. As a bonus thing, I made a few predictions, but there are a few curveballs that can invalidate all of that very unexpectedly. One thing that is obviously can change the capabilities very much is regulations. Regulators can force most of Ethereum stakers and a lot of Ethereum is regulated jurisdictions. A lot of other holders are in regulated jurisdictions to comply to local regs, and if local regs say them to stake in a specific way, they will likely comply. The funds, like the cost studies, et cetera, et cetera, they will have to. The second curveball is restaking. Shout out to Englare. It's basically using the same stake on multiple protocols. The main idea is like you can stake in the Ethereum protocol and then can use the voucher to the stake state, like stake data token or a risk token or something, as a stake in a different protocol that does something different, and it's subject to additional slashings if something goes wrong. That leads to a combinator explosion in potential risk and rewards profiles. So right now it's pretty easy to fudge the un-fungible stake in positions like you manage the risk and rewards and you can get liquid token out of it or make it bonded or something. When there is a lot of options for getting additional rewards for taking additional risks, which is going to happen if Englare takes off, that makes the space very diverse and for possibilities of using the other in different ways, and it's becoming much harder to fudge than fungible. And it makes risk management-based protocol harder to design and marketplaces more suitable to the state. There is a lot of differentiation in different options for staking. Marketplaces are better suited to that than risk management. And the elephant in the room is a second-order effects of MEV because it's filled with emergent rules. We don't understand how it works until it works in a specific way. Usually we can predict some things but not all things. And it's hard to see the future clearly and it clearly has a lot of requirement for latency and benefits a lot from equity deals which can force centralization somewhere in some place and it can happen that it will force centralization on protocol management, on stake management level or on staking layer or wherever. We don't know yet. At least I don't know. I don't quite understand how it will end up and I think we will see it when we'll see it not before. I think the best way to counter that on staking level will be to transform validators in protocol to dump pipes that don't make any decisions basically or can opt out of making decisions at least. Something like PBS design with CR lists for example. But as I said, it's curveball. I'm not completely sure how it's going to play out. So that's it. Thank you for coming. I'm really hyped with seeing such a good crowd. Hello. You mentioned in Lido of the risk management reference of LSTs. How is this related to the insurance of Lido in relation to the TBL? I don't quite get the question. I'm going to answer as best as I can. So Lido is a protocol that takes stakers ever and it distributes to a validator set in a specific way. This validator set is selected in a way to the risk, the stack to the holders, so like reuse slash and risks, and to make the validator set of Ethereum better as well. So like we try to distribute in a way that will be or increase the diversity of validators and like the stack distribution, make better stack distribution. We don't require operators to bond the capital to operate and that makes scaling for Lido really easy because all the operators need to do is to upload some more keys into Lido and like accept more stake. And that's why when there was a lot of demand for staking in the ecosystem, it went to Lido and not say to Coinbase. When the growth is limited by not operators having enough capital or having enough like cheap loans options or something like that, it's not being able to write these waves of like staking demands. So I guess like the TBL of Lido is direct results of the design. Okay, I was wondering like one of the curve balls that maybe could happen is what if it becomes dramatically easier to operate? Like it's pretty complex to like spin up your own like beacon currently, but what if it was much, much easier? How would that impact the overall market? So I think that it's not going to become dramatically easy for a long time. The reason is like before protocol classification, it's really hard to maintain the nodes in a good state because there are a lot of grates and like hot fixes and stuff. But imagine it is becoming dramatically easier than on like on liquid stake. And I think it will result will be that there will be more solo operators and every protocol that will be big enough will converge on like on some hybrid model of having most of the stake in risk management and less taken bonded solution for permission as operators just to promote the solo stakers. And the removing of barriers will lead to more solo stakers and like a bit more importance to have in this future. That's my guess. Hello Vasili, it's really nice to meet you. I have two questions. Actually, first one, I would like to understand what do you see as the biggest risk for the liquid stake in industry or the stake in industry as a whole right now? And second one, what do you see as the biggest risk for LIDL right now? I think the answer to boss is smart contract risk. Like if I protocols are like very robust, I think it's the most like the most box free for code in the world. Like right now, like better than aerospace, better than medical code, et cetera, et cetera. But it's like existing in a very toxic environment where any mistakes gets exploited like very fast. So smart contract risk is probably the major risk. And on the more like economical side, I think like I'm really thinking that exchanges with God like CIFI are really like a very strong competitor to protocol based liquids taken because centralization is more like it's cheaper and people care a lot about APR. So I have some statistics on the LIDL token emission. It's kind of like outdated, but it's something to me. So the token incentive that the emissions in the last seven days is five millions in terms of TVL while the revenues is only 600K. Do you think it's that people actually value the governance of LIDL itself as a liquid sticker or it's kind of like being overvalued? Do you see any attack factors or governance if it were to like go down if people don't value it as much as it right now? Let me rephrase and say if I understood it right. So you're saying that we have a lot of incentives and LIDL or TVL is probably because of incentives and not because of like people, because of the fact that people want it, right? Okay, why would the token incentive is five millions? So the incentives are not that big in the overall protocol, like compared to overall protocol revenue. And they are needed to maintain good liquid pools for liquidations to happen. That's the only reason they exist. The stake rewards are the main reason people have staked it. There is like of over like four million of other LIDL, I think about between 200,000 and 600,000 of stake data is locked in maybe 700, I don't know, it's locked in two incentivized pools. So I think that when withdrawals are in, that will be completely unnecessary and will change everything like the incentives will be slow, but the protocol will be just as useful.