TOKEN2049 - The Future of Liquid Staking and Restaking

In this episode of TOKEN2049 on April 27, 2024, in Dubai, Marcin Kazmierczak from Redstone Oracles led a panel with experts from Lido DAO, ClayStack, Chorus One, and ether.fi to discuss the evolving landscape of liquid staking and restaking, focusing on new technologies, decentralized governance, and the expansion of restaking into various asset classes. Read our notes below to learn more.

Background

Marcin Kazmierczak (Host) – Co-founder of Redstone Oracles

Marin Tvrdic (Guest) – Master of Protocol Relations at Lido DAO

Mohak Agarwal (Guest) – Founder of ClayStack

Brian Crain (Guest) – CEO of Chorus One

Mike Silagadze (Guest) – CEO of ether.fi

Redstone Oracles – modular oracles for DeFi

Lido – a liquid staking protocol

ClayStack – a modular DVT based LRT live on Ethereum mainnet

Chorus One – a provider of staking solutions on 50+ decentralized networks

ether.fi – a liquid staking platform on Ethereum

Exploring Liquid Staking and Restaking

Marin Tvrdic introduces himself as a master of protocol relations contributing to Lido DAO, explaining the distinction between Lido DAO and Lido software.
Mohak Agarwal introduces himself as the founder of ClayStack, a modular DeFi-based liquid restaking protocol.
Brian Crain describes his background in proof of stake since 2017, highlighting his role in running infrastructure for numerous networks and managing billions in staked assets.
Mike Silagadze introduces himself as the founder and CEO of ether.fi, a liquid restaking protocol aiming to make DeFi easy for everyone.
Marcin asks Marin about Lido’s entry into liquid restaking and the challenges of innovation in a large organization, to which Marin responds that large protocols must be cautious due to their responsibility to stakers and the untested nature of restaking.
Mike talks about the future of liquid staking and restaking, predicting a merge into a single category and a shift in Ethereum’s reward structure that would make restaking essential, and outlines ether.fi’s plan to build a suite of applications on this foundation.
Marcin says that as of today, liquid staking holds a value of $45 billion and liquid restaking at $9 billion, and asks Mohak to discuss the transition from liquid staking to liquid restaking and the innovations in modular Distributed Validator Technology (DVT).
Mohak explains that the switch from liquid staking to restaking was a natural evolution, highlighting the intention to make the core protocol immutable while keeping the modules upgradeable to facilitate rapid advancements. He mentions the development of four modules: DVT, restaking, MEV, and layer-2.
Brian describes the operational differences between nodes for liquid staking and liquid restaking protocols, noting that liquid restaking offers more diversity and challenges. He highlights concerns about onboarding practices and the quality of new Actively Validated Services (AVS), stressing the need to maintain certain standards while supporting rapid expansion.
Mike discusses the challenges of node operations in restaking, especially the complexity for solo stakers and the potential centralization risks, highlighting efforts to mitigate these issues.
Marin speaks about addressing centralization through liquid staking tokens and the potential of modular protocols like Lido to scale up node operations while promoting decentralization, sharing his concerns about the limited number of entities currently operating nodes.

Debating the Future of Liquid Staking and Restaking

Marcin asks Marin if he believes that all liquid staking will eventually transition to liquid restaking. Marin responds skeptically, indicating that the market will decide, as the successful assets will be those that serve as better collateral on lending markets. He emphasizes the unresolved risks associated with liquid restaking, such as inherited slashing risks and the reliance on non-automated, off-chain conditions managed by a multisig, which presents significant trust issues.
Marin further explains that resolving these trust issues will make restaking more lucrative and scalable, as adding various AVS would yield better APRs for risk-takers. He references a research scenario where layer-2 networks contribute their sequencer fee profits to restaking, which would only yield a modest APR. He says that liquid staking tokens and protocols will likely become a primitive utilized in the staking ecosystem, not replaced by restaking.
Marcin follows up, suggesting that restaking could evolve to include assets beyond Ethereum or staked Ethereum, like $USDT, $BTC, or real-world asset-backed stablecoins. Mohak expands on this, imagining a scenario where restaking could involve creating new AVS with specific rules and consequences, using the example of Dubai offering a significant amount of secured credit in exchange for compliance with new consensus rules.
Brian comments on the potential expansion of restaking to include various asset classes, questioning the security provided if there’s no risk of slashing. He reflects on the historical reluctance of staking protocols to increase slashing penalties, noting that even major protocols have not escalated their initial slashing percentages. He speculates that security might increasingly rely on the reputation of node operators rather than on collateral or slashing.
Marcin asks Marin about the practical experience of his protocol, Chorus One, with slashing. Marin says that despite concerns about slashing risks, Chorus One has never actually been slashed, highlighting a discrepancy between perceived risk and actual occurrences. He contrasts this with Lido, which has been slashed twice but without causing issues for stakers, pointing out the minimal real-world impact of slashing in their experiences.

Exploring Slashing Risks and Restaking Strategies

Marin explains that despite protocols like Lido having over $30+ billion in deposits, there’s no insurance available for such a large sum, which presents a risk in the event of slashing.
Mike says that Ethereum has a robust, battle-tested network compared to new AVS protocols, which carry much higher risk.
Silagadze mentions the importance of matching the value of the slashing security asset to the asset being secured, citing that if you’re securing a bridge moving around $ETH and altcoins, using $USDC as slashing security may not be effective if $ETH’s value changes significantly.
Silagadze explains that $USDC may be suitable for AVS primarily dealing in stablecoins, but stresses that it’s important to carefully match the slashing security asset to the secured asset.
Brian says that it’s essential to understand the various dimensions of slashing and restaking strategies, noting that there are many ways to approach it.
Marcin asks for predictions on whether EigenLayer will remain the dominant player in the restaking space or if there is room for others to compete.
Mike believes that EigenLayer is currently ahead and likely to dominate the market share but acknowledges that competition could arise.
Mike says that ether.fi are working with the Karak team and would support any effective restaking solution without picking favorites.
Brian believes it’s still early in the restaking game and sees significant competition due to incentives, slashing, and economic models.
Crain notes that other protocols could adopt EigenLayer’s strategy of using points and tokens to incentivize adoption, making capital highly mobile.
Crain mentions the potential for a restaking protocol that works across chains and asset classes, adding that it’s too early to predict the winner.

Exploring Trends in Restaking and Project Milestones

Marin mentions that natively restating is expensive, but using LSDs to wrap assets is easier and faster. He notes the current market dynamics with four providers, including the decentralized Igon layer, and discusses the trend of using points to avoid diluting tokens, which can later be converted to various rewards. He emphasizes the impact of ongoing bull markets on the understanding of these dynamics.
Mike highlights the benefits of staking on Etherfi due to the accumulation of points, presenting it as a key takeaway.
Mohak talks about the substantial value locked on the EigenLayer and its initial achievement of escape velocity, which he previously thought was unattainable. He discusses the potential for competitors in the re-tokenization space to attract value from various assets, noting that this is already occurring with Bitcoin.
Mohak describes his project’s efforts to enable the Validator Funding Providers (VFP) module, which aims to support home stakers by mitigating financial barriers and reducing centralization.
Brian outlines Chorus One’s goals to expand the number of supported networks, work with institutional partners, and contribute to the development of the re-tokenization sector to instill confidence among crypto holders.
Mike reiterates ether.fi’s focus on making decentralized finance accessible to everyday users, outlining the strategic direction of integrated products that support living entirely within the crypto ecosystem.
Marcin talks about Redstone’s commitment to implementing re-tokenization in their infrastructure, aiming to have a complete product within a year.

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Show Information

Medium: YouTube (Video)

Show: Token2049

Show Title: The Future of Liquid Staking and Restaking – TOKEN2049 Dubai 2024

Show Date: April 27, 2024