It’s Not Winner-Stake-All
A love letter to our c̶o̶m̶p̶e̶t̶i̶t̶o̶r̶s̶ staking friends
Early Days
The first post about Bitcoin on Hacker News was in 2009, complete with the requisite sarcastic comments and dismissal of the tech as “cute.” That was what first got me into crypto — as a rule anything that gets cynically dismissed on Hacker News is usually interesting.
From there, I fell in love with the tech and the promise of a stateless currency. At the time I was working on another startup and we had just raised an angel round, so I felt like I was too far down that path to pivot to anything else, which seems really dumb in retrospect. So I bought a few Bitcoin (for $0.80 a coin) from a random guy on a forum and just followed the space for the next few years.
After Satoshi became ill in 2011 and passed away in 2014 the Bitcoin community became a bit ossified and resistant to change. This ultimately led to the birth of Ethereum as a kind of response to this shift.
When Ethereum launched it blew my mind. The generalization of Bitcoin Script into a Turing complete language with a virtual machine felt like it was fulfilling the promise of Bitcoin that was originally laid out in the whitepaper.
It was around this time that the Bitcoin community split and the digital gold narrative emerged among the more conservative side. So Ethereum took up the mantle to move the crypto roadmap forward and began the path towards a Proof of Stake migration, among other ambitions.
Staking
As a mechanism for consensus on Ethereum the Proof of Stake implementation has a lot of really nice properties that emerge naturally. Like anything else it’s not perfect and there are lots of issues left to figure out, but the Ethereum Foundation is doing a great job in moving the roadmap forward with the right checks and balances to build a more perfect system.
One of the beautiful things that emerges is a native “interest rate” for the Ethereum economy. When the economy is active with lots of demand for blockspace the staking rewards naturally rise which boosts the native interest rate and helps cool things down by increasing the cost of borrowing. When the economy slows down the interest rate falls and makes it cheaper to borrow and transact which helps with recovery.
The Ether mint/burn mechanism along with EIP-1559 performs a nice balancing act such that it rewards saving vs. consumption. Every user who saves their ETH (and stakes it) effectively earns a pro rata share of economic activity on the network. Which includes things like MEV revenue.
The analogy to TradFi here would be USD holders who save their dollars earning a small pro rata share of GDP just by holding their USD and not spending it. This would include a share of any market-maker type intermediary (HFT or otherwise) revenue, which normally adds a few bps to every transaction (i.e. TradFi MEV.)
Today about 10% of GDP (and increasing) goes to the financial services industry and wealthy asset holders, effectively allowing them to compound to infinity. Instead we could have that share of energy and growth democratized and distributed naturally to all savers. Kind of magical.
So that’s why I love staking.
Staking infrastructure and services are the foundation of everything. They are an essential public good that must remain decentralized and composable (in the broadest sense.) It’s not surprising to me that Lido, a staking protocol, is now the largest DeFi project. I think staking will continue to be a large share of DeFi for a few years at least, until the application layer eventually overtakes.
C̶o̶m̶p̶e̶t̶i̶t̶o̶r̶s̶ Staking Friends
With Shanghai around the corner I think there are going to be many flavors of staking for different use cases, and this is healthy for the ecosystem.
I hope and believe that all of us who are building in the space can find ways to work together and interoperate, for the good of users and the ecosystem.
With that said, I want to talk about what I love about what some other folks in the space are building, and why it’s interesting and valuable. I hope I don’t do too bad a job, but if I don’t represent something accurately please reach out and help me correct it.
These guys are the OGs. The team started working on decentralized staking in 2016–2017, at the very beginnings of the conversations about migrating to Proof of Stake. They pioneered many of the concepts we now take for granted, and got an amazing number of things right.
The team has always shown that they prioritize doing things right and the health of the ecosystem over and above any short term gains. They’re already one of the biggest staking protocols and I’m sure they’ll continue to grow and be a force for good in the ecosystem.
RocketPool is great for liquid staking, and it’s easily the best solution for solo-stakers. Their SmartNode tooling is phenomenal and makes it super easy to get started and run your staking node.
The RocketPool community is incredibly passionate and generally awesome. It’s clear that they love Ethereum and their heart is in the right place. One example of that is their self-limiting governance proposal in the interest of Ethereum decentralization.
I’m super excited about their Atlas release and 8 ETH mini-pools.
These guys know how to ship. They got their LST (Liquid Staking Token) first to market and proved out the space. It’s hard to believe now that the space is so large, but at the time there were questions about whether LSTs made sense at all and whether they would catch on.
If it weren’t for Lido there would be a lot less ETH staked, and almost all of it would be in centralized entities like Binance, Kraken, and Coinbase which would be terrifying.
The team has built the most easy to use liquid staking solution on the market, and have expanded quickly to other chains. They’ve been rewarded with having by far the largest staking ecosystem in crypto.
They’re making many great moves towards more decentralization and it’s clear that they take it seriously. The Lido V2 release looks awesome. In particular the staking router is is a breakthrough and will allow a mix of solo-stakers and DVT nodes.
I also think that their withdrawal queue model is very thoughtful, with a huge amount of research done to make it robust to different possible scenarios.
SteakWise V3 is one of the next-gen staking protocol with some really unique and powerful functionality. In many ways it can be thought of as a meta-staking protocol that allows anyone to create their own Liquid Staking Token and pool.
The team is super innovative and building things the right way with considerations for the mechanics of staking, slashing protection, permissioned and permissionless LSTs and more.
The teams is committed to doing the right thing for the ecosystem. A remarkable example of this is when the StakeWise team found a vulnerability that exposed RocketPool and Lido to potentially millions in losses they worked with their teams to help them identify and resolve the issue. They could have easily done nothing, but they chose to do the right thing.
Their V3 release looks awesome. The concept of many independent staking pools that roll up to a meta LST is incredibly powerful and opens up avenues for collaboration between LST protocols, and allows centralized staking operators (e.g. Blockdaemon) to participate as well.
The team is super smart and hard working, and I’m excited to see where the take the protocol.
Diva Labs is a badass team. They built their own DVT tech to implement a fully permissionless staking protocol from the ground up. I love their uncompromising approach to decentralization.
Node operators only put up a 1 ETH bond in order to run a validator and participate in a key generation ceremony with other operators to create a distributed validator key without any one operator having a full copy. This is a huge win for decentralization and security.
This is a great way to reduce the node operator bond vs. what other protocols requite without compromising on security and decentralization.
I love what the team is doing. They recently raised a financing round and I’m excited to try out the protocol when they launch.
Puffer is unique among staking protocols because they use hardware validator key storage. This is a game changer, and I think eventually this will be the norm for all staking.
Honorable Mentions
Frax isn’t really a staking protocol. It’s a stablecoin protocol at its core, and they’ve recently released a delegated staking mechanism for yield. My understanding is the Frax is currently running the validators, so it’s more of a centralized model like Finoa or Kiln.
Their staking protocol incorporates really innovative tokenomics and yield generation which allows users to generated boosted yields.
The ETHx whitepaper came out recently and it looked really good. There has been some controversy around the protocol so I’d rather stay out of it honestly and so I won’t comment, but I genuinely hope the team keeps building and wish them well.
Looking Ahead
The future of staking for Ethereum is exciting! It’s crazy how much the space has evolved in the last 2 years and I think the next 2 will be just as crazy. A multi-polar world with different flavors of staking will be the best for the ecosystem, I hope there are many success stories.
