Two Faces of Staking: Vanilla and Liquid Approaches

First time riding a motorcycle in the city, and I was very scared, and now I'm addicted. I'm riding motorcycles everywhere. I might even buy a helmet, you know, just walk around so people think I'm a motorcycle guy. Anyways, okay. This afternoon we're going to have a debate about liquid staking.

So two phases of staking, vanilla and liquid approaches. And like this morning, we are going to vote again. So be it resolved, liquid staking's risks outweigh its benefits for blockchain networks. So if you can scan the QR code, you can vote. We'll give it about a minute.

We're competing between agree and disagree. 30 more seconds. Okay. As it stands, we have 22 in majority agree that liquid staking's risks outweigh its benefits for blockchain networks. So please join me in a round of applause for our panelists, for Nico, for Nixo, I'm sorry, from eStaker, Dimitri from Lido, and Brian from Ch Nixo, I'm sorry, from Eve Staker, Dimitri from Lido, and Brian from Chorus One, who's the moderator.

All right. Thanks so much. So hey, everyone So, first of all, briefly introducing Nixo. She's the executive director of EVE Stakers. EVE Stakers is a nonprofit that focuses on supporting solo stakers.

So, all those brave souls trying to run an EVE node at home or in their own control. And then Dimitri here, he's worked for Lido. And he's the technical leader of their community staking project. So the resolution that we, or the statement that we're trying to resolve here is liquid staking's risks outweigh its benefits for blockchain networks. I think we have seen there's a small majority who agrees with that statement.

So we want to debate that. Maybe just a little bit of background. When most proof-of-stake networks, right, they basically have delegation. They have a fixed validator set. And then, you know, people just stake with whatever validator they like.

And, of course, that means there's not really much room for people, like, run their own validator at home, that kind of thing. Ethereum always had that philosophy of, hey, we want to have, you know, lots of people run their own validators. And I would say the entire proof of stake design was kind of designed around that. So having no delegation and saying, hey, you can have as many validators as possible every 32 ETH, run a validator. Of course, now a few years later, the situation where we are at is that 40% roughly of ETH stake is either with liquid staking protocols or liquid restaking protocols.

So people have basically built smart contract systems on top to pool ETH together and give you some liquid token. And of course, there's various different reasons for it that we can also get into it, various different benefits. But yeah, so that's, I think, kind of the current status. Of course, there's been lots of kind of the current status. Of course, there's been lots of criticisms of maybe liquid staking in general, although I would say there's probably been more criticism of Lido in particular because of the large size and dominance at Lido's arrived.

I think Lido is something like 70% maybe of the market. Of the liquid staking market, you mean? Well, if you include the restaking too. It's hard to argue. Of a total ETH staked, it is 27.

8%. Yeah, of the total ETH staked. I meant of the liquid staking part. But yeah, yeah. So a little bit under a third at this point.

Indeed. So yeah. So with that, let's go to our opening statements. We can start with, does it say who starts? I don't know.

Let's start with you. Okay. I apologize. I'm going to be reading this. I'm a much better writer than I am a monologuer.

So I wrote this earlier. So solo staking versus liquid staking is an incarnation of an age old problem. It's the principal agent problem. The traditional financial system generally separates those who provide capital and those who manage capital. The fact that this has emerged on Ethereum is unsurprising.

Financial intermediaries make opportunities accessible to a broad set of people and they specialize and study markets in a way that your everyday person can't or doesn't necessarily want to. But they're also made up of humans and investors who are subject to pressure, overconfidence and misaligned incentives. Liquid staking providers are the intermediaries that our financial system has always had. If we want to use blockchain technology to make our existing system more efficient, I know that we can do that. But my hope, and the reason I'm working in Ethereum, is that we can build an entirely different paradigm.

One that doesn't create systemic risk and result in major market crashes every 20 to 30 years. Ethereum, as it's currently designed, has resulted in capital delegation in a way that mirrors the experience of traditional financial middlemen, and I view that as an extension of the problem that Ethereum is trying to solve rather than a feature that needs to be perfected. And to be perfectly clear, I don't think that capital delegation is inherently unmanageable as a positive. I think it can be done in a financial, I think it can be done in a way that financial intermediaries don't create systemic risk or grab at too much power within that system. The question of whether or not those intermediaries can solve their own issues, so like DAO governance issues, resilience within their own protocol, in my opinion is a whole separate issue from what we're going to be talking about today.

That's application layer stuff. I'm hopeful that they will eventually solve these problems, but we shouldn't be putting the base layer of Ethereum at systemic risk of application layer problems regardless of how all that irons out. My ideal is not 100% solo stakers. Obviously that would be great, but that's not the reality. Not everybody can run a validator.

Not everybody has 32E. Even if we significantly decrease the capital requirements of running a validator, still not everybody has stable access to internet, to electricity, not everybody has stable housing, not everybody is even completely interested in running their own validator. And so my ideal is a competitive landscape among liquid staking protocols, a market that's designed to redirect monopoly tendencies and an abstraction of the fragmentation that that would cause, that that situation would cause. And stupid, simple solo staking that makes people want to custody their own funds and decreases the share of liquid staked ETH. Solo staking is not altruistic.

It is the lowest risk form of contributing to the beacon chain, helping secure the beacon chain in a way that earns rewards. You'll always get people who try to leverage up in any risk reward scheme and any risk reward design, but Ethereum itself should be a lean base layer that withstands those risks, not a complex product that embraces it as a defining feature. The result should be a better, more stable economic reality than one that catalyzed the creation of Bitcoin in the first place. I honestly think that all of this is like pretty uncontroversial and we saw that over there. So here's my spicy bit.

Any application that wants to swallow a majority of ETH into a single contract inherently misunderstands the fundamental value of Ethereum to the point of being a danger to it. We've been there and it didn't go well. We need to build Ethereum in a way that makes it impossible or at least highly improbable for a majority of ETH to consolidate into a single application layer protocol. And we have a long way to go in design. And researchers take a huge amount of care in making sure that solo stakers are considered in mechanism design.

And I do believe liquid staking has its place because some people are not going to be able to run a validator no matter what you make the situation. But putting too much emphasis on it only enshrines the old principal agent problem pervasive in the traditional system. Solo staking is what lets Ethereum build new economic paradigms. All right. Let's hear from Dimitri.

Yeah. Cool. Thank you for the intro and thank you for being first because now I have a ground to build on top of. First of all, let's move back to the topic we're discussing. So we are not talking about, like, fundamentals of Ethereum, right?

We are not talking about ideology. We are talking about a pretty real topic. It does benefits. Liquid staking outweighed risks or vice versa. So the thing is that in your arguments, what you're saying is that there's an ideal system.

And I do agree that ideal systems are perfect. I mean, we can imagine that. We design them in mind, and we do that exercise for one single reason. We love to believe in perfect systems. But the problem is, when it comes to implementation, nothing is perfect.

So even if you ever tried to design something, starting from a chair, ending up with the government or a country, you might be obsessed with some perfect idea that would be perfect on paper and in your mind. But when you will need to implement it, you will see that there's a bunch of peculiarities and things and something might go wrong. So instead of talking right now about general ideas, because as a general idea, liquid staking is perfect. Liquid staking allows, brings adoption, allows accessibility, reduces the load on the base layer, can be super beneficial for decentralization. I mean, as a concept, not as a real application, not as a real thing, but as a concept.

And as a concept, there might be like no issues at all. In this concept, there might be multiple liquid staking protocols, like evenly distributed between each other, right? But we live the real life. And that's the biggest shit. Because in real life, we cannot reach the situation when our imagination, what we've imagined, would be true just because we want it to be.

So if we want to force it to be so, it means that we are doing the opposite to what you've mentioned. So you've been saying that there should be no player who holds a lot of power, right? But if you are enforcing the rules of the game, you are the player who holds a lot of power, right? But if you are enforcing the rules of the game, you are the player who holds a lot of power, right? Because otherwise, if you are not enforcing the rules of the game, you should let the market do it so that there would be no major player on the market who has this power.

Otherwise, if you are saying that I will create the market in a way that there would be no major players, it effectively means that would be no major players. It effectively means that you are the major player. So let's move back to the risks and benefits of liquid staking. And what I want to tell you now is that first of all, without liquid staking, without the ability to reuse staking tokens, our current DeFi ecosystem would be like three times less large, or maybe even like five times less large. It works like in a traditional economy when your country, for example, my home country is Russia, and it sells oil.

And some may say, okay, the oil production is only like 20% of the economy. But the thing is that if you remove this oil production, the whole rest of the economy would fail because there's a wave effect when one industry empowers another, another, and another. So liquid staking brings a huge benefit to the whole DeFi ecosystem. It is a fuel for the whole system. And yes, liquid staking done right in a competitive ecosystem is a great thing.

But what I do think is that the base layer itself should always be natural and should not say that we want to benefit this group or that group or someone else. Because otherwise, the base layer would not be natural and it means that the base layer or people behind the base layer are this ultimate control power. So this is my take on liquid staking. Liquid staking is a necessary addition to the vanilla staking. And in the final world, there's no such a thing as liquid staking takes it all or vanilla staking takes it all no there's a balance between all of them for sure and the coolest thing about liquid staking and what i do like the most is that native staking can only be one so if you make any decision on a base layer this is a unique decision like one decision for everyone with liquid staking you can have this beauty of multiple implementations.

One, two, three, four, five, and people can choose. And within liquid staking protocols, you can experiment. So liquid staking protocols, done right, are not only, they are benefits, not only outweigh risks, they do mitigate this risk, they do not create this risk. So yes, for me, benefits of liquid staking protocols do outweigh the risks. Do you want to respond?

So many things. I'll start with the last. There's not only one way to solo stake, there are many, many ways to solo stake, and that is the beauty of Ethereum. We have, I think, 10 or 11 different clients now, and you can stake on Windows. You can stake on Linux.

You can stake on Mac. We have people staking from all sorts of different jurisdictions, and so it's not accurate to say there's only one way to solo stake. I was just saying that there's the only way to solo stake. I said that if you build a base layer and there's a rule on the base layer, this is a single rule for the whole layer. For sure, there's a bunch of different clients and options for solo stake.

And again, I'm not saying that solo staking is bad. I mean, I'm a person who works in LIDAR to bring solo stakers to LIDAR. I do believe that solo staking is an amazing thing, but it's simply unrational to be solo stakers. So that's why we would never see tons of solo stakers. Mm-hmm.

The other one that you said is if you enforce the rules, you're the one with a lot of power. So... Who holds the power? Yeah, if you are enforcing rules and you are saying there should be a rule. Who is you?

Just like you said. You said that it should be done this way. You are probably representing someone, maybe a person, maybe a group of people. I don't know. But who would be enforcing those rules?

Probably developers of Ethereum, right? Developers of Ethereum. Over 200 people who go through the upgrade process, the core dev process. Given that there's no fixed consensus mechanism, so the consensus mechanism for Ethereum development is loosely determined. Some say it is called rough consensus, but for me it's a bit of a dark forest.

So it's hard to argue who is actually making decisions here. Yeah, so I trust that consensus mechanism a lot more than I do layering on top of it a single DAO that usually, I mean, you know, this is my principal issue with DAOs is that most of the time the delegation centralizes into two to five wallets, which is also the case with Lido. And so most decisions end up being made by two to five people. This is not true for sure. And I'm surprised by the fact that you're making claims that you have nothing to support it with.

So you're saying that the majority of votes in LIDAR are concentrated on delegated addresses. But the beauty of DeFi and crypto is that all this data is on chain. You can see on chain that this is not true. So one may say that the quorum value of 5% is probably low. That's what I'm saying.

The quorum is reached by two to five people. So when you reach that quorum... No, that's not what you said, but I'm happy to help you here. But that's what makes the decision. So if 90% of the votes, if 10,000 people vote, but 90% of the vote only belongs to two to five wallets, then that decision was made by two to five people.

It means that the rest preferred to stay abstain. Right, and that is an inherent risk with liquid staking is that most of the people who end up delegating to those delegates are disinterested actors. They throw their money in, they're looking for yield, they don't necessarily pay attention or care what's going on with the chain, and they don't have a long-term view of the chain. Okay, I agree. We have different governance systems, and your personal opinion is that DAO governance is a bad governance, which is fine.

But is it about liquid staking, or is it about DeFi in general? Is there any other form, except for base layer of Ethereum, in DeFi that is governed in the way that you think is feasible? I don't care about application layer stuff. They can do whatever they want. But liquid staking is an application layer.

As long as it doesn't impact the base layer. Because staking does impact the base layer. Especially if all of that stake is being captured into a single contract. So, Nikso, I'm curious. You know, I think you're making a case for the risk of liquid staking.

But what do you think should be done? Like, do you think there should be protocol changes made to Ethereum to somehow, I don't know, minimize liquid staking or maybe minimize the concentration of EIF in single liquid staking protocols? What is your concrete, what changes would you want to see? So it's a big question and one that is definitely not solved. But the first thing that the ecosystem came up with was a soft limit, everybody soft limiting.

And a lot of protocols made this commitment to soft limit, which I will say was an easy commitment for most protocols to make because they were far below the limit that they committed to. Lido did not commit to that, which was a harder decision for them to make because they were already above that limit and it would have taken like drastic action. So I will say that I wouldn't put too much emphasis on a soft limit or people committing to that. But then there are things like correlation penalties that I really like, which correlation penalties are when validators show correlated behavior. So if they all miss the same attestation, they get penalized more heavily.

And the idea of that is to penalize validators that are run by all the same operator. So things like that, things that favor smaller forms of staking. And it's the reason... Correlation penalties wouldn't be an issue for LIDO in the end. Correlation penalties at this point would still be an issue for Lido.

Because of the 1% that many operators... Because in the end, the Lido stake underneath is actually highly distributed, right? They have a lot of operators for, what is it, 1%? 4%? 4% of what absolute numbers each and every node operator is less than 9,000 the largest is less than 9,000 community staking module and the and the dvt module how much of all of lido stake does that make up at the moment around 2% 2 2%.

So 98% of stake is managed by 37 operators. Sure. Yeah, yeah. I guess it depends how far you go in the magnitude of this correlated slashing, right? Because in the end, of course, the real concentration is actually not in LIDL, right?

But it's with Coinbase, Kraken, like all these other entities. Right, exactly. These operators behind Lido. Yeah, absolutely. But like you could imagine doing other things to where contracts, like if everything is in a single contract, that could be a correlation.

And this is like brainstorming. How can it be a correlation? Could you please elaborate on that? If all of it is going to a single contract? Yeah.

Yeah, that's, I mean, that's by definition a correlation. Well, that's a pretty high level definition. But again, we are here in reality. So we are all sitting in this room, is a bit of a correlation. If a meteorite falls right here, we are all dead, right?

But there's only a theoretical possibility of it. So can you speak about more realistic things? So you are saying, and you are arguing for the protocol and the rules of the protocol. So let's take a look at the rules of Ethereum protocol. Let's take a look at the smart contract.

And let's clearly depict what are the risks. And it would be cool if instead of trying to find a weak spot where to push, we will try to stay more objective and do not turn this discussion into shitting on one liquid staking protocol. Again, we are talking about a lot of liquid staking protocols. Okay. In general, my stance, though, is any majority liquid staking protocol.

So I am going to end up picking on Lido just by default. Otherwise, it sounds like I'm sort of abstracting away. But any liquid staking protocol that has a large majority of staked ETH. I know that Lido in particular has said that it has a goal to control a majority of staked ETH and an advisor, so Hasu on a Bankless episode said that a goal of Lido is to see all ETH on being used on Ethereum to be STETH instead of ETH. So like 99% of that would be STETH rather than ETH.

But if you want like concrete, we can talk concrete risks. I think that's a good place to... Let's talk about real things. I mean, here's the audience and we're talk concrete risks. I think that's a good place to...

Let's talk about real things. I mean, here's the audience, and we are talking for them. We are not just arguing with each other to prove who has bigger balls. Right. Yeah, let's...

I think that is a good point, right? So, because you said before, don't put the base layer at risk from sort of problems in the application level, which that's where you put LIDO right in this application level. Like what is, if you just take, let's just take one risk, what do you think is the biggest risk that concerns you with that? Governance. So if LIDO controls all of, if Lido gets to like 90, if we get to 99% staked ETH, which, or even 50, 66% staked ETH, and Lido controls a majority of that, or any staking protocol controls a majority of that, then they suddenly have a bigger say in any governance issue because they control a lot of it.

Who do you mean by that? You've asked me about that. The liquid staking protocol that controls a majority of ETH. The protocol is a bunch of smart contracts. They have no opinion and they do not control anything.

The three to five wallets that control the DAO. Okay, three to five wallets. That's a good thing. Have you heard of DA governance? We can talk about that, yeah.

Sure. So the idea of dual governance is, like, what I want to say, if the discussion turned out to be a discussion about is Lido bad or not, but not about liquid staking, well, I'll take it. And let's talk about what actually is happening with Lido and why the approach when you are simply trying to push, push, push, push harder is actually an effective approach. But people, for some reason, tried not to mention the things that has changed in LIDAR, right? So we can start with the dual governance.

Does it currently exist? It is like three months away from the mainnet. Okay. I thought we were not talking about theoretical things. What do you mean theoretical?

Cool. from the mainnet. Okay, I thought we were not talking about theoretical things. What do you mean theoretical? Cool.

That's a good point. That's a good point because it ruins all your starting speech in which you've said that in the world and so on. So well, it's strange. But this is not a theoretical thing. This is a thing that you can see in the code.

It already exists. And the thing is that to launch something, yeah, you can push and say, oh, here's you have a code, but that's not a thing. This is not real. You should launch it faster. But this is a very important thing.

And you cannot launch a very important thing like you only live once, right? You need to properly test it and do it and this is a long way and in three months you will not have this argument and you guys can maybe laugh again but who knows. So moving back to dual governance, the idea is that yes tokenized governance is not perfect, rough consensus governance is not perfect and for each of these governance mechanisms, there are points that can be improved. And the dual governance is a clear step to improve yet unperfect to the another still unperfect but better governance system, which would involve STE holders, but not in a way that STE holders would vote directly, right? Because it makes no sense.

If LDO holders are not voting that much, why would STE holders vote that much? That's why dual governance is a masterpiece that was designed to do one thing, to allow for one thing for STE holders if they, because they hold ETH, and at the end of the day, if we are talking about each and every one of them being a solo staker, for example, or having an own staking pool, they should have the voice, and the main voice that they have is the ETH that they own. So dual governance would allow each and every S-to-ETH holders exit the protocol before any decision that they do not agree with would be executed. So imagine this governance capture, right? As you mentioned, so some malicious decision comes and as you know from the on-chain governance it cannot be done like in a second unless your protocol is controlled by multisig, which is not the case and never been the case for LIDAR.

So in this case during the period of voting, each and every STE holder would be able to do only one thing. He would be able to say, I'm against it, and I'm willing to exit. And he would be allowed to exit. And this is by far the best addition to the tokenized governance that I've ever seen. And thank you so much again for pointing out that, oh, this is not real yet, but three years, almost three years has already been spent to do it, to make it perfect.

And here we are pretty aligned with Ethereum because each and every update in Ethereum pass through thorough research, testing, and only then implemented, right? So that's exactly what has been done and what is currently at the final stages for dual governance. I look forward to seeing how it works out, and I'm interested to see how it progresses. But again, I think this is a DAO problem, and I don't want necessarily the base layer of Ethereum to be subject to DAOs figuring out exactly how to function in a way that doesn't result in entire treasuries being drained, which we've seen with a lot of DAOs, not Lido, but other DAOs. But say dual governance works perfectly, we have a well-functioning DAO in Lido, and we have a majority of ETH staked in Lido.

Lido then becomes kind of a kingmaker, and this is a real risk that I'm going back to, you asked about real risks. It becomes kind of a kingmaker. So say we have two pieces of software that come in and say I can make staking a lot better. One of them says we're a public good, we're not taking any cut of this, and one of them says we are not a public good, we're a for-profit protocol, we're going to take 15% of anything that moves through us, but we're going to give 14% of it to the Lido DAO in the form of tokens. The Lido DAO, regardless of any internal strife that's happening, is obviously going to want that capital to flow towards Lido.

And if they control a majority of staked ETH, then there can't be any forced diversity because Lido can say, if you don't run our sidecar, if you don't run the protocol that chose us to move a bunch of capital to, then we're going to exit you because post EIP-7002, which is forced execution layer withdrawals, they'll be able to exit anyone who doesn't conform to their validator rules. That's true. That's true. The protocol would be able to do so. This is not only for LIDAR.

But the thing is, again, when we're speaking about risks, it's so funny to see how narrow people are trying to do the picture. Now let's look at the realistic picture. With 7.0.0.

2, what Lido would be able, as a protocol, would be able to do, yes, it would be able to force exit as well as any other protocol controlling withdrawal credentials. But now let's take a look at the real scenario here. So for some reason, someone is saying, oh, Lido is deciding, or not Lido, but imaginary protocol, because I don't think that would ever do that, decides that, okay, you need to run like a malicious sidecar or something like that. And then operators, being independent, do refuse to do that. Let's take a look at the real scenario.

So what's going to happen next? What's going to happen next is these operators, for example, would be forcefully ejected by Lido. The beauty of a blockchain and of the Ethereum ecosystem is that it's all transparent. So the social sentiment would be that Lido, as a protocol, did a bad thing that node operators do not agree with, and they are exiting. So what's going to happen with the market?

The simple thing that's going to happen with the market, people would withdraw. Would withdraw their E. And unlike many other protocols, Lido was the first protocol to enable permissionless withdrawals. What a bummer! How can they do that, right?

If they want to control this huge amount of stake and never let it out. But why did LIDAR protocol enable withdrawals first? And why we are not taking into account the fact that even though the protocol might exit validators, it would take tons of time and it would result basically in what you want, in the reduction of a share. Is there a real risk here? Yes.

I would argue that that is not usually how financial manipulation throughout history and in actual political systems work. I would say that if you tell a validator to run a sidecar or they'll be exited and their livelihood depends on the money that they're getting, that they're going to mostly fold to the pressure. Okay. That's also a good question. And let me explain how curated set in LiDAR was built.

The one that has been so much criticized. Have you ever heard the criteria to get into the curated set, to even get considered as the curated set operator? Please share. Please share. Okay, so the thing is, to be considered, and there's no more onboarding rounds, but previously all 37 operators, before they were onboarded to LIDAR, they were asked if they do have business of their own of a size comparable to a share that they would probably get from LIDAR.

That's the first thing, meaning that their business would be at least split half-half. So even if LIDAR would decide for some reason to exit all of their validators, they would still have at least half of their business. Or if they are bringing some like substantial benefit, like for example validating from Latin America. And they do think that their business would grow as well as their share in Lido would grow. So it means that for none of the curated operators in Lido, this is a question of life or death, because it has been considered before that they do have business on earth and on in first place They would never collude just because of the fact that they do have this business It's like saying okay my I know my friend asks me to cut my left foot Would I do that?

Well, even if you would do that you would have the right food and at the same time Why would you do that? so that's the thing and I would do that you would have the right food. And at the same time, why would you do that? So that's the thing. And I mean, what I want to see, what I really want to see in these discussions is instead of trying to say that all this protocol is just bad, first of all, we should acknowledge that not only Lido, but all of the protocols, I mean not all, but many of the protocols are evolving and trying to solve these issues.

So, yes, we do acknowledge that the issues, the issues, they come not from the liquid staking concept itself mostly, but from the DAO issues, which is a common DeFi problem, which is being tackled. And Lido is on the frontier of tackling this problem, right? With trust minimization, with the distribution, and you've never mentioned the simple fact. So Lido is, as a staking protocol, controls 27.8% of Ethereum stake.

And Lido by far did the best job, I mean, for me personally, the best job, as I think, in terms of decentralizing Ethereum. Because of Lido, we see operators like SenseiNode, for example, getting a significant share of stake, validating from Latin America with not a perfect performance. We see community stakers joining. We see DVT adoption, which is fully driven, not by the centralized exchanges or something like that, no, but in a decentralized way. Lido is the only protocol to purely use DVT with the DKG, with the decentralized key generation ceremony, because most of the other DVT validators are actually running the split key, which means that the key itself might also exist.

So Lido is always on the frontier on improving and helping the base layer. And what is getting instead? It is getting a lot of criticism. But it is good, because this criticism drives Lido better and helps solve these issues. So I can confidently say that right now, the absolute majority of the issues, except for ideological issues about who should hold the control for liquid staking are solved, but the problem of who should hold the control is probably outside the question of liquid staking benefits or problems in general.

It is a particular problem of, I don't maybe you and someone else because for me. It's not a problem But liquid staking in general and lighter in particular Did a great job for base layer and base layer and defy would never be that as it is now Without lighter or light alike protocol, so that's the thing we have to admit cool. Thank you wonderful I think we have time for. Cool, thank you. Wonderful.

I think we have time for a few questions from the audience. Yeah, let's do here. If Lido is really aligned with Ethereum, how come other ETH can't vote in Lido governance? How come either ETH? Like regular ETH that's not with LiquidState.

I think, if I understand the question, How come either ETH... Like regular ETH that's not with LiquidStake. I think, if I understand the question, is in the dual governance, right, you have staked ETH being able to vote, so why shouldn't any ETH holder be able to vote? Yeah, that's a good question. The answer is pretty simple.

Since it is a question of what's going to happen with the protocol that controls steth as a protocol, why should other eth, which is not locked and not involved in the protocol, vote for someone else eth? It's like a mechanism when you lock something, so you lock your eth, you delegate it to the protocol, you get steth in return, and you get the ability to say no and exit. But that's it. You do not have the power to decide or to vote directly because it would make no sense. I think you're right that there is a difference, and the difference is that there's a difference in incentives.

There are different incentives being in liquid staking than being in the rest of the Ethereum network. There's not a perfect alignment. There's a difference in incentives. That's why other ETH doesn't vote in light of governance. Okay, let me ask you a quick question in return.

When you're deciding which t-shirt you want to buy, should you ask me about that? Depends what I want with the t-shirt. No, like in general. When you're buying a t-shirt, should I have the shirt? If you're my friend and the t-shirt says, Dimitri is an asshole, I should probably ask you if you're cool if I wear that shirt.

No, so the thing is, in general, I'll move back. In general, when you're buying a t-shirt, should I have the right to express my opinion and to have a weight? If I'm in community with you and I care about your opinion, then I'll certainly ask your opinion. Because I care how my actions impact you. But if you're a stranger and I don't care and I want to ignore your opinion, then I probably won't ask you.

Okay, that's a good point. So, speaking of dual governance and the concept of a dual governance, STE is a sub-community of Ethereum. And given that it is not contradictory to being, like, it's okay to be a sub-community, right? So, and how this sub-community would go where it would go should be decided by the members of sub-community because the rest for them are technically strangers. I'm not attacking the idea of DAOs having internal governance.

What I'm saying is just the fact that it works this way shows there are differences in incentives, being in liquid stating versus the broader protocol. That's all I'm saying. Yeah, indeed true. That's why STE holders do not have a right to, I don't know, whatever you want to call it. Well, that's a pretty strange question for me, again.

Lido as a protocol is a protocol, and that's what I said. And why should members outside the protocol should have, why should holders have the ability to vote for Bitcoin roadmap? Yeah, let's see. Anyone else want to ask a question? so let's say we get to this point where 99 of Eve is st on Lido because if you are a market actor and as it's been said on bankless podcast this should be the goal and let's say it happens but let's say this dual governance works very well and so on wouldn't that basically turn ethereum into a dow if all ethereum right now ethereum is governed by rough consensus and i trust 200 ef researchers that they care about long-term goals.

And I trust that Lido also thinks about long-term goals, but I don't think every actor in Lido thinks about long-term goals, and I think the more capital is there, the more extractive actions would be, just like in Old House we've seen so far. So I'm wondering how do you plan to backstop it or protect Lido from these kind of consequences? Okay, thank you for the question. Even though we are not talking about imaginary things, right? But let's imagine.

That's a good thing. So, let's imagine the case when 99% is staked with Lido. Which would basically mean with the concept of dual governance, each and every ST Eve holder would have a share and a set in stone right to vote on what should happen with the protocol and we can say that effectively vote for what should happen with Ethereum. So how it is different from the picture that we have right now. Right now we have a picture where there's 200 developers have the ultimate rule to decide and Eve holders are not involved at all.

So no one asks EVE holders, right? And in this situation, this 200 developers, including DAO members, plus DAO members, plus anyone else, would have to do something with the ability of EVE holders to express their opinion. So theoretically speaking, the situation might get even better because starting from that point, Eve holders will have the direct power, right? Which they don't have right now. And do you think it's a good thing?

To allow each and every one to have the vote right? Yes, it's a good thing. And if these people just want to... Let's say these are like Goldman Sachs guys that just want to extract as much money. They don't care about Ethereum at all.

They have, let's say, $600 billion or whatever amount they want to have. They just want to extract value. Because I trust that EF researchers care about the Tyrian because they could have Created their chain raise hundred million dollars pretty easily, I guess but they don't do it because they care about each area more than money But there are people out there who care more about money than a tyrian most of them I would say in the world so how would you and I'm not saying that you cannot protect it. I really, I'm genuinely curious how could you protect Lido against these kind of attacks? I think, I mean, I think your question is not about protecting Lido.

And if you are saying that in the case when each and every ETH holder will have the ability to vote, the majority of the voters would be Goldman Sachs, it means that we are in trouble in terms of distribution of ETH. Everyone can buy ETH, right? Yeah, but if someone else would like to sell it. So if you end up with the majority of ETH being held by Goldman Sachs, it means that the distribution of Ethereum itself is done in a way that is not perfect, that is not democratic. And in this case, I believe that they will have much more ways and opportunities to influence even the opinions of the Ethereum Foundation if they are indeed holding half of ETH.

But the beauty of ETH is that no one is holding half of ETH. And if each and every one will have the right to vote, it will be some form of a democracy representation. Maybe a weird form, but I don't think that it would be worse than what it is right now. It would be different, but it would still be fine because each and every ETH holder will have the right to vote, which is at the end of the day beneficial and outweighs all these arguments about the DAO holders because DAO holders would basically, LDO holders would basically have no power in this case with the dual governance. Cool.

Thank you. So I think it's time we can go to our closing remarks. And I would say this time we let Dimitri go first. Okay. Thank you.

So as we've seen over the discussion, and even though, again, the discussion was about, was meant to be about more general things, it turned out to be a discussion about a particular protocol, which is reasonable because Lido, indeed, is by far the largest and probably the most representative case of liquid staking. And if we take a closer look right now at LIDO and say that since LIDO is the largest protocol, it means that it's the best representation. Well, I do think so. And I do think that this is one of the best representations. And if we look at the real benefits and risks.

So let's start with the benefits. The benefits are as follows. LIDO is the only protocol at scale that promotes decentralization and there's no point where you can say that decentralization is enough. That's why LIDO decentralization, decentralization of the LIDO validator set is getting better and better and better and better every day and there's no point where someone would say okay that's enough let's stop here. So LIDO LDO holders support those decisions.

LIDO contributors, including me, do our best to act upon those decisions. In terms of DeFi adoption, if you will take a look at the amount of DeFi protocols, of SDEs involved in DeFi, you will see that this is a significant piece. And at the end of the day, what we are saying is that adoption is critical for crypto, right? It is very hard to get people involved because people do think that crypto is a scam. Well, STE, as a liquid staking token, is definitely not a scam and a sustainable fuel for DeFi, one of the pillars on which the rest of the DeFi is built on top.

LIDAR as a protocol facilitates the operational load on the base layer. So once the consolidation, this EAP7251 will go live. LIDAR contributors will do their best to implement the support. And then I believe LDO holders would vote to support this particular decision because they already voted for GOOS, which includes it as a general direction. Same goes for many other EIPs.

Same goes for handling exit requests on the protocol level, on the application layer instead of a base protocol layer, so reducing the log. And these are only a few benefits. Now let's talk about risks. Yeah, there's the risk of a lot of ETH being concentrated. But I think the solution here, saying that, okay, we will say that, okay, let's self-limit.

And this is not a solution, to be fair. Not because I don't want to self-limit, but because if some protocol or some group of, I don't know, products is that popular that you ask them, hey, self-limit, you will end up with Sybils. You will end up with three protocols effectively controlled by the same, so it would make no sense. What can be done better here, and what is done better, is consistent improvements. And this DAO risk is mitigated by dual governance.

The smart contract risk is mitigated by thorough audits, by unseen approach to security. So even facing all this pressure, all this social pressure from the base layer, which I don't think that should exist to that extent, even with all that said, Lido is making Ethereum better and doing their best as a protocol to improve as a protocol to become better itself. So again, liquid staking makes staking more accessible. It's a fuel for DeFi. It's a crucial thing.

It's that necessary support for base layer of Ethereum. And for sure, I'm not saying, like, my personal opinion is that there should be no, like, single protocol controlling, like, 99% of ETH. For me personally, it's probably too radical, but I cannot say on behalf of DAO. I can only say on behalf of myself, Dmitry. So for me, benefits of liquid staking and benefits of LIDAR as a particular example of liquid staking do outweigh the risks because the main thing LIDAR-DOW is doing is mitigating this risk and it will keep doing it.

And that's what I wanted to say. Thank you. All right. So we get to our very final bit, the response, our final closing remarks. Sure.

I just, I want to say that I agree with the, with the idea that, that soft governance like that or soft regulation like that ends up getting sybbled. And one of my favorite examples is in the U.S. AT&T had one of the longest standing monopolies in history. And it was also one of the biggest, one of the most recent significant antitrust suits that was ever filed, and it broke them up into what we call the baby bells, and the baby bells are essentially an oligopoly that ends up having the same effect that AT&T as a monopoly had.

So I agree with that. It's just a bandaid. That is coming from the old system, a way to like mitigate while we find an encode solution for those kinds of things. But I guess closing remarks is that I hope that we can find ways to mitigate the idea that people do want to delegate their ETH. People don't necessarily want to be totally involved in governance decisions or run their own validators.

But we can, as time goes on, make running a validator, setting up a validator, troubleshooting a validator easier and easier to hopefully some end where people prefer to custody their own ETH rather than throw it into a liquid staking protocol that gets their delegated power. I do agree with you. I mean, the only problem here is that running a validator is not that logical. But I do think, I do agree that if you can run your own validator, if you have your own 32 ETH and you're ready to tackle all these issues with help of ETH staker and with help of Lido contributors because we basically work together. That's the best solution.

Do you have anything else for your closing remarks? No, I think I'm good. Okay, fantastic. Then thanks so much to both of you guys. So yeah, I think this was really great, very heated on both sides, clear positions taken.

So yeah, I think now we get to the voting. What a spicy debate. Thank you so much. Let's vote. So again, be it resolved, liquid staking risks outweigh its benefits for blockchain networks.

To reiterate, at the beginning of the debate, we had 23 voting in the agree category. We had 18 in disagree and six abstain. So yeah, menti.com and code 1506 9469. There it is.

Thank you. I'll give it, you know, 30 more seconds. More votes coming in. Oh, my God. It's like the U.

S. presidential election. What's going to happen? Now we need to check polymarket. Holy shit.

So much less stressful. You know what's best? Is that the number of abstained votes is lower than at the beginning. And at the end of the day, that's the main goal. Yeah.

All right, let's call it there. We have 32 in the agree category, 23 in the disagree category. So this is pretty much the same ratio? This is basically the same, yes. We changed three people's minds in the abstain category.

Thank you so much everyone for such a great debate. Thank you. Thanks.