Future of ETH Staking: How Institutions Can Preserve Decentralization | Will, Ken & Will Mougayar

All right. So for our first panel of this afternoon session, we're going to be talking about the future of east staking, how institutions can preserve decentralization. Please welcome to the stage Steven Pac from Rockolid, Ken Smith from Rocketpool, Will Shannon from Lido, and our moderator, William Mugayar from the Ethereum Market Research Center. Round of applause.

Is this on? Yes, it's on.

Great. So, uh, I'm William Mugay. I've been, uh, in the space for a long time. My current project is a new book called Trust Shift, Ethereum, and the reinvention of trust. So, about this panel, uh, we're standing at a critical crossroad for Ethereum.

Traditional finance has arrived uh with billions of dollars in capital, but let's be honest, Wall Street loves efficiency and yield. Uh but Ethereum depends on continued decentralization. So the question is not whether institutions will stake because they will. The question is whether their capital would or could centralize the network. and if we can build the infrastructure to make them participants in this decentralization.

So to tackle this topic we have three key players in the in the field. Uh first we have uh Lido representing scale and liquidity. They are the incumbent the largest player and uh they are currently navigating the space becoming more modular. Uh we have Rock Solid uh who has uh structured DeFi products like the looped vaults they're going to talk about that institutions demand and prefer. And we have defending the grassroots of Ethereum next block solutions, champions of the solo staker movement and arming everyday users with what they need to do to uh keep the layer permissionless and decentralized.

So with that introduction, I'm going to ask each one of the panelists to u say something very quick about themselves and the projects that they are involved with. Yes.

Hey everyone. So I'm Will Shannon. Uh I'm the head of node operator mechanisms and a contributor to the Lido DAO. Uh Lido is the leading liquid staking protocol with over 9 million E staked. Um Lido serves both institutions and general DTY users uh via ST which is a liquid staking token.

Um and looking forward to the discussion.

And uh good afternoon everyone. I'm Ken Smith. I'm a home node operator with RocketPool. Rocketpool is a liquid staking token. It also allows individuals to run their own node and stake other people's ETH.

Uh currently represents about 2% of the network right now.

And hi Steve Pack, co-founder of RockSolid. Rocksolid Vaults offer singleclick access to the best of DeFi. Uh the reason we're here, we're kind of a layer on top of these guys to heap help make those LSTs that are important to Ethereum's decentralization more productive and give more opportunity to the holders.

Great. So let's be brutally honest. Do institutions really care about Ethereum's decentralization or is it just a marketing buzzword for them? And the question is, if they only care about yields and risk, how do you financially incentivize them to choose decentralized protocols over the centralized ones? For example,

I can kick off. Um, so I think that institutions don't wake up caring about decentralization in the same way that like the community has uh over the last years, right? Um, I think that that will likely end up being a bit of an issue to be honest. Uh, given the way that state concentration is going to in many cases a small group of node operators. Um, but in terms of the incentive to use decentralized protocols, I I think that they're aware that this at at some point will become an issue.

The the key really is having the best product, right? And that's what institutions actually need. They need security. Um, and very very importantly, they need liquidity. And that's been a missing piece in staking.

Um, so Lido is the most liquid liquid staking token. Um, and we're seeing success with institutions. So in November, uh, Wisdom Tree launched an ETP in Europe. Uh, and so that's 100% staked with LTO STE. Um, and soon after that, VANC actually filed an S1 in the US, uh, to launch an ST based ETF.

And so um there are certain institutions that are going to want to work with single node operators. Lidto's new product uh V3 sort of solves that issue. But in general it's it's quite tricky because there's a lot of incentive for them to work with single node operators where they have full control um and really can customize things uh in a different way uh than historically working with a liquid staking protocol kind of looks like.

Yeah. Yeah, I mean I I definitely think if they're not paying attention to the need to have decentralized node operations, they really should, right? I mean, if you think about it, ultimately they've made an investment in Ethereum, right? And one of the core principles of Ethereum, uh, you know, besides credible neutrality is permissionless and decentralization, right? And so at some point if you come in being the heavy hitter and you start uh in investing in ETH and holding ETH and staking ETH and you do it in a more centralized operation, you start to rock the boat a little bit more and all of a sudden the core principle you brought into may no longer be holding true.

So, um, whether or not they're factoring that in right now in their early exploration of their their use cases of Ethereum, that I don't know, but I think it's c it's something certainly they should be paying attention to and beginning to ask that question.

I don't I don't think they care about the word decentralization, but I think they do care about credible neutrality, right? If you're a corporation and you choose to, you know, do finance on a public blockchain, you care very much that your assets can't be seized and that the operation of that chain can't be compromised, right? So they are implicitly very much buying into decentralization or they use another chain or a private chain. So I think like they clearly care about it but if you have a profit motive to do something against decentralization like you're in this kind of prisoners dilemma. So I think if we saw again a single entity come close enough to being able to control Ethereum then either the the system would self-heal in terms of like large large operators might start to move their stake around or the protocol would have to respond on on the base layer.

So, how would you characterize the market right now in a nutshell? Compare 2025 to 2026. And uh I'd like to know, do you know what percentage of staking is actually institutional? Uh can we tell? I mean, are you are you going there to sell them?

Are they coming to you? Uh what's the pitch? Um because they they like to go where there's the least resistance. uh and and if you can talk about are there any misconceptions for example that you have to overcome.

Um so in terms of the the percentage of the network uh that's staked that's held by Ethereum I don't have like a a full clean answer. What I can say is Bitmine is I believe owns about 4% of all Ethereum at this point. Um they're deploying all of it into staking. Um there is uh like a lot of room to come right. Black Rockck hasn't started staking.

The other like large ETF providers haven't started staking. there are institutions active on it on Ethereum staking today. Um I think it's probably in the low double digits if I had to to kind of guess. We don't have the exact uh like information of like ST holders for example. Um but I think it's increasing as a percentage.

Yeah. And in Rocketpole we don't really track you know who owns or holds the liquid token at the end. I think it would be interesting to start exploring that area right to see if there is a way to try to put a um a quantification on it and I think it's going to be even more interesting as you know institutions and kind of their corporate reporting requirements come and they have to start disclosing their investments and holding you know perhaps we'll be able to extract it from there from companies that have self-disclosed which tokens they're holding. Yeah, I think just the fact there's been millions of ETH bought by DAT, you know, over the past 18 months and a bunch of that's getting staked, it's clear that as a proportion, the institutional stake is growing. Definitely.

Is the fact that the staking yields are becoming are compressing? Is is that an issue? And um is the fact that the uh the exit cues are are long uh is is that an issue? Is that a constraint? Um, and can you talk about that and any competitive dynamics between the node operators and and the the the protocols themselves?

I can maybe take the the yield part like definitely that's that's where uh you know we're seeing demand where there's a certain type of entity that says like two to two to 3% staking rewards is enough and I'm and I'm happy with that with my risk profile. There's definitely, you know, another type of entity and and and these are becoming more common that says and actually I I need I need more than that. I want more than that and I want to look at DeFi, but hey, I'm not a I'm not a DeFi expert. So, like, you know, I I need um something like a vault to provide me this sort of professionally managed entry into DeFi. So, you know, as yields go down, like that there is definitely a a pressure, you know, for for entities to to get into DeFi that way.

But still, it often starts at the base layer. It often starts, you know, with LSTs. But are are you the ones to push them towards DeFi or

uh pull pull is always more successful if if they come to ask but like it's a longunning process right it takes time it takes entities time to get up to speed on what's available what the risks are you know and how to approach it. Yeah, and I I I think one thing I just to correct like right now and so it's interesting in staking dynamics, right? uh Ethereum the base layer has a Q and a a validator Q and it goes both ways both if you have ETH and you want to you want to stake it on the beacon chain there's a Q and if you want to leave the beacon chain there's a queue and it limits the amount of um you know validation that can leave and join at any time and so right now we're actually uh there's no one leaving the execute is probably only an hour or something at most right uh but right now the entry queue is long I think it's like 90 days or more right I mean it's two months plus Right. And it's quite significant. So to me that says there's a lot more people with ETH that want to get in and stake that ETH, right?

Um you know, and so this is going to be interesting. And I think I think the question is really going to come up when um you know what what came up in kind of the core devs or some of the the EF presentations is is Ethereum paying too much for its security, right? Should they reduce even further the issuance rate for staking? Right? And you know and you could see and so this is where the ar the you know this is where the real interesting argument I think is going to be in institutions.

Will they come up in into the presentations and really press harder to continue to extract value from Ethereum by arguing for increasing or maintaining the issuance rate or will they take a a lower rate? I I don't know. It's gonna be interesting. It will be um I definitely think you need uh a large security budget for a like primitive and protocol that should like control like uh you know like secure trillions of dollars of value. And so I think issuance is important.

I I think like let me combine like maybe the the second part of your last question in terms of like where we are in terms of state of the market with yields, right? And so um last year like institutions started to like I think understand what Ethereum is. uh there was big changes in regulation before that much of the focus was on Bitcoin and Bitcoin only um and and 2026 really is the year of like adoption and execution from an institutional staking perspective and that's despite the fact and and it's also causing the fact that issuance is decreasing right the more ETH is staked uh the issuance rate like decreases as a result of that and so I I think today institutions are starting to get comfortable like okay we want to own Ethereum and if you want to own Ethereum you most likely should probably be staked and and doing that in a way where you can have liquidity whether it's with Lido or Rocket Pool or another option makes a lot of sense and then you can layer in um like as you get like more comfort right you layer in um different mechanisms higher up the the risk curve and that's what what the guys at Rockolid kind of can can help you do

I saw you nodding I don't know if it was an appro approval or disapproval to the previous comment

yeah just the question of like the the issuance selfishly talking my own book

let's talk about that

I mean it's a it's it's much easier to sell Ethereum as an ecosystem to sell ETHbased products to sell D5 products that have you know these LSTs as primitives if the if the the staking rate is higher like simple as that so in terms of helping us increase demand for our products and Ethereum's product issuance is good you know the EF um obviously have a different set of you know priorities and that's why there's this beautiful push and pull in in this ecosystem

what would you like to see what's what's the

selfishly I don't want to see it decrease like but um you know I don't know what the optimal number is.

Yeah I don't I don't know the optimal number to it's debated right and I think it will be continue to debate it. I I you know I think the core thing no matter no matter if we're an institution coming in where we're a home home validator an active participant in Ethereum ultimately you you want the best healthy network of Ethereum right and I think the the right answer is whatever whatever issuance for Ethereum is right for Ethereum that's the number that we should get to now how do we get to it and determine it I don't know I mean obviously the LST protocols Rockpool and Lido it's more attractive to generate interest and have people mint the liquid saking token when the rates are higher, right? Um, but is is the rate right now set correctly? Is it too high? Is it too little?

I don't know. But I know in the next meeting or in the next kind of conversation that they have on it, it's going to be probably one-third uh, you know, uh, Ethereum. It's going to be one-third institutional representatives and it's going to be one-third aenic people uh, arguing one way or the other on the uh, on the issuance rate. If you want a credibly neutral and decentralized protocol, you need sufficient infl um um like inflation and incentive to support homestakers to like wake up, decide to set up nodes, run validators, and do that in a way where they are like excited to go through all of the pain of setting it up. And like yes, it can be fairly easy, but it's not that easy for most people.

And so it's really important to strike that balance of making sure that there's still very good incentive for a significant portion of the network to be run uh by people that want to run validators themselves at home. Okay, let's talk a bit more about DeFi again. Um, because we have smart contract vaults that I think rock solid have that it kind of abstracts the underlying node operator from the depositors. Uh, the the question is c can we talk about the difference between a staking infrastructure vault and a yield strategy vault? a bit technical but still can any of you or all of you explain the difference?

I can take the yield one and maybe Will can do the the staking one. So yeah, yolt yield vault is simply you deposit an asset that might be ETH, it might be R E, it might be staked ETH and then the smart contract deploys that to one or more D5 protocols. And so you know there's traditional things like incentive farming um like leverage looping like liquidity provision. you know, increasingly on chain there are more options like real world assets um you know all sorts of different sources of yield. So a yield vault basically abstracts that not just abstract staking but abstracts all of the the sort of um you know strategies from a from a user

but but it also introduces the smart contract risk, right?

Yes, it does. Yeah, it's a different set of risk. It's a different set of trade-offs. That's why the the yield is higher, right? And that's why everyone kind of has to choose choose their point on the on the risk curve and we try and tailor our products to to meet where we think the market is and and and others others do do the same.

Um but we'll all have a take on the staking vault which is kind of new.

Yeah. So infrastructure staking vaults are really like the centerpiece of Lido's latest upgrade which is V3. Um we call them SD vaults and and these are basically like a new mechanism that allow for stakers to just choose the node operator that they want to stake with in sort of like a segregated instance. And so this serves a lot of different use cases and it's it's very customizable as compared to staking with LTO core for example. Um so today if you're an institution uh you may want to work with a specific node operator where you sign a contract you have an SLA there's certain expectations and you know in the past like maybe you didn't want to stake with a decentralized protocol um because you want to have someone to pick up the phone and like have like answer questions if something goes wrong.

Um the cool thing with SD Vaults is you're then able to mint STE against the locked uh collateral position which is your ETH deposit. And so you get all these benefits of using an LST, but your own assets are still segregated. They're not co-mingled in a broader deposit pool. And so this is really just staking infrastructure, but it's very composable. And so you can build DeFi products on top of that by minting an STE, for example, and doing leverage staking or or whatever else you want to do in DeFi.

So it it really sits like the level below where the strategy vaults are. But the strategy vaults can plug and play with the infrastructure vaults. But at its basic level, like it's just another form of staking. Okay, let's talk about um compliance and regulation. Um do you think there might be a scenario where uh there will be some pressure to force u the protocols to adopt a KYC style uh permissioned permissioned validator set and and is is that a a threat?

uh does it fracture Ethereum's neutrality in some sense or comment about regulation and compliance uh and what are you watching what are the risks and so on

yeah I I mean I actually think the the worst is behind us in terms of staking regulation like the you know the the SEC was famously very vague about what their opinion was and now it's you know they don't they don't seem concerned about staking like it I can't remember the name of the term but it kind of said, okay. Um, but I think the the the more important thing is like even if that were to be true, even if there was to be an extremely hostile regime in multiple countries, um, how how is Ethereum positioned to respond? And the great answer is very well because anyone with an internet connection who can acquire 32 ETH can run the network and decentralize the network and that's why Ethereum is amazing. That's why Rocketpool, you know, is amazing. That's why CSM serves the purpose.

So yeah, I I think that that is one of the biggest benefits of Ethereum that it can defend against like that sort of regulatory attack.

Yeah. No, I mean I mean certainly here in the US I think the the optimism and the forwardlooking uh prospect of having very beneficial and very clear regulatory rules and laws coming is is looking very favorable. Right. I know there's still some challenges with the Clarity Act, but it does seem like there's still discussions and movement forward there. You know, but one one of the things I think that will help maybe alleviate some of that is the decentralization, right?

I mean I think you know if I go if I go back 20 years 30 years to the you know the formation of the internet there was a lot of concern about just internet traffic and what would what would happen to internet service providers and would they have to do KYC and would they have to like look at every transaction and pack it and you know I think ultimately the government found that okay well if it was decentralized and it was an open public good and uh utility and it wasn't um it you know it wasn't just owned by single corporations and so forth or a conglomerate of corporations that it was much more viewing it as you know freedom of speech or freedom of internet right and I and I think eventually that's that's one of the advantages that Ethereum has is it can make that claim right now and that's why I think if a you know an institutional investor is here you know watching this or on the live stream right they should kind of factor that into their decisions and kind of not uh you know kind of not uh mess mess with that. Yeah, I think like one really nice like sign for optimism, right, is we now have a listed product that that went through approval um using Lido and Lido has over 700 node operators. The community staking module, which is the permissionless part of the protocol, is now the largest permissionless staking protocol, like share of a protocol on Ethereum. It's the biggest. Um, and you know, you have these traditional finance players that went do did due diligence, understand that there's 700 different participants of this protocol.

a lot of them are just like single people and you know like that is trading on European exchanges and and hopefully also on American exchanges too too. So I think that there is like good sign for optimism that you know Ethereum is what it is and you don't want to necessarily change that.

Great. So let's fast forward let's say to 2030 four years from now uh assuming that there's going to be a lot of institutional money that dominates Ethereum staking. Maybe you say yes or no, I don't know. But what would be the question is what would be the one specific metric um that we should look at to be able to say that yeah we successfully preserved Ethereum's decentralization even though there is a lot of institutional staking. Yeah, I think I think one of the key thing is you know there should be some you know I'll call it self-imposed or maybe a standard right there should be no single node operator or entity of node operators right rocketpool included and they should they should limit themselves to some maximum capacity of the network right I know this was a discussion a couple years ago about you know how how big is too big for the health of the network and I would I would hope that there would be kind of like a you know I call it a principles of community right I mean it I Corporations in America really, I think, have adopted certain causes.

Environmentalism, uh, recycling, green, renewable energy, right? And it's become kind of a a core ethos of part of that business. And I hope that some of the principles of Ethereum as they begin to invest in that also become part of their core ethos for it. So, I'd like to see more of those standards and um you know, core principles actually being adopted by corporations instead of them just seeing it as a financial investment like a commodity they're investing in.

I think the number of like geodiverse and independent entities running validators is extremely important. Um and so if large institutions stake with five node operators, I think we're in big trouble. if they work with protocols like Lido and Rocketpool and like spread that stake across a large number of node operators, I think it's really like a much better scenario. Um, I can say that like I think one of the most underdisussed things in Ethereum staking is actually like how the large node operators that participate in both Lido and Rocket Pool and the liquid collective and they run uh validators for individuals are basically all the same companies and like it's one of the tricky things but like protocols like Lido and Rockpool also at least distribute stake to other people and that's very very important. Yeah, I think the number is the like the number of individual entities that are running validators.

And the thing is right now because it's permissionless, it's anonymous and it can be sibbled like there is no way to actually count that truly. But I'm actually optimistic like as ZK becomes more mainstream, as um Ethereum gets more into ZK, like maybe there is a point in the future where this is a concern enough to say all right, we are going to give small individuals the way to do proof of personhood in a way that people smarter than me figure out that it's not sibilable and then Ethereum can actually, you know, like either put an incentive in place or restrictions in place to ensure that that those number that number doesn't go down and I think that would be super powerful.

Great. Okay, last question, 20 second answer and then we can wrap it up. Uh, give me one concrete prediction for the staking market that will happen, something that will happen by the end of this year. So, one prediction 20 seconds, end of this year, there will be more ETH staked this year than there was last year. There will be more uh staked ETH deposited into DeFi than there were this year than there was last year.

And a large percentage will go through vaults. Uh, my prediction is that by the end of the year, at least 30% of the newly staked ETH on RocketPool will be staked by Agent Tech AI.

I like that one. That's pretty cool. I I think mine's more negative actually. I think I think by the end of this year, we will start to see a backlash on the institutional staking concentration. I think it's really really been out of focus.

Decentralization has gone out of the narrative in the last year and a half and like there's a lot of chasing yield. Uh but at a certain point like the staking layer centralization across the ETFs, the DATs is something that's going to have to have people wake up.

Great. So Agentic uh vaults and some form of backlash. On that note, we going to end the panel. Thanks everybody to uh for having been been here and thanks to the audience.

Thanks for having us. See you later.