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The Future of Restaking with Mike Silagadze from EtherFi
239 Plays9 months ago
We do a deep dive into the latest major theme in the crypto space: Restaking.
We bring in Mike Silagadze, CEO of EtherFi to break down what restaking is and why it's such an important innovation for the Ethereum ecosystem and beyond. We talk about the more than $700m of TVL that EtherFi has gained in the past few weeks and what's next.
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Transcript
Introduction to Restaking
00:00:11
Speaker
Hello and welcome to the Decrypting Crypto Podcast. I'm Matthew Howes-Barbie, and today we have a really exciting episode. We're digging into the wonderful world of restaking.
What is EtherFi's Role in Restaking?
00:00:22
Speaker
We've got Mike, the CEO, over at EtherFi, the protocol that has
00:00:27
Speaker
got over $770 million worth of ETH already locked up inside its protocol that they are natively restaking through Eigenlayer. So you may have heard a little bit about Eigenlayer, maybe a little bit about the whole restaking hype, liquid restaking tokens and everything surrounding it. Well,
00:00:55
Speaker
we decided we would do a bit of a deep dive into this whole space. And what better person than Mike to chat us through all of this. They are leading the way really in the restaking space. They have by far and away the most restaked ETH since kind of this, I guess like really started to,
00:01:19
Speaker
kind of really come to be a popular narrative since the end of last year. And the many different restaking protocols that have appeared since with the varying like points programs, which, you know, has created a bit of a feeding frenzy so far.
Restaking's Impact on Ethereum
00:01:38
Speaker
So we talk a bit about what ethify is, we dig into restaking as a whole, the problem it's solving, how ABSs will work, can we get into a tiny bit of the technical pieces here but we don't go too deep but I think you'll come away from this episode having a pretty good understanding of
00:02:02
Speaker
the actual problem that restaking is solving at the kind of protocol level, all the way through to what the value is for users, for stakers. And really, this is a pivotal moment in the timeline of Ethereum. And Mike explains it as kind of rewriting or adding some additional rules of physics to the world of Ethereum.
00:02:30
Speaker
you know, restaking in itself is inevitable. And make no mistake, this is not the yield farming Ponzi world of the DeFi summer period that we had. This is really very much different and is a huge value add for the entire Ethereum ecosystem and beyond.
Who is Mike from EtherFi?
00:02:54
Speaker
So without further ado, let's dig straight into the interview with Mike now.
00:03:07
Speaker
Mike, welcome to the podcast. It's a pleasure to have you here. We're really excited with all of the hype that's happening right now around Eigenlayer restaking and
00:03:19
Speaker
What seems to be now the leader of the pack, so to speak, from by all means nearly every metric there is, EtherFi. So why don't we start the conversation with just maybe you give us a high level explainer of what EtherFi is, kind of the mission you're on, and a bit about the journey so far. For sure, yeah. First of all, thanks for having me here. I always love to chat about crypto and EtherFi specifically.
00:03:47
Speaker
So the basic idea of EtherFi is it is a next generation liquid staking protocol. And the two things that make it unique is that it is much more strongly non-custodial where stakers hold their keys than other protocols.
00:04:02
Speaker
And the second thing is it is natively restaked. So it's the it was the first natively restaked staking token. And it is you know it's very widely integrated and DeFi on protocols like gravitas, silo, morpho, you know, curve, balancer, maverick, etc, etc.
00:04:21
Speaker
And so it's just very useful. It's super easy and gives users exposure to the restaking ecosystem, which has been receiving an incredible wild amount of hype over the last little while.
Understanding Staking and Restaking
00:04:34
Speaker
That's right. And maybe for just everyone listening, you could give a very brief explainer on, you know, when you mentioned that you were the first to, or at least one of the first to, to natively restate kind of what that means and how that's different from maybe like, uh, using like a liquid staking, uh, token. Yeah. Is it, is it worth actually doing like a two second thing on, uh, what restating is as well? Yeah, that let's let's do it.
00:05:03
Speaker
Okay. All right. I'll actually start with staking, and then we'll go to restaking, and then we'll go to native restaking. It's just the Tower of Babel abstractions. Staking on Ethereum is conceptually pretty straightforward.
00:05:23
Speaker
You deposit 32 ETH in a special contract called the Beacon Chain Deposit Contract, and that gives you the right to run an Ethereum validator, which is basically a server that processes transactions on the Ethereum blockchain. In exchange for doing that, which today is I think around $70,000 worth of ETH, so you lock up this $70,000 worth of ETH,
00:05:46
Speaker
In exchange for doing that, you get to
How Does Restaking Secure Ethereum?
00:05:48
Speaker
run this validator and earn fees. So you get fees that are just programmatic as part of the validator duties, but also a share of transaction fees that users pay. So it is this sort of really kind of beautiful self-regulating system that creates a mechanism whereby the people running the network are incentivized to make sure it's healthy.
00:06:13
Speaker
Now, the drawback, I guess, if you could call it that, of staking is, you know, you lock up 32 ETH. That's $70,000, a lot of dollars. So what one might want to do is to lock up that ETH and get a receipt for it.
00:06:32
Speaker
or more like a deposit certificate that you can then use in other DeFi protocols. So you lock up this 32 ETH, you get your receipt token, and then you can go and borrow against it. You can trade it. You can do all kinds of great things that you'd want to do.
00:06:48
Speaker
um, in, uh, in DeFi so that it, you know, you, um, ultimately it allows you to make use of those, uh, those assets and play further out on the risk curve than just sort of a risk period. So that's, that's staking and that's liquid staking. Liquid staking is that receipt token. So there are, you know, the, the OG staking protocols, liquid staking protocols are LIDO and rocket pool where you just deposited your, they accumulated in a pool, spun up validators, and then gave users these receipt tokens that are,
00:07:17
Speaker
very widely traded on Ethereum. Lido's got over $20 billion of ETH in it. It's the largest DeFi category. So restaking is taking it up a notch. Basically, what if instead of just securing Ethereum,
00:07:35
Speaker
and running a validator, validating service on Ethereum, you could use that same deposit, that same $70,000 deposit to run validators or to validate other services. Maybe other blockchains, maybe Oracle networks, maybe data availability layers or any number of different services. And in exchange, now you're not just earning fees from Ethereum, but you're earning fees from these other
00:08:02
Speaker
Services that you are validating and that is
Native vs Non-Native Restaking
00:08:05
Speaker
restaking. So it becomes this
00:08:08
Speaker
You can think of it in a way as rehypothecation. So it becomes this way of rehypothecating your Ethereum potentially to an arbitrary nth degree. You can potentially be validating 100 different services and subject to the slashing, the risk rules associated with those services. And in exchange, you're taking on much more risk, but you're also earning much more reward. That's the basic idea of restaking everyone's
00:08:36
Speaker
gone out of their mind with excitement about this concept and EtherFi, you know, my company was the first liquid restaking protocol. And so that's now that has, you know, that's a multi-billion dollar category in D5. That is a fantastic explainer. And I completely agree, people are absolutely losing their mind. And, you know, talking about
00:09:05
Speaker
EtherFi being a leader, I mean, I'm just looking right now is around about a kind of current ETH dollar value, $787 million worth of value staked through EtherFi. Yeah. 331,000 ETH. Last time I checked, it was like 700 and now, yeah, I mean, it's going up very, very fast. Yeah. Well, and I think, you know, I remember when
00:09:34
Speaker
And we did an episode about this a couple of years ago around when, you know, liquid staking tokens, and you mentioned Lido and Rocket Pool came on the scene. They serve many purposes, right? But I think one of the things that for a lot of the average users found very useful was, you know, running a validator is, as you mentioned, a big capital outlay, but it's also, you know, can be
00:10:01
Speaker
If you're not particularly technically minded, you combine the potential risk of, you know, losing some of, or all of that ETH with maybe you're not that confident in actually running the hardware of a validator. It's a bit of a daunting task. Yeah. And you know, like Lido and Co, they came on the scene, they were like, Hey,
00:10:23
Speaker
Don't worry, click the button, deposit the ETH, and you don't need to worry about this. And it feels like that's where this new wave has come in with Eigenlayer, which feels for the average user, even another level of technical kind of understanding required to grasp this. And the likes of EtherFi and others in the space are, again, simplifying that for the end user.
00:10:51
Speaker
And I wanted to understand, because when we look at the current space of these liquid restaking protocols, if we like, you made a very conscious decision where you would take in ETH, you convert that into your liquid restaking token, I think maybe is the correct term, in eETH, and you would natively restake
00:11:20
Speaker
into Eigenlayer, running validate as I assume yourself in through Eigenlayer with the if that you take in from users. Other protocols in this restaking space have taken a slightly different approach to this. And I wanted to just understand why you chose that route over others.
00:11:40
Speaker
So there's a, what sounds like a subtle difference between different ways of restaking on eigenlayer, but it's actually a very important difference. The two ways of restaking on eigenlayer are native restaking and non-native restaking.
00:11:58
Speaker
The difference between those, if you don't know what restaking is or you're not very versed in this universe, this probably will sound so obscure and pedantic, but it's important, believe it or not. Native restaking is when you spin up your validator, if you recall, I said you
00:12:19
Speaker
Deposit 32 ETH in this magical beacon chain deposit contract, and in exchange you register this validator. Well, when you do that, you also specify what are called your withdrawal credentials, the withdrawal address that the ETH will come back to when you want to unstake it. So let's say you staked a bunch of ETH, you're running a validator, and then you're kind of, okay, I'm done, I've run the validator, I'm good.
00:12:45
Speaker
and you want to get your EAF back, you un-stake it and it will come back to these withdrawal credentials that you specify when you first staked your EAF. Well, with native restaking, the way you open up the Ethereum trust layer and create what's called this programmable slashing logic to allow you to validate other services is by setting the withdrawal credentials on your validators
00:13:11
Speaker
to a special series of smart contracts created by Eigenlayer. So you set them to these restaking contracts that have this programmable slashing logic implemented in them. That's native restaking. And the benefit of this is there's a security guarantee that you've provided this ETH, it lives in the beacon chain contract, it's tied to a specific validator that you're running
00:13:38
Speaker
And that validator either directly runs the restaking service, like maybe it runs another blockchain client or whatever else, or that validator delegates that operation to someone else. But there's like a direct tie-in between, you know, whoever staked to the validator to the restaked services.
00:13:58
Speaker
kind of look at the original restaking paper. This was the idea. This is how it was meant to work. So another way to do it, I guess one could say simplify the process is instead of having to spin up a validator and point these withdrawal credentials and have all this logic about managing fees and flashing and all that, you can just basically take a pooled approach and simply deposit a whole bunch of tokens into a liquidity pool.
00:14:28
Speaker
And it could be any number of tokens. You could say it could be LIDAS-SE, I mean, in theory it could be USBC, it could be any token into this pool. And then you create a bunch of slashing logic around that pool and delegate the right to slash that pool to a bunch of node operators that run these restaking services.
00:14:53
Speaker
Now, again, it sounds similar, I suppose, in that like, look, in the end, you have a server, it's running a bunch of clients, it's validating some other service, if it misbehaves, it slashes, you know, a bunch of collateral. That's like, that is the common element. But the uncommon element is, are the security guarantees, and the direct attribute ability of the ether security collateral that's being put up for these other
00:15:22
Speaker
services. So, specifically, the security guarantees, in the case of native restaking, the protocol that is doing the restaking and the eigenlayer contracts don't actually hold the ETH. The ETH is living effectively on the beacon chain because it's in the special deposit contract. And so, if we get hacked as Etherfire, eigenlayer gets hacked, that ETH is actually not at risk, meaningfully.
00:15:52
Speaker
I won't go into the weeds of how it might be. For the most part, you can say that ETH is not at risk. So there's a stronger security guarantee around native restaking, which is really valuable because if you have another blockchain that's worth, you know, $10 billion and you're using ETH to secure that blockchain, you really want to have strong security guarantees. Like that's an important thing. You don't want
Challenges and Successes of EtherFi's Protocol
00:16:15
Speaker
the risk that like some contract on Ethereum gets hacked and suddenly, you know, your blockchain doesn't have a security
00:16:21
Speaker
mechanism.
00:16:23
Speaker
So that's one thing. And then the other thing is what you're missing is attributable. Because in the case of natively re-sticked ETH, you can directly say, this ETH belongs to this validator, which is running this service by this node operator. And there's a direct chain of relationships such that there's skin in the game. That's the value that you get out of it is the node operator has a direct tie-in to someone who has skin in the game to make sure that the services are being performed correctly in that same way that Ethereum does.
00:16:53
Speaker
Whereas if you just have a large pool of kind of tokens, uh, the challenge there is, you know, as a, as a person that deposits into this pool, you're more or less just selecting a random node operator to run a service. That node operator does not have direct skin of the game in making sure that that service has been run very well, which ultimately what that means is you are then relying on the reputation or risk that the node operator is taking.
00:17:19
Speaker
And so that becomes actually a centralizing force because you're likely to choose really one of a handful of very large node operators because you want them to have as much reputational risk as possible to ensure that they're not putting your collateral at risk. So native restaking is much more complicated because to create a wrapper contract around
00:17:41
Speaker
just a random token deposit into a large pool is very easy. It's like a hundred lines of code and you can ship it. You can get that done in a day. Creating a native restaking protocol is much more complex. I think our code base is getting close to 10,000 lines of solidity, which in the context of solidity is a lot. You're spending $150,000
00:18:08
Speaker
uh, minimum auditing that every time you, you know, you do a change. So it's, uh, it's, it's quite, uh, like it's a, it's a serious code base. It's, it's much more complex, but creates a better product. And so we chose to do the harder thing and create a better product. And I think that is one of the reasons we've, um, been able to be successful is because I, hopefully that, uh, that translate into, into a better brand and stronger, you know, reputation as a result.
00:18:37
Speaker
Yeah, I think from someone from the outside looking in, it certainly feels that way. And I think for a lot of people, I think even people that have been in the space for a long time and that would consider themselves to be quite technical,
00:18:57
Speaker
restaking was a lot to get your head around. And I think in particular, because, you know, I think conceptually makes a ton of sense, but there are still just a lot of unknowns. I think it's important that we call out, right? I can layer hasn't even done. It's like main net launch. There's a lot more fun to come when, when we go live here and the understanding the risk, you know, I think back to again, when it was pre restaking and we just had liquid staking tokens in the form of largely like.
00:19:27
Speaker
the lidos, the rocket pulls, the fracks and others, right? And even then, there was still a lot of unknown risk. And we saw many times like some of these tokens prior to the beacon chain going live and just relying on, you know, curve pulls, them getting way out of whack and, you know, some of the curve pulls getting drained and all of a sudden your liquid staking token is like way off peg with Eve and people are panicking, right? And I think like we're,
00:19:56
Speaker
We're not at that level, but we're at that kind of stage, I would say, right? Like we're waiting for the go live. So, um, I like the way you break it down and I think, yeah, you know, there's less layers to the onion. When I look at, um, uh, for, for ethify, the purest way is going to be obviously natively restaking yourself on Eigen layer. Right. But I would say for a lot of people, that's probably not even the right kind of play here.
00:20:23
Speaker
Yeah, there's a lot of reasons why that is the case.
Future of Hardware and AVS in Restaking
00:20:27
Speaker
I mean, we think that it's, we think solo staking is very, very important. We've been, almost since the day we launched, we've been focused on ensuring solo staking was a big part of our protocol, which is where individuals like in their houses, in their offices, you know, are running these Ethereum nodes, rather than like, you know, a million servers running in an Amazon beta center in Virginia.
00:20:50
Speaker
So that is something we prioritize from day one. That's going to be harder with the restaking, much harder because first of all, you might need a bigger machine, right? If you're using some restaking service that, you know, provides an AI coprocessor thing to Ethereum, like you need a GPU, maybe multiple GPUs, like
00:21:10
Speaker
It gets pretty, pretty serious. Well, this is something I think is really interesting and that I don't actually hear a whole lot of, right? You know, everyone's so focused on the classic and crypto, the monetary aspect, right? You know, how much yield am I going to be generating? Like what are the different ways to like farm points, et cetera? We actually get back to, and I want to dig in a little bit into, you know,
00:21:37
Speaker
What, what is the problem that I can layer solving and digging into like, uh, like AVS is and things like that. But when the thing that, uh, kind of struck me a little bit here is, you know, for an ETH validator, it's like relatively pretty much a standard piece of tech that historically you've needed to, to run an ETH validator. You have intentionally. Exactly. Exactly. You don't need these crazy like GPUs, like, like proof of work type stuff, but actually.
00:22:06
Speaker
Things were going to change quite a lot with this, depending on how you position yourself to support the varying AVSes, like you mentioned. You may be supporting AVSes that are very, yeah, like you say, GPU intensive or require a huge amount of storage, right? Or otherwise. And I think this is going to create a really interesting dynamic, but maybe we can look at this from that view.
00:22:31
Speaker
If we just take a quick step back away from the user of EtherFi and maybe go back to, what are we actually solving here? Could you dig in a little bit into what an AVS, an actively validated service, actually is? And what is the, what does EtherFi actually, I'm sorry, what is Eigenlayer solving in the first place?
00:22:53
Speaker
Yeah, so, you know, it's always, you know, it's probably better for folks to go look up the eigenlayer team talking about this stuff. I probably don't, you know, don't fully do it justice. But let me start with almost like a, you know, around that way of explaining it. You know, in Ethereum, you have a certain actually, let me let me take an even further step back with Bitcoin. Bitcoin launched and had
00:23:21
Speaker
Bitcoin script, which is a programming language baked into Bitcoin that allows you to create basically encumbrances upon Bitcoin that you send out. It's a very limited programming language. It's not Turing complete as it's described. And so that makes Bitcoin a very simple, arguably a very robust
00:23:45
Speaker
system, you know, you can send Bitcoin to somebody and then you can receive it. And that's pretty much it. That's doesn't do much, much more than that. Ethereum took this, you know, this idea, which was really hinted at in the in the original Bitcoin white paper and said, OK, well, why don't we extend Bitcoin script and make it a whole like programming language, which eventually became Solidity. And so Bitcoin said, OK, well, we're going to keep track of state.
00:24:12
Speaker
We're going to have a full programming language and execution layer that processes transactions and records state changes. And it's a much, much more complex system, but it gave birth to this so-called infinite garden of applications that are on Ethereum. So that's pretty cool, right? That's a natural extension. But one of the decisions that very consciously was made in Ethereum was to have
00:24:38
Speaker
a limited and very specific set of rules about the slashing conditions that relate to running validators on Ethereum. So those slashing conditions are basically like, what are the laws? What are the laws of physics in Ethereum? Which is to say like, what can you do and what can you not do? And what are the punishments if you do the wrong thing? So if you go offline, if you
00:25:04
Speaker
double sign a block, et cetera. Like what are the penalties associated with that? And those slashing conditions are fixed. That is, it's part of the protocol. It's big thing. You're not supposed to mess with it. And what restaking does is say, well, look, what if we could create arbitrary programmable
00:25:22
Speaker
slashing conditions, and you could add slashing rules to Ethereum, thereby extending or allowing you to extend the Ethereum trust layer to other services. So there is an analogy here of going from Bitcoin to Ethereum as Ethereum going from
00:25:41
Speaker
staking to restaking because it really is, it opens up something that was previously fixed and set in stone and makes it programmable. So that's, there's a natural progression here. I would even further say that like restaking is an absolutely inevitable thing that comes out of proof of stake.
Evolution and Cost-Reduction via Restaking
00:26:02
Speaker
There's really no way you can avoid it unless, even if you tried to fight it, honestly, I think it'd be very hard to avoid it.
00:26:09
Speaker
So it is a natural kind of thing. Um, so what, but then let's go back to the question you asked, which is, well, okay, great. You can do this now. You've like, now you can rewrite the laws of physics. Um, that's not quite true, but let's just, you know, for the sake of argument, well, you can't, you know, you can't rewrite the Ethereum laws of physics. You can add new laws of physics. That's, I guess maybe that's a better analogy.
00:26:35
Speaker
So, Greg, you created this whole programmable system. What can you do with it? Well, there's a number of examples. Like, let's say you're trying to create a new blockchain. You want to launch this blockchain, but it requires you to raise a bunch of capital, maybe have an ecosystem fund, get people to build stuff on the blockchain in advance of you actually launching it to create some value in the system.
00:27:01
Speaker
such that when you launch your token, there's a trade that's some non-zero value. And that token then becomes the security mechanism for your blockchain. And furthermore, then, as the blockchain is getting bootstrapped, you have to just keep incentivizing people to continue staking your token. And so you end up having to spend a lot of your token.
00:27:26
Speaker
um uh through inflationary emissions this is what pretty much every blockchain almost every blockchain that's launched recently has done its salon is doing it uh every every blockchain per state that's launched does this they they bootstrap their network
00:27:40
Speaker
They raise sometimes hundreds, millions, billions of dollars. And then they have huge amounts of emissions. I think Solana is doing hundreds of millions of dollars a year of emissions to incentivize node operators to lock up the Solana tokens, which effectively dilutes everybody else. So that's fine, right? That works. Blockchains are great. And it is a viable way to launch. But what if you could borrow Ethereum's security?
00:28:10
Speaker
and you could pay instead of spending 15% emissions a year of your token, you could instead spend 1% emissions, pick an arbitrary number, and just borrow the security of Ethereum, because Ethereum, Ether is super valuable. People are probably willing to lend it to you, because really slashing is quite rare. Slashing certainly on Ethereum is almost non-existent. So if you have a similarly well-designed and secure blockchain, you could save a lot of money
00:28:40
Speaker
and not have to raise billions of dollars and spend billions of dollars in emissions every year in order to bootstrap your network. You can still have your own token that serves the same purposes, but you can sort of borrow Ethereum security to do that. And that's one example. Other examples would be things that just whatever services you have that you normally would want to have a security budget to ensure those services are
00:29:10
Speaker
are robust, you can basically directly pay for the Ethereum network security rather than bootstrapping your own network. So for example, Chainlink is one example where they have an Oracle network and they've invested probably, at this point, probably billions of dollars in developing this tech and network. Obviously, there's a lot of value in that, but one could imagine a similar type of service being bootstrapped just off of the security of the
00:29:38
Speaker
Ether token without having to create your own set of node operators and blockchain network, et cetera, et cetera. Which in itself can be an enormous distraction, I imagine, when you're already trying to solve a really complex problem, right? Exactly. The first and most common use case right now around restaking is data availability services.
Role of Restaking in Ethereum's Block Space
00:30:07
Speaker
identity is going to be the first restaking service, which, you know, more or less what it does is it reduces the price of block space and makes it a lot cheaper and faster. So higher throughput to be able to write to the Ethereum blockchain with a high guarantees of
00:30:24
Speaker
of security, specifically used by rollups. So now you can spin up rollup chains that sort of live on top of Ethereum and borrow Ethereum's security. And you can do that very cheaply instead of spending millions of dollars a month on gas fees, you could spend maybe hundreds of dollars a month on gas fees as a rollup.
00:30:52
Speaker
This is great. And so, and I think what is going to be really exciting, I mean, data availability is like flavor of the month at the moment, I
Future Competitors and Challenges for Restaking
00:31:00
Speaker
think, right? Because it is such an acute issue that we're facing on Ethereum, especially as we get into these periods of like much increased activity, it just is heightened. I think it's like, you can kind of hold me honest here, but somewhere in the region of like 90% of the fees that rollups pay is in data available. That's right.
00:31:19
Speaker
So it's a huge thing and it's why we're also seeing other kind of modular chains like Celestia also trying to solve these similar problems outside of this are getting a ton of hype. But I think that we're going to see a whole kind of wide range of these AVSs, right, which are going to be secured via Eigenlayer and
00:31:45
Speaker
I don't know, maybe other competitors to eigenlayer in the future. I think that's a realistic outcome as well, which is gonna be really exciting. I guess, what are the risks that you kind of have top of mind when we start to really get, let's say,
00:32:09
Speaker
12 months from now, maybe 18 months from now, what are the things that when you're looking back maybe in 18 months time, what do you think are probably some of the more common or most likely things that could potentially, I don't want to necessarily say go wrong or like what could be the bumps in the road that you foresee happening here?
00:32:33
Speaker
And are you specifically asking about the risks associated with restaking or more like the restaking ecosystem? I guess maybe a bit broader. I think the ecosystem, because I think it is, while there are, I see your point, right? It's very distinctly different because, you know, similar to how we saw the yield farming frenzy, there was layers that came to that. Everything from like the more conservative just, you know, curve all the way through to, you know,
00:33:03
Speaker
food coins that were like getting farmed in their masses. But maybe if we just take a look at the ecosystem, because I think that's ultimately what probably the whole, this area, this new stage in kind of the blockchain growth will be judged on, I guess. What's top of mind for you, especially someone building in the ecosystem? Yeah, I think, I mean, there's so much, I think,
00:33:36
Speaker
I'm trying to think of how to exactly frame this. Most of the time when an area gets way, way ahead of itself and gets overhyped, and I describe restaking certainly as a category like that, where there's been a frenzy, a frenzy of speculative activity around it.
00:34:02
Speaker
before, way before any value, any direct value has been demonstrated. And that's usually bad. And so what we're seeing now is, you know, I think like three or three and a half billion dollars of ETH has been restaked. And I think if you talk to the average person who is doing this stuff and ask them like, well, there's a lot of things I guess they're expecting around that. But if you said, well, what do you think the yields are going to be?
00:34:31
Speaker
on your asset, I don't think any of them are going to say, well, I think like two or three basis points is what I'm really hoping for. That's probably what it's going to be for a long time. You have $3 billion of assets. There's no products for now. And it'll probably be years before any products generate any kind of fees or revenue. And so people are going to be sitting with a lot of tokens locked up. And it's going to be very difficult to live up to the hype.
00:35:00
Speaker
The only source of yield, I guess you could say, is going to be senior age. It's going to be emissions. People are going to just start emitting their tokens at this thing. But that tends to run out pretty fast. I mean, it could literally be months before like, wow, all these random projects are just a little bit like V5 Summer, as you say. That actually runs out pretty quickly.
00:35:27
Speaker
Um, I think there is going to be an inevitable, absolutely inevitable, uh, trough of disillusionment where, uh, you know, the, the, the promise and the hype was so high. And it just, it's impossible to live up to it. There's just, it is physically not possible to live up to this level of height. And it'll probably take years, um, to, uh, like to come out of that trough and eventually start really, uh, you know, delivering on some of that promise. I think, um,
00:35:57
Speaker
Yeah, so I think we're, I don't even know if we're at the peak yet. Maybe the peak is a few months away, but there's going to be a peak and a trough and then a slow, gradual return to reality and recovery. I think that's, I mean, that is what it is. We're certainly thinking about it and planning around it.
00:36:20
Speaker
But I think people that are not planning around it and are just thinking, yeah, the mania will last forever are going to be in a lot of trouble, like businesses or projects that don't have cash flows and revenue stream are going to be in trouble eventually.
Trends and Predictions for ETH Staking
00:36:39
Speaker
Yeah, and I think, you know, there's this like self-fulfilling prophecy that's actually, there's almost a level of irony here where I think this has been an enormous catalyst for bringing a much larger portion of the kind of circulating ETH
00:36:55
Speaker
to be staked as a result. And as we see more and more of that ETH being staked, you know, the overall validated rewards will be distributed across a much broader spectrum of validators. And we're kind of seeing this in ETH validated rewards gradually kind of going down over time. And it kind of feels like, you know, until we get, like you say, a bunch of these like protocols running up and like these AVS spin-up that generate a ton of fees that
00:37:22
Speaker
are then going to bring back some of the kind of staking kind of yields for certainly on ETH. It is going to take quite a while. I think people are going to be looking back to, was it 2022 where we, you know, we were in and around the 5% to 6% range for just natively staking ETH, you know, those days are long gone. And I think restaking is the only way that we get
00:37:48
Speaker
to those levels. It's going to be super excited.
EtherFi’s Future Directions and Community Engagement
00:37:54
Speaker
I know that you have a lot planned. I want to be really conscious of your time, Mike. I think this has been really amazing to dig into.
00:38:04
Speaker
And I think everyone in the space is excited in particular about what you're all building. Where's the best place that people can learn a little bit more about EtherFi and what you're all doing around restaking? Yes, our name is our URL. So go to ether.fi and you can learn a lot more there. From a use case standpoint, it's a very easy product to use.
00:38:34
Speaker
Um, but, uh, uh, you know, there's, there's a lot more you could do with, uh, either fight, uh, out there.
00:38:42
Speaker
Excellent. Well, Mike, we'd love to have you back in a few months because I know as we get in and out of kind of the initial frenzy, I'm sure there's a lot more plans that you'll be able to kind of share publicly. It seems like of all the kind of the teams building in the space, there's like an announcement almost daily, especially on the DeFi side of things, which have been really, really cool to see already.
00:39:08
Speaker
Yeah, certainly from my side, we'll be rooting for you. And yeah, thanks again for your time. Sounds great. Yeah, really enjoyed the conversation.
00:39:37
Speaker
The contents of the Decrypting Crypto podcast should not be used and are not intended as investment advice. Please do your own due diligence before making any investment, cryptocurrency or otherwise.