Transcript
Speaker: Hello and welcome to the Decrypting Crypto Podcast. It's March 28th, 2024, and this is Off Chain, your weekly recap of the biggest stories in the crypto space. I'm Matthew Howes -Barbie, and I'm here as always with Austin Knight. We had a couple of weeks off, Austin, how you been? Well, I'm hanging in there, Matt. Bitcoin's still up over 70K, ETH is still up over 3K, so I haven't had to sell my house just yet.
Speaker: It's beautiful. It's beautiful. You can keep that garage full of Ferraris for a little while longer. This past week in particular has been seeing up and up. There's a lot of
Speaker: I feel like the ETH space in particular and everything surrounding that's getting a lot of attention now with I feel like the odds of the ETH ETF have been swinging back and forth depending on which narrative we take on. It's certainly
Speaker: I've been pretty vocal on this podcast that I believe will have an ETH ETF, and I did predict we'll have it at the May deadline. I will admit that it's looking less and less likely that happens in May. I still think it's going to happen. I'm sticking with that.
Speaker: The odds are against it with the current push from Gary and the rest of the SEC trying to push kind of the ethos of security notion, even though the CFTC has been pretty clear that it's a commodity in their eyes.
Speaker: We'll see. As long as Big Larry is confident, I'm confident. And that's all I care about. But we've got a couple of things that we're going to dig into today. Doing a bit of a deep dive. So for any of you listening that have either been playing around with, benefiting from, or have just maybe even heard in passing,
Speaker: the huge boom around restaking. We're going to be digging into one protocol that has been kind of carving out an interesting niche for themselves within this space. And that protocol is Pendle. And it's been doing some really innovative stuff in and around
Speaker: restaking and that the wider ecosystem that we're going to dig into. And it's a little bit hard to understand when you first at a glance. So I've been pretty deep down the rabbit hole as won't be a surprise to many people. So I'm going to try and make sense of the madness. And then we're going to talk a little bit more after that.
Speaker: about kind of some of the current state of the regulatory updates, especially through the lens of what the hell the SEC is up to now and some of the updates on Coinbase. So we'll kick things off with a deep dive into Pendle.
Speaker: So I just want to start by saying that a brief disclaimer, have no affiliation to Pendle in any way, shape, or form. This is purely coming through the lens of someone that has been using the protocol, thinks it's interesting, and wanting to talk about it. So now we've got the brief legal disclaimer. Austin, I think our lawyers are happy enough with that, I imagine. And we can dive in. There's no shilling here is the main thing. This is purely from an educational standpoint.
Speaker: So what the hell is Pendle, right? It's a really interesting DeFi protocol. It's not actually new. It's been around for a few years. I remember playing around with it in 2022. That's as far back as I remember playing around with it. Maybe it launched in the end of the last bull cycle in and around that.
Speaker: It has been really growing in popularity during the kind of current liquid restaking boom. If you have no idea what I mean by that, I'm going to explain it briefly. The Pendle token is up. I mean, I looked at this last night. It was up 50 % in seven days. So that's not bad. That's not what I think is interesting about it, but that I think shows the interest in it. But before we dive into Pendle,
Speaker: Let's just explain very briefly the liquid staking beam. I think we're going to do a much deeper dive on this. You've probably heard me talking about re -staking as a whole, but let's just touch on this. So eigenlayer has to be
Speaker: probably the most, and I don't say this lightly, I think it's probably the most anticipated launch in the Ethereum ecosystem since the launch of Ethereum itself. I don't think there's
Speaker: been a bigger moment that's going to come than this. It's set to hit main net in Q3 of this year, maybe Q2, I'm not sure. They're going to be launching their token at the same time, which I think is going to be in its own right, an enormous event. And Eigenlayer is basically leading the charge, arguably created the category in restaking.
Speaker: So what is it? So in a nutshell, what restaking enables is new middleware projects to benefit from the security of the Ethereum validator network
Speaker: without having to worry about building out and, you know, incentivizing their own network of nodes. So they don't need to build out all of this crazy infrastructure, launch a bunch of tokens. Just, they still can launch tokens, but as a new kind of crypto project, I don't need to worry about if I'm building like a layer two roll -up or something that I have to incentivize a load of these like node operators to run their own separate nodes.
Speaker: you can just tap into the existing validator set of the Ethereum network and kind of like, I like to think of this almost like treating Eigenlayer almost like software as a services for like regular startups where you can just, you know, tap into
Speaker: AWS, right, for your cloud services versus building out your own cloud provider. Instead, you're just tapping into Eigenlayer to then be able to kind of pull in the validator set from Ethereum to have economic security of your own chain versus building it all out from scratch, which in itself is kind of a crazy, crazy thing to actually do every single time.
Speaker: So, you know, I'm not going to go into the deep detail of this today, but the net here for the people actually staking via Eigen there. So you can restake your ETH, right? So what this means is if you are already running an ETH validator,
Speaker: you can then point your eth validator to Eigenlayer. And Eigenlayer then controls this. And what you will get in return is that you will earn additional yield on top of like the regular eth staking yield. So I think like eth staking yield is somewhere in the region of like three
Speaker: 3 .5%, probably max right now that validators will get. Eigenlayer will then give some additional yield on top of that, which is paid for by all of these kind of middleware projects, which are known as AVSs and actively validated services, I believe that's called. And they're kind of paying almost like their SaaS subscription fee, their rent fee, and that gets passed on to restakers.
Speaker: All you need to know is this is a big deal, and this is illustrated by the fact that Eigenlayer has accumulated over 12 billion in TVL, and it hasn't even launched yet. So now, Matt, for these for like folks that are listening, is this only for would Eigenlayer only be relevant to folks that are directly staking on the network with the 32 ETH minimum, or if they're staking through
Speaker: a service like Lido, for example, is there some way to layer Eigenlayer on top of that? How does that work? That's a great question. So there's two ways that people can do this, right? And the first way is, yeah, if you're running an Ethereum validator, 32 ETH minimum, and you can point that at Eigenlayer, your withdrawal address, and effectively that's like the simplest way. There's no barriers to stopping you do that. You can do that with as many validators as you like today.
Speaker: Another way of doing this, to your point, is using like a liquid staking token, right? And things like Lido's ST ETH, or Rocketpool's R ETH, or Frax's FRX ETH.
Speaker: And they don't have a 32 ETH minimum. The only thing is, and the caveat here, is that Eigenlayer wanted to try and incentivize more that actual validators would do this versus through an additional layer of liquid restaking tokens. So they put caps on the amount of liquid staking tokens, like Lidostake -Teef, that could actually deposit into Eigenlayer. And they only have like, basically, they increase the cap
Speaker: it maxes out in like a few minutes, and then it's like another month or two before they do this. So yes, the answer is yes, Austin, you can do it via liquid staking tokens, but the opportunity to do that is much more challenging to actually be able to do it.
Speaker: So they've pulled in 12 billion in total volume with, I'm assuming the majority of that being folks that are running a validator with a minimum of 32 ETH directly on the network. So yes and no. So here's why I think this has got really interesting, right? And it's actually perfectly ties in for what you were just asking as well.
Speaker: So I can layer to incentivize getting all of this like value locked in their protocol. And by the way, 12 billion is a huge amount. It'd be like, I think on ETH, I think actually only Lido has more TVL, right? And it's not by much more either. So it'd be like one of the highest TVLs of any kind of protocol anywhere on any blockchain. It's an enormous amount of capital.
Speaker: Now, how do they incentivize this? So they did a couple of things. And then I'll get to my point around that I'm going to talk about with these validators, right? Is they incentivize this because they're not even live yet. So they're not actually able to pass on this additional staking yield because no one's actually technically using eigenlayer on mainnet yet. What they did instead is they've set up a point system. We love point systems.
Speaker: that for the amount of ETH that you are re -staking through Eigenlayer, you earn Eigenpoints, which will, at the time of their launch, translate into Eigen tokens. At what ratio, we have no idea, but it's going to be a big airdrop. Hence, lots of people, myself included, farming these points with validators.
Speaker: Now, it's not, to your point, very easy to run a validator. It, first of all, requires 32 ETH, which is six figures of cache right now. But also, there's the technical component as well, which is not super straightforward.
Speaker: So when staking first arrived on ETH, this was the same challenge. It was like, well, we need all these people running validators. It's like, well, there's a barrier when it comes to economics here. People need to be able to afford 32 ETH. And then they also need the technical knowledge to do it. And there came the likes of Lido that said, hey,
Speaker: We're going to simplify this for you. Deposit any amount of ETH. Don't worry about the 32 ETH. And we will give you a liquid staking token in return. So you have one ETH. You get one staked ETH. And you can deposit that. And yield will accrue into this one staked ETH for you. But you don't need to worry about running validator. And what they're doing in the background, though,
Speaker: They are just, you know, every time they get 32 ETH deposited into Lido, they're spinning up a validator and running it natively. And then they pass on the staking fees, staking rewards to their Lido staked ETH holders and take a little cut of themselves. Now what we're seeing, right, is with restaking,
Speaker: we're seeing liquid restaking platforms appearing, which is basically doing for what Lido did for kind of native eth staking, but for eigenlayer restaking. And this, when you explain it like this, it's like, wait, is this like a giant Ponzi? It's actually a good thing for the network. It is actually a good thing for the network because the only downside to this is, so when you think about like,
Speaker: diversity of validators. Is it a good thing that the majority of validators on the ETH network are ran by Lido? No. Is it a good thing that we have so many validators running on the network and that wouldn't have existed without the likes of Lido and others?
Speaker: Yes, it provides stability and economic security. So now we have re -staking liquid platforms like EtherFi is the biggest. You also have Puffer, Renzo, and a bunch of these others. And what they are doing is kind of a similar thing, but for Eigenlayer. So for example, with EtherFi, you can just deposit any amount of ETH,
Speaker: And what they're doing is they're spinning up eth validators and restaking them via Eigen there for you, but you don't have to worry about the minimum.
Speaker: And here's what's happening, right? So they're gathering billions of dollars in TVL themselves. I think EtherFi has like two or three billion in TVL, which is wild, right? And what they're doing here to incentivize people to do that is they pass on proportionally those Eigen points that you would have gained, but, you know, proportional to your stake of ETH that you've restaked through that.
Speaker: And then they're also offering their own points alongside this, right? So like EtherFi points or PUFA points that when they launched their own token, EtherFi actually recently launched their own token and has been a huge breakout success, massive airdrops that people got.
Speaker: Um, so that, um, there's, they are the first and I think only one in the big liquid restaking sector to actually launch their own token right now. All the others are doing the same thing point system so that people are restaking through them. And ultimately the more, if you stake, the more points you get, the more points you get, the larger the air drop you get. And, you know, if if I as recent air drops, anything to go by, these can be very.
Speaker: very lucrative so that's kind of like that's the re -staking space right now and when we get past all this like point stuff and airdrop stuff right it's like actually just this will what you'll get from re -staking is an additional yield you may go from that three percent native staked eath to closer to maybe six and a half maybe seven percent so you know there's additional stuff that comes into this
Speaker: So, where does Pendle come in? You thought that was confusing. Wait, wait till we get to Pendle. This is where things get real interesting. And this really plays into this whole like, you know, people doing the math of
Speaker: the ETH yield points and what that might mean in terms of potential upside for an airdrop and etc. etc. Pendle has kind of jumped on this liquid restaking token narrative and has provided actually a really pretty cool and interesting way to gain exposure to the restaking frenzy.
Speaker: So there's three kind of ways that they offer this. So they have their yield tokens, YT, principal tokens, known as PT, and then they also have like a liquidity pool between these liquid restaking tokens and the PT version of them, right? So I'm going to start with yield tokens, the YT.
