Key Takeaways

      1. Liquid staking unlocks value and increases accessibility and liquidity in the blockchain ecosystem, enabling users to earn rewards on staked assets, participate in governance, and access DeFi services. It also helps in reducing barriers to entry for smaller stakers.
      2. For liquid staking to reach its full potential, industry leaders must collaborate, share knowledge, and establish standard practices.
      3. Addressing centralization risks is critical for a secure and decentralized liquid staking environment. Stakeholders must promote solo staking, build multi-cloud and multi-region infrastructure, and diversify across clients to minimize single points of failure and reduce the likelihood of network-wide outages.
      4. Governance structures, smart contracts, and DAOs are pivotal in the liquid staking ecosystem. Dual governance, where both token holders and stakers have a say in decision-making, can help prevent unilateral decisions that could undermine the stability of a blockchain system. Immutable smart contracts and transparent DAOs can further enhance trust and reduce risks associated with human intervention.
      5. Institutions are increasingly embracing liquid staking solutions, recognizing the benefits of decentralized governance and the ability to participate in decision-making. However, addressing risks related to smart contracts and finding ways to minimize governance footprints will be crucial for broader institutional adoption.
      6. Innovation and research in liquid staking continue to drive the development of new solutions and improvements, including the implementation of dual governance and the possibility of fully immutable smart contracts. This progress will ensure the continued growth and resilience of the liquid staking ecosystem.

      In a recent panel discussion during the Staking Rewards Institutional Ethereum Staking Forum, liquid staking experts convened to discuss the future of liquid staking and its challenges. The panel featured Konstantin Lomashuk from Lido DAO, Darren Langley from Rocket Pool, Mohak Agarwal from StakeWise, Mara Schmiedt from Alluvial Finance, and Mike Silagardze from Jordan Sutcliffe from Stakewise moderated the panel. The conversation sprouted several insights on various topics, including the advantages of liquid staking, potential risks, and the future of decentralized governance. In this article, we will dive into the key insights and takeaways from the conversation, highlighting the valuable perspectives shared by each panelist.

      If you like conversations like these, check out our biggest Staking Summit yet. On November 10th, 2023, we’re hosting a 2-day summit in Istanbul. Don’t miss out; early-bird tickets are going fast. Learn more here.

      The Value Proposition of Liquid Staking

      Liquid staking has emerged as a critical innovation in the DeFi ecosystem, offering increased accessibility, flexibility, and opportunity for users. The panelists shared their thoughts on the benefits of liquid staking and its potential to revolutionize the DeFi space.

      Darren Langley from Rocket Pool believes liquid staking removes barriers to entry by eliminating minimum staking requirements and asset lockups. He explained, “The main value proposition of liquid staking is that it allows users to access the staking returns without the lockup and minimum staking requirements.” This democratization of access to staking rewards opens up opportunities for smaller investors who may not have the capital to meet traditional staking requirements.

      Mike Silagadze from emphasized the role of liquid staking in attracting more users to the DeFi ecosystem. He said, “Liquid staking is going to be absolutely critical to Ethereum’s future because it’s going to bring the masses into the ecosystem.” By providing a more accessible and flexible staking experience, liquid staking can help drive mass adoption of decentralized finance.

      Another advantage of liquid staking is the increased capital efficiency it provides. Konstantin Lomashuk from Lido pointed out that liquid staking tokens can be used as collateral in other DeFi protocols, allowing users to leverage their staked assets in multiple ways. He stated, “The main thing about liquid staking is the capital efficiency. It allows you to use the staked assets in other DeFi protocols and earn additional yield.”

      Furthermore, Mohak Agarwal from ClayStack emphasized the importance of composability in the DeFi ecosystem, which is enhanced by liquid staking. He explained, “One of the best things about Ethereum is its composability. Liquid staking allows you to build on top of staked assets, which is very powerful.” This ability to seamlessly integrate staked assets into various DeFi applications can foster innovation and unlock new possibilities for users.

      Mara Schmiedt from Alluvial also touched on the potential for liquid staking to address the issue of centralization in staking. By giving users more control over their staking decisions, liquid staking can help distribute validator power more evenly across the network. She said, “I think liquid staking can be a key driver of further decentralization on Ethereum, and I think it’s going to be an essential component to look at.”

      The value proposition of liquid staking lies in its ability to democratize access to staking rewards, increase capital efficiency, enhance composability, and potentially drive further decentralization in the Ethereum ecosystem.

      The Challenges and Risks Associated with Liquid Staking

      Despite its numerous advantages, liquid staking also faces challenges and risks that must be addressed. One significant concern is the potential for centralizing staking pools and the infrastructure supporting them.

      Darren Langley from Rocket Pool shared his thoughts on how liquid staking pools might inadvertently lead to centralization if they become too large or if too few pools dominate the market. He said, “I think one of the potential risks of liquid staking is that it could lead to a concentration of power if you have too few large liquid staking pools. So, it’s essential to have multiple providers and options for users.”

      Mike Silagadze from echoed this sentiment, pointing out the risks of relying on cloud providers for infrastructure. He referred to the recent shutdown of Hener, a cloud provider that banned crypto staking, which caused significant disruption to the Ethereum and Solana networks. Silagadze said, “I think these risks are underplayed. I mean, the Hener example is a good one. One thing I like to point out frequently is something like a third of all ETH nodes are operating in a single data center building.”

      Silagadze highlighted the importance of solo staking as a way to mitigate these risks and promote decentralization, “Solo staking is a massive mitigation for that risk. And, you know, we’re also a huge supporter of that.”

      Another challenge associated with liquid staking is the potential for smart contract and governance risks. As long as there is a possibility for vulnerabilities or mismanagement in the underlying smart contracts and governance structures, liquid staking pools can also face risks.

      Mike Silagadze touched on the ideal scenario of having immutable contracts that cannot be tampered with. He said, “I would dream of a time when there doesn’t need to be a DAO, you know when you just trust the contract because it’s been audited, and you know what it’s going to do so that you don’t need to worry about a DAO passing a vote that causes harm.”

      In response to concerns about centralization and infrastructure risks, the panelists discussed possible solutions and best practices to build more resilient and decentralized systems.

      Mara Schmiedt from Alluvial emphasized the need to actively reduce single points of failure across the entire infrastructure stack. She said, “You can look at any modular part of the stack component as something that can create a risk of single source failures. So whether that is cloud provider concentration, the concentration of a single client being operated, a single provider being utilized.”

      Schmiedt explained the importance of adopting a multi-faceted approach to building a robust infrastructure, including multi-cloud resiliency, multi-region spread, and client diversification. She said, “I’ve been thinking about, and I know this panel has contributed tremendously in the space, is thinking about these parameters as ways to mitigate or reduce single point of failure correlation actively.”

      The panelists emphasized the need for collaboration, resilience, and ongoing innovation to ensure the continued growth and success of the liquid staking ecosystem. By addressing the challenges and risks associated with liquid staking, the industry can continue to drive decentralization and unlock new opportunities for users and stakeholders alike.

      The Role of DAOs and Governance in Liquid Staking

      Another key topic discussed by the panelists was the role of DAOs and governance in liquid staking. The speakers emphasized the importance of striking a balance between centralized control and decentralized decision-making and the need to establish standards and best practices for DAOs and governance structures.

      Mike Silagadze from spoke about the potential benefits of DAOs and governance in mitigating risks and ensuring the ecosystem’s overall health. He said, “Having DAOs and governance and votes and dual voting structure, I think, is really good and hopefully does become a standard.”

      Silagadze also mentioned the ultimate goal of having smart contracts that are written in an immutable way, so that no malicious actions could be taken. He explained, “If they’re written, especially in an immutable way where they can’t be upgraded, there’s no [fudging] that could be had with them. I mean, that’s a whole other level of standard.”

      The panelists agreed that while DAOs and governance are essential for a healthy liquid staking ecosystem, the ultimate goal should be to create smart contracts and systems that are inherently secure and resistant to manipulation. The liquid staking industry can ensure long-term success and sustainability by building robust and trustworthy infrastructure.

      Preparing for a More Decentralized Future

      The panel concluded by discussing the steps needed to prepare for a more decentralized future in the liquid staking ecosystem. They emphasized the importance of continued innovation, collaboration, and robust infrastructure development to support this transition.

      Darren Langley from Rocketpool highlighted the need for the industry to stay nimble and adaptive in the face of change. He said, “The pace of change is really rapid, and it’s going to require a lot of adaptation and iteration from all of us.”

      As the liquid staking ecosystem continues to grow and mature, the panelists agreed that ongoing collaboration, innovation, and the sharing of best practices will be crucial to ensuring the industry remains decentralized, secure, and successful.

      Final Thoughts

      The panel discussion on the future of liquid staking provided valuable insights and takeaways on the current state of the ecosystem, the challenges and risks associated with centralization, and the importance of collaboration and innovation. By focusing on building resilient and decentralized infrastructure, implementing robust governance structures, and working together to address common challenges, the liquid staking community can continue to drive the growth and success of the industry. As the ecosystem evolves, it will be essential for stakeholders to remain adaptive and open to change, ensuring that the future of liquid staking is as decentralized and secure as possible. For future conversations like this, check out our Staking Summit 2023.

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      Staking Rewards Research

      is a team of analysts dedicated to analyzing the economics, profitability, risks, and yield potential of various cryptocurrencies.