How will liquid staking impact the validator business? Staking Summit Recap

Nigel Gauthier Loja Dollentas
by Nigel Gauthier Loja Dollentas

Nov 9, 2022 2 min read

How will liquid staking impact the validator business? Staking Summit Recap

How will liquid staking impact the validator business? Staking Summit Recap

Tenderize’s founder was a speaker at the Staking Summit, organized by Staking Rewards, the leading staking data platform. Nico discussed how liquid staking could influence the business of validators. Discover the key points of the panel with other leading staking players in this recap, and watch the full debate here.

Nico Vergauwen, Tenderize’s founder, was at the Staking Summit in Lisbon this week to discuss how Tenderize is tackling liquid staking and how it can impact validators.

At Tenderize, we are on a mission to democratize staking to Web 3 middleware protocols, offering a quasi-native experience for Web 3 players.

We were joined by other industry leaders on the panel, including:

  1. Isidoros Passadis from Lido Finance, a popular ETH staking solution;
  2. Filipe Gonçalves from ANKR, a Web 3 infrastructure provider;
  3. Claudio Cossio from Meta Pool, a liquid staking solution for Near Protocol;
  4. Mara Schmiedt from Alluvial Finance, an enterprise-grade liquid staking solution.

How can liquid staking affect decentralization?
The panel started with a discussion on the potential adverse effect of liquid staking on the centralization of networks.

For Nico, there’s the potential risk of liquid staking leading to centralization or carter forming, but liquid staking players are working on different solutions to avoid those adverse effects.

Claudio from Meta Pool argued that offering governance power (e.g., through a DAO) and potential upside on protocols should be a priority and contribute to decentralization. However, decentralized governance can potentially bring incentive misalignments and other effects to the network.

Our view is to prioritize a quasi-native liquid staking experience for Web 3 players while setting neutrality as a key component.

Profitability while promoting decentralization: Can they co-exist?

Protocols have to focus on the end user while being profitable to guarantee their livelihood and ensure they fulfill the promised value to customers (e.g., APYs), according to Claudio (Meta Pool).

As a collective, liquid staking protocols are aware of their customer needs, from the performance of the validator set to the diversification of regions, according to Mara.

Meanwhile, Filipe highlighted the need for liquid staking to address the issues at play from a technical point of view, despite the challenges of finding a “one fits all” solution. Nico agreed with Filipe on the hardship of finding a convergence of solutions, becoming more of a dynamic approach.

When addressing if liquid staking protocols should directly handle profitability and risks, it will depend on the granularity of operations of each solution. For example, if the protocol is more customer-facing, they should have a more active role while being neutral if they follow a low-level approach (e.g., Tenderize).

What are the power dynamics between liquid staking solutions and validators?

For Nico, it seems that validators are mostly being used by protocols to provide the service but are not engaging with the protocols. That’s one dynamic that can change in the future.

There could be a great benefit to networks and the entire ecosystem if validators take advantage of the utility provided by liquid staking, changing this dynamic.

At this stage, the panel moved to answer some questions from the audience, including:

  1. How to attract institutions to liquid staking given the current challenges (e.g., new regulations, technological risks, unknown counterparty risks)
  2. How far away are we from having answers to the current onboarding challenges?

Discover all the answers by watching the full panel here. We also encourage you to learn more about our plan for tokenized stake in the upcoming V2.

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