“I've been pounding the table on this for two years as the most important thing in proof of stake networks.” Solana Labs co-founder Anatoly Yakovenko says. He’s a big fan of stake pools.
In this season finale of the Solana Podcast, Yakovenko gathers a full deck of stake pool all-stars — FP, co-founder and CEO of the Socean Stake Pool, Vasiliy Shapovalov, tech lead at Lido, and Ella Kuzmenko, product manager of censorship resistance at the Solana Foundation — for a lively roundtable. Here are the highlights to tide you over until 2022.
These quotes have been edited for length and clarity.
On convincing people that censorship resistance matters
Ella Kuzmenko: “It's surprisingly harder than you would think. People definitely will follow where the rewards are. And I don't think that is surprising. I think there's an interesting opportunity for stake pools to play with that idea and give rewards while also touting the benefits of censorship resistance. So: ‘Hey, we will give you great rewards, but you can also get governance tokens and you can help us build the future together.’
“And I think there's an interesting way that you can frame that discussion where you don't really have to pick one or the other. And I think to put a maybe crazy idea out there, I think we're only seeing the beginning of what can be built on top of stake pools. So it's pretty standard to take your stake pools tokens and you go stake them and then you earn some additional yield there. But I don't think we've really unlocked the potential of realizing that the underlying asset that you're staking will continue to accrue value every epoch and you should be able to build crazy financial things on top of that, that actually give you way better rewards than staking with an individual validator will ever do.”
On getting penetration across DeFi
FP: “Something that worries me is a lot of the protocols giving out emissions and the TVL is growing and all that. But I just wonder how much of it is organic growth because stake pools are very different from AMMs like Orca or trading Texas, Mango. Whereby in Orca, they make their revenues from you doing stuff, from you trading or doing stuff. But in a stake pool, you want to do nothing. I mean, what we want our users is just literally put the SOL in us and just do nothing.
“So it is a little bit of a different incentivization. And I wonder whether these incentives are sustainable, because look, if you're chasing the people who are farming short-term yield, these are not the people that you want in your stake pool anyway. You want people who are in it for the long haul.”
On governance in stake pools
Vasiliy Shapovalov: “My thought here is that the role of governance in a good liquid staking protocol is to drive itself to extinction. So it won't be easy or it won't be fast, but essentially liquid staking is walking in the outermost part of the security of the protocol. It touches the most important parts of the protocol like censorship, resistance, and decentralization and security and all of that. And if it gets a significant power in this parts and if it's not credibly neutral, it's like a great thing.
“It should be credibly neutral and you can't be credibly neutral for long when your governance is overpowered. It's a natural thing for all governance to take too much power and use it in not a great way. So it basically has to, in order to be accepted by stakers and ecosystem as a ligand liquid stake protocol. The ligand part of staking, it should be self-depreciating to a point that where governance power are time locked and very light and mostly algorithm driven.”
On whether stake pools are just another form of centralization
FP: “So I worry a little bit about that actually. I worry because we talk about increasing decentralization, and that was the reason why Stake Pools were created in the first place. And it's true that if you have one stake pool controlling all the stake, that solves a particular kind of centralization, Nakamoto coefficient. But then it introduces a new kind of centralization. And maybe there are risks that can be mitigated that way, but still this worries me a little bit. So I'd rather have an ecosystem with a good number of different stake pools.”
Ella Kuzmenko: “That's where the education piece comes in. You got to let your delegators know the importance of censorship resistance and decentralization so if there is a sexy new aggregated stake pool token, they don't just gravitate towards it because it looks good without thinking about the consequences of that.”
Anatoly Yakovenko: “But the yields are so high.”
Vasiliy Shapovalov: “I don't like the dynamic at all, that there will be one lean stake token, but I think it's inevitable. And what we can do is not oppose it, but we can build protocols that will be a net good for the system anyway, even if this happens, hence the self depreciate of governance and in liquid stake and stuff like that, that's all flowing from there.”
Ella Kuzmenko: “I wouldn't say I'm oppose to it, I think in an instance where you have 10 really small stake pool operators, let's say universities decide, hey, we want to run the Yale stake pool and the UDab stake pool. And they have very fragmented liquidity. I think it makes total sense for there to be an aggregated university stake pool token, support university students help them get their pizza and ramen. Great. That's a fun way to do it. But that's a very specific use case where you're trying to make sure liquidity isn't fragmented.
“But I think every stake pool today has more than 600,000 sold deposited into it Solana. So I wouldn't say that's a huge fragmentation. It seems like people have chosen the pool that they like and they're happy with the performance, with the project. And that's the one that they picked. And so I don't know that they would be attracted to something that tries to average everything out and is just a generic token, but I could be wrong.”
Vasiliy Shapovalov: “Yeah. It's so very interesting to see the play out.”
Read the full transcript. (Click to expand.)
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