#7: Conferences Calling

This newsletter is supported by Chorus One, an operator of validating nodes and staking services on Proof-of-Stake networks.

Opinions & Observations

In this post VC Arianna Simpson writes down her thoughts on the emerging phenomenon of staking providers in Proof-of-Stake networks, specifically focusing on differentiation, margins and competition between delegation services. Her main point is that such a service is an unattractive investment opportunity in the medium term for a few reasons. One of those is that increased participation in staking will compress margins because yields in most PoS networks are depending on the relative amount of the total token supply that is used for staking. Additionally, there will be competition between staking providers and notably existing large custodians that have already established their brand (e.g. Coinbase, BitGo, etc.), meaning that it will be hard for an upcoming staking provider to secure a large market share.

Arianna concludes that there will be winners and that all products and services are differentiated in a variety of ways, to which I would agree: there are many ways in which a staking provider can enhance and market their offering.

The emergence of crypto lending platforms and staking networks enable new types of behaviors for owners of cryptoassets. In his post on the CoinFund blog, Jake Brukhman shines light on the interplay between borrowing and staking cryptoassets. The main takeaways are that staking providers could create ways to earn returns without being exposed to the fiat-denominated volatility of the underlying cryptoasset by staking borrowed assets, and that staking and borrowing rates may converge if we will see this type of borrowing and staking taking place. Jake concludes that a spread between borrowing rates and staking rates will continue to exist to compensate for the differences in risk when staking (i.e. slashing, variability of returns) and borrowing (i.e. counterparty default risk).

New opportunities to earn interest on cryptoassets through staking and open finance protocols and the dynamic between them are an underappreciated topic. I am touching on some of these dynamics, focusing especially on delegating versus validating, in the second part of the “Proof-of-Stake Ecosystem” series on the Chorus One blog.

News & Updates

The past two weeks in Europe were loaded with events surrounding the Web3 Summit in Berlin and Ethereum’s DevCon 4 in Prague (which is the reason for this Staking Economy issue’s delay, sorry!). The following part will summarize staking relevant highlights and talks.

Web3 Summit Recap

The Web3 Summit kicked off with a focus on what Web3 is and how the vision of a user-controlled internet could be fulfilled through decentralized protocols and effective governance. The event united many projects from different ecosystems working on decentralized technologies together to discuss viewpoints and showcase their progress. You can find videos of all talks given on the official Web3 Foundation YouTube channel.

WEB3 GOVERNANCE — Vlad Zamfir introducing his Web3 governance framework and a panel attended by the some of the most relevant on- and off-chain governance proponents (Vlad Zamfir, Arthur Breitman and Gavin Wood).

SUBSTRATE — An introduction to Parity’s Polkadot and Substrate, including some live coding by Gavin Wood.

CRYPTO INVESTING AND INFRASTRUCTURE — An overview and panel on the future of institutional investors in crypto. Another panel on financial infrastructure and the future of centralized crypto exchanges. These talks include some insights into how crypto funds (e.g. Polychain Capital) and centralized exchanges (e.g. gate.io) engage with the staking ecosystem.

OTHER STAKING RELEVANT TALKS — Introduction to Cosmos by Zaki Manian and Tezos by Arthur Breitman. Mechanism Labs overview of decentralized randomness protocols.

DevCon4 Recap

The largest yearly gathering of projects from the Ethereum ecosystem took place in Prague this last week. DevCon4 was an extremely well-organized event that was attended by around 3,000 people. In addition to the main conference organized by the Ethereum Foundation, many side events and hackathons took place in the course of the week. In the following, I will highlight some of the most interesting and staking relevant talks and events that I attended.

ETH2.0 AKA SERENITY — Vitalik gave a keynote on how the vision of the Ethereum world computer evolved and presented a roadmap of how the finalized version, aka Serenity (formerly known as Ethereum 2.0) will come about. Many teams working on this upgrade presented their progress in the course of the conference, and Justin Drake provided an overview of how the protocol will achieve randomness, announcing an upcoming VDF ASIC research project that the Ethereum Foundation will conduct in collaboration with Filecoin.

CRYPTOECONOMICS AND CASPER CBC — A workshop led by the Casper CBC team around Vlad Zamfir provided an introduction to the cryptoeconomics involved, with great hands-on examples on how to game-theoretically model strategies in a Proof-of-Stake network (recording/slides not available yet). The team also released a draft paper covering the Casper CBC family of consensus protocols in detail.

GENERALIZED MINING — An evening that focused on the networks in which participating in the protocol is rewarded with native cryptoassets and their surrounding ecosystems, hosted by Coinfund and Cambrial Capital as a side event to DevCon4. The event had three separate panels (supply-side services, staking economics and the new role of crypto investors) with experts ranging from staking providers and crypto investors to protocol developers covering how these different stakeholders see this upcoming space evolving. All panels and the opening speech by Jake Brukhman are a highly recommended listen to get up to speed on this domain.

OTHER PoS APPROACHES — Some additional Proof-of-Stake protocols and related projects were showcased at DevCon4. These include Pili-Pala Consensus introduced by Elaine Shi from Thunder, the case for Proof-of-Stake and an introduction to the Avalanche token by Emin Gün Sirer, and Ethermint 2.0, a way to port Ethereum Dapps to the Cosmos Network explained by Chris Goes.