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Speaker A: Hey guys, welcome to Debrief after our episode with Danny Ryan on the case against Lido. So we did in defense of Lido with Hasu, and this was the sequel a couple of months later. I think it just took us some time to put this episode together and fit with Danny's timeline. Actually, I wasn't really sure who the best guess would be for this either. It turned out that the best guess, I think, is the guest we had on, which is Danny Ryan. But yeah, it wasn't entirely clear to me after the Hasu episode who would kind of step up for this.

Speaker B: Well, Danny wrote that article forever ago, the risks of lsds and while he is, I don't think we actually fully fleshed out why we say lsts, not LSD's. Derivatives is a legal term that imparts legal consequences upon these tokens and the producers of these tokens that we do not want for our friends and families of people who produce these things.

Speaker A: Yeah, it means the CFTC gets to regulate everything according to the CFTC, I.

Speaker B: Think everything that's safer for everyone if we just do tokens, not derivatives. So that's what was the thought process there, I think, to kind of start off this conversation, Ryan, I think, I think I've said this to you before, the way that I consider Ethereum. Think of Ethereum, concentric circles. You have deeper things of Ethereum and then you have outer things of Ethereum. And the Ethereum researchers are working on hardening the core. And then we work outwards as the core is hardened. And so what was once upon a time a weakness of Ethereum, proof of work. We hardened it with proof of stake. What was once upon a time a weakness of Ethereum and a threat to its decentralization. Incredible neutrality. Its lack of ability to scale because it pushed people off Ethereum and onto centralized services and other centralized chains. So what do we do? The role of centric roadmap. We harden its layer. Two scaling solution. That way, MeV is a threat to ethereums, credible neutrality and decentralization. So we harden it with proposal builder separation. We are working outwards from a base and we are. And solving and creating new mechanisms to make more and more and more of Ethereum more secure, more more credible, credibly neutral, more decentralized. But as we grow outwards, that gets harder. Eventually you run up against the limits of that effort, and that will be where Ethereum lands. When the EF researchers and people protecting Ethereum run up against some sort of immovable force that they don't have this power to move. And so this is kind of where I think Ethereum is going. And this is the current frontier. Whether we can move this seemingly very large object of the market forces behind LSE tokens or not, I don't know. But that's kind of how I interpret where we are in Ethereum's history.

Speaker A: Yeah, I agree. These prisoner dilemmas, these centralization vectors, these tragedies of the commons, they pop up in all sorts of areas. And so basically, the ethereum community, the layer zero, and that's why Danny has such an emphasis on the Ethereum community, has to play whack a mole and just be like, oh, there's one. There's a centralization vector. There's molochs whack it. And you don't just whack it, you actually whack it and then build some sort of defense inside of the protocol to actually protect against it. And so there are a lot of moles that have cropped up since Ethereum's inception. I think more notably recently, the big set of moles, moloch moles, that we've had to whack, have involved mev. Right, right. But this is yet another one. That is, how do we prevent the centralization of all of our stake? And there is a moloch trap. There is a gravitational force towards liquidity, network effects. We talked about that so often. I don't think Hasu is wrong about that, and I think he's very much right. And so, like, ethereum researchers are just basically like, okay, how do we deal with this? You know, what, what moles do we have to whack? And, like, I think what they're worried about is they'll run out of tricks and tips and, like, tricks and hacks to, like, embed inside of the protocol, and they'll have to appeal to the much, you know, I would say much more squishy and less reliable and kind of like, in some ways weaker. Layer zero. I guess it's both a strength and a weakness to rely on layer zero for that sort of thing. And, you know, that's what I found in today's episode, is really an appeal to the layer zero. Well, to give the protocol researchers some time to figure out how to defend against this latest crop of moles.

Speaker B: Yeah, I think that's right. I think really the crux of this issue is does the Ethereum, layer zero have the power and strength and conviction and coordination ability to fight Moloch under our own terms against the market incentives, or are we giving up and just leaning into the market. And that's kind of what we're doing. And it's really about how optimistic are you? It's kind of a question. It's a question of what are the personality properties of the Ethereum layer? Zero. Because if we had more optimists, techno social optimists, then I think we would have more people being on the, hey, we can socially engineer our way out of this. But I think if you have more pragmatists, more market realists like Hazu, you say like, well, Moloch is going to win. Let's just like, you know, let's align with it. Is that fair?

Speaker A: I think so.

Speaker B: I probably pissed somebody off, right?

Speaker A: Well, I would just say, I would just say one thing I would say about this is I don't think a blind optimism works. And I think anytime the Ethereum community is just like blindly optimistic that we'll resolve this, then it's a problem.

Speaker B: I do think self stake.

Speaker A: I think there's like the starry eyed dreamer. Criticism of Ethereum is somewhat valid, and I don't think that necessarily helps us. I see where Ethereum is at its best is it balances the optimism with the pessimism and it breaks that down into really smart protocol designs. There's no one better at this, by the way, in the world. Absolutely world class is a guy, I don't know if you guys have heard of him. His name is Vitalik Buterin. He is one of the best in the world at like having the, here's how the world is and the pessimism, and here's how the world could be optimism and let's incent the world to be more like light than dark. And we'll do that by channeling kind of that pessimistic, self serving kind of energy and, you know, trapping in a.

Speaker B: Very light touch way. Yeah, he's really very light touch.

Speaker A: He's really good at that. And the cult group, I'll say now that's probably offending somebody, but I mean that in the best way possible. This group of followers that he has surrounded himself with, particularly the other Ethereum protocol researchers, are also disciples of his and are master class at doing this.

Speaker B: Right.

Speaker A: And that's why it's so Barnaby was mentioned on today's episode. He's one of those disciples, Justin Drake, who we've had on so many times. Like, these people are world class. Danny Ryan himself, they're world class at getting us out of these, like, moloch traps, these binds. I have no idea how they do it. Right. It's like, not like you and I, David, coming up with the ideas, right? We're just like, hey, devs do something and then they do it and they fix it and we do an episode on it. Right. But the thing is, they haven't gotten to the point of kind of fixing this LsT centralization kind of vector. And I think they will. We almost have to because I'm very worried about relying on layer zero for this. Like, Hasu's voice in my head is like, how's that working so far?

Speaker B: Right.

Speaker A: You know, the whole, like, appeals to stop. Everybody stop, you know, staking with, um, Lido. How has that worked for us so far? And the answer is not very well. So I feel like ultimately this has to get embedded in some protocol design, protocol incentivization mechanism to push more in the, in that direction.

Speaker B: Yeah, yeah. Uh, the whole, uh, we can totally, like, hold hands and band together and, like, solve this problem. Socially will fail in the given enough time. Like, maybe you succeeded in the short term, maybe you can hold your breath, but you are holding your breath. Eventually you need to bake it in formally in a technical capacity.

Speaker A: Yeah. Do you think, first of all, we're going to have millions more people join this movement for Lucky, they're going to have more pluralistic ideas on this and a more diffuse set of values won't care as much about Ethereum's decentralization as us. And then also, David, like, at some point in time, we're trying to build a multi generational global network, right? So we're going to pass the torch to our kids or our grandkids or like, future generations, all right? The zoomers are going to take over. And then whoever succeeds, the Zoomers, they're going to take over. And we have to enshrine these things into our code so that this spans multiple generations. If we can't do that, if we're just relying on layer zero, well, we're kind of. Kind of screwed long term, if you ask me. So that's just a stopgap type solution. I think Hasu is actually right about that. Yeah. So, I mean, why do you think Danny is coming on this episode and speaking up about this in this way? Because I'm sure there's some tug for him as an Ethereum kind of protocol dev coordinator. I would say part of the EF to be sort of very neutral about it and like, not to kind of name any, like, not to weigh in in this way. And yet he's chosen to. Why do you think that is?

Speaker B: Yeah, well, so anyone at the EF gets to do whatever they want, from what I've gathered. Like, working at the EF, like, you're pretty free, like, you gotta work, but, like, your specific narrow. You don't have too many narrow constraints. So, like, you're allowed to have an opinion at the EF, right? The EF doesn't say, like, hey, we can't name names. Like, we have to be credibly neutral. No, that's. You get to say whatever you want. So Danny's speaking his mind 100%. Like, that was never in doubt. And I think Danny and many others in the Ethereum foundation have worked very, very hard to produce this thing called Ethereum that has a lot of these values in it, and he's seeing a lot of his life's work have alarm bells around it. So that's. That's his motivation.

Speaker A: Orange, David.

Speaker B: Yeah. Yeah. On a very large scale. He. He was second to biggest.

Speaker A: I gave him five options. I gave him blue, yellow, orange. Yeah, he picked the, you know, the second worst.

Speaker B: Right? Yeah. I. I don't know. I can't perceive for myself how theoretical versus practical this threat vector is. I was kind of chatting with Mike neuter about this is like, all right, what is the future of, like, the LST?

Speaker A: Another. Which was another kind of designer. Yes. Researcher that, you know, kind of in real life. Right?

Speaker B: I do, yeah. Rock climb. Rock climb in Brooklyn. And I was like, I kind of think in the fullness of time, nothing really happens. Like, we debate, yell at. It doesn't even fix itself. It doesn't break. It's not fixed.

Speaker A: But what do you mean by either? Isn't it a sign of it? Like Danny would say, it's a sign, David. It's a sign of it breaking. If we pass 33% and then if we pass 50%, you can't tell me it's not broken. That is actually definitionally broken, because then you have this whole surface area for corruption that can just go dive right in. Are you saying we don't get to 33%? We don't get to 50%?

Speaker B: I'm saying, like, even if we do get there, and, like, the corruption vector is present, the corruption doesn't set in. And even though there is, like, the three door knock on problem, no one actually knocks on the doors.

Speaker A: But that, to me, feels like a statement of faith. And that's a more like, it's just.

Speaker B: A little bit about, like it's making. It's an assumption. I'm not saying it's a statement. I don't think it's a statement of faith. It's just like, yeah, it's just like. And things are just, like, left alone and nothing. No, no corrupting force comes.

Speaker A: I think Danny would say that that's apathy. We can't let it get there. I mean, I think the argument would be, wait, so we're okay with that? Getting to 50% without putting up a fight and then opening up this door? And so what? It's not, you know, like, it's not corrupted or used in sort of year one or year two or year three, but this is the credibly neutral network that we're passing down to future generations in year five and year six and year seven, when, like, jump capital comes aboard or whoever, like, whatever, you know, corpo finance, Wall street sort of evil. Like, a group wants to exploit this, they'll do that. And you've just left the door open. I think that would be the counter to, like, it's no big deal.

Speaker B: I don't know. I feel like, I feel pretty foggy beyond, beyond, like a few years away on this.

Speaker A: I think it's interesting to me how there have been many contingents of the Ethereum community who have made this basically a hell to die on. It's very important to many ethereans. The fight against Lido is sort of a defining characteristic for many. There have been others who have said, hey, this is market forces, or the way to fight this is through competition or protocol redesigns, do you know? And then there's some people who just are more like Hasu, which is just like, your lido overlords aren't going to be that bad, and they actually don't have that much power. And so if they get 60 or 70%, we'll mitigate it in all sorts of ways. And the community won't let it get that high unless we have these mitigators. And they're like, it's no big deal. So I see these three factions within Ethereum, and it's been interesting to observe. There's no, like, yeah, there's no, like, one side to this or one group that the community has, you know, aligned with entirely.

Speaker B: Yeah. One of the things that's made this harder to navigate is a lot of the biggest Lido detractors out there. The Lido. The anti Lido people out there are also the rocket pool people.

Speaker A: Yeah.

Speaker B: And so, like, of course you guys are anti lido. Like, duh.

Speaker A: That's why actually so objectively if, like, you ask me of who are the most, the least biased people in the entire Ethereum community, or at least have their bias towards the success of Ethereum over the longest time period, I will tell you every time it's going to be like eth core developers, it's going to be like Danny Ryan tribe. Of all of the voices that I hear, that's the group that I have consistently found to be most aligned with long term Ethereum values. Yeah, yeah. Values and decentralizations. Like everybody else has one bias or another. And so the voice of Danny actually carries a lot of weight to me from like a reputational perspective. So I'm not like, yeah, I think we should listen to it. I think we should listen carefully to it. Yeah, it's been interesting to me that Vitalik hasn't weighed in in a big way. Like he's made some sums.

Speaker B: That's what his most recent article was. I'm pretty sure his, hey, here's the philosophy about enshrining things into Ethereum was written as a result of people being like Vitalik. What do you think about Lido? And that was way of him speaking, answering that without actually answering it.

Speaker A: Yeah, but it was very much like, I don't even know if he mentioned Lido in this article. I'm doing a search.

Speaker B: You talked about enshrining lsts.

Speaker A: There's one mention of, actually. Is there?

Speaker B: Did he get back to me? I asked him to come on the podcast yesterday.

Speaker A: Liquid staking mechanism. No, actually. Oh, Lido. Yeah, he mentions it a few times under enshrining liquid staking. Yeah, I really feel like that's what we ultimately have to do is. Yeah, something like that.

Speaker B: Okay, so Hazu sent me four questions, two of them you heard me read on the podcast, but the other two, well, one of them was. In what sense do you think enthroning LST in protocol solves the problem of stake centralization? It seems to me like it would achieve the opposite. You force competition to happen only on APR, which then massively favors the players with lowest costs of capital who can leverage existing stake. Once again, sexes and institutional operators. Meanwhile, solo stakers and operators that optimize for actual network decentralization are punished, is what Hasu says about that.

Speaker A: Yeah, I think that's really like a next episode, basically, or a next, like a piece of white space. And this is. Hasu is more of a protocol researcher than I am. Right. And like, you know, he's less of one than like many on the EF. But if we enshrine it in some way. And by the way, when I say enshrine it, I don't necessarily mean the way other staking networks have, but something has to be done in the protocol layers. Just all say and what that design looks like. You know, some, somebody smarter than me has to weigh in and kind of figure that out. But I think that's what it's going to take. And to the extent that's a dead end, then we're back to the layer zero. And like, Hasu's probably right. It's just not going to be enough to really blunt the liquidity network effects here. So I don't think that's a great outcome. So I'm kind of devs come through.

Speaker B: Like, fingers crossed yet again, it's a thorny problem. Yeah, and this is why I was talking about, like, at some point, solving vectors of centralization is sometimes, at some point, we're going to run up against some thing that we can't solve.

Speaker A: Yeah, I don't.

Speaker B: People in the ethereum ecosystem are not ready to call that now, but at some point, we will have to do that.

Speaker A: Ultimately, Ethereum has to ossify, too. We have to, we can't leave this.

Speaker B: Actually, I don't know if that's true. I think that less true than it once was when we were talking about Ethereum in comparison to bitcoin, at least.

Speaker A: We have to ossify some things, right? Maybe we always have kind of this, like, we're building walls, you know, outside from the core wall. Like, we have to ossify what's in the core. And, like, the changes have to be less. Like, they have to decrease in terms of their, their scope and their, their magnitude and that sort of thing over time? Yeah, it's very easy. It's probably very easy to corrupt a small group of core devs, you know what I mean? Like, no one's really pushed on that dial, but, like, they could if. So, we. I still, that's an interesting discussion. When do we ossify? Or how do we ossify?

Speaker B: But, um, it's been funny hanging around in New York with a couple of EF people. There's a few ef people that I hang out with, and hearing them chatter about, like, how they all keep themselves in check about, like, hey, making sure that they don't hang around, like, the paradigm offices for too long.

Speaker A: They don't become corrupt. I mean, well, isn't this a story as old as time with government officials, which is like, you know, proxy for what they are. Which is basically they get corrupted by corporate interests and lobbied and they get bought, essentially.

Speaker B: Yeah.

Speaker A: You know, that's what happens if you leave the. The dev door open, like too wide. I think. I guess another thing I'll say is I still hold with the. The takeaway from the Hasu episode, which is there. There is. There is, you know, there is. There is good, there is better and there's best. Right. And there's also bad. And I do think that Lido is better than a lot of other things that could have happened.

Speaker B: Right. For way back when all of the bitcoin. Bitcoiner fud, when we were. When we were doing the proof of work, proof of stake wars, was saying that as soon as ethereum goes to proof of stake, there just. It's going to be a cartel of binance, coinbase, kraken and one wire exchange okx or something.

Speaker A: Yeah.

Speaker B: And that is not. No longer true.

Speaker A: No, that's not happened. Instead we've got.

Speaker B: It never was true, actually.

Speaker A: A potential governance cartel of 29, which is way better.

Speaker B: Yeah.

Speaker A: Way better than any of those other alternatives.

Speaker B: Yeah.

Speaker A: It's actually.

Speaker B: Although the people will say that, well, actually, Lido is still just one. It's one. And it's 29. It's one.

Speaker A: I see. I don't think it's purely. I definitely don't think it's purely one.

Speaker B: There is one central provider of the value of being a lido node operator to the 29 node operator.

Speaker A: Did you hear me solve it, though? I solved it in the episode. All lido has to do is give all eth holders the right to veto. That's the extent of protocol design I'm capable of. Anyway. I do think that Lido is not bad. This is what turns me off. The tribal conversations is when rather than engaging, there's just ceaseless attacks. And I think that Lido is an entity that and all of their node operators is an entity that is more ethereum aligned, ideally, than some of the detractors think. And you can have a conversation with the 29 nodes and the lido designers, you can have a conversation with Hasu and you can persuade and push. It's not like they're bad. Like Gary Gensler. That guy's stopped listening to anybody in crypto. Do you know what I mean?

Speaker B: That guy's a bad guy.

Speaker A: Yeah. So I think it's important that we engage in a healthy way and not just shut down the conversation.

Speaker B: So I should have known this. I feel like I'm embarrassed to say that this is a fun fact, but maybe this is new for you too. A handful of the 29 lido node operators are eth to client teams like prismatic labs. They are getting money for their role of staking and they are Ethereum client teams. I don't know. I can't name a better organization to be a lido node operator than an Ethereum client team. Maximally aligned. And we wouldn't have gotten that without something like Lido.

Speaker A: Yeah, that's a great point. I don't know who the node operators are. In fact, that's probably another area of research. But you mentioned.

Speaker B: Yeah, that's important information.

Speaker A: I know. For instance, attestant is one. They've been a pretty Ethereum aligned staking services company. You as well, like. They're definitely chorus.

Speaker B: One is one.

Speaker A: Yeah, there's definitely some long term ETH aligned entities there as node operator, so. Yeah. Anyway, that's it. Do it. Where do we go from here, David? Is the conversation done or what do you think we just let this one rest for a bit?

Speaker B: Marinate. As this one marinates, the right guests will come. Barnaby's definitely on the shortlist. I would say maybe a panel or conversation.

Speaker A: Well, bankless citizens, you tell us if there's more to continue this discussion and thanks for hanging with us during the debrief. Cheers.