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Gerbz: What is up crypto crew? Coming at you from sunny San Diego this week, but a few weeks ago I was at ETH Denver, which is one of the biggest crypto conferences in the world, and it takes place right in my backyard. Which is super cool. The entire crypto community comes to me. I met tons of really cool people at ETH Denver, and one of which was Nixxo.
Nixxo is the executive director at EthStaker, and EthStaker is an educational resource for people who want to learn more about staking their ETH and for people who have questions about, especially about home staking and solo staking. So I learned a ton from Nixxo about that, I've done a few episodes on staking because I talk to you guys about staking all the time.
Episodes 46 through 48 we dug deep into staking, but that was back before the merge. My buddy Pete and I did a three part episode about staking, and since then so much has changed. You couldn't even withdraw your ETH from the staking contract at that point. So much has changed.
Nixxo and I break down the various ways to stake between solo staking, home staking, liquid staking. We break down the risks of each of those. We talk about whether you should be staking your ETH at all, and how to do that. And so I learned a ton from her. You can too, obviously check out EthStaker. They have a huge Reddit community and a Discord. If you want to learn more about staking your ETH, definitely check that out.
And I hope you enjoy my conversation live from ETH Denver this year with Nixxo from EthStaker.
EthStaker
Gerbz: What is EthStaker and what's your role with it?
Nixo: When I first started hearing about the 32 ETH number, I was like, I got interested. I went over to the EthStaker subreddit and I started asking a lot of questions, I deployed my own validator. And after setting up my own validator, I felt really proud of myself and started answering other people's questions.
Because I was like, I figured out how to do this. I want to help other people figure out how to do this. And then after a while, somebody reached out to me and was like, "Do you want to help moderate this place?"
And the more I got involved, the more I asked, can I do this? Can I do this? And just nobody ever told me no. Everybody was like, go for it. Like, do whatever you want.
And then at some point we needed like, a legal entity to make this all official. And everybody was like, why don't you just call yourself the executive director, and run with it? Do whatever you want, make this official.
So that's how that happened. And EthStaker's general goal is to support solo stakers or liquid stakers. We create guides, we create resources. Anybody, who's creating tooling we try to support them. Anybody who creates tooling to make solo staking or home staking easier, we support them the best we can.
We support solo stakers, primarily. There are a lot of people coming to us and saying like, what liquid staking token should I buy?
And we consider ourselves sort of like advocates of decentralization of the network. And the best way to do that is put solo stakers on the network, but course like not everybody can solo stake.
Gerbz: Why can't everyone solo stake?
Nixo: Because it requires 32 ETH, which is a lot.
Gerbz: I saw at $3,125 that's $100k per, to run one solo staking validator.
Nixo: Yeah, so it just hit $100,000 again.
Gerbz: Woo!
Nixo: I think we celebrated it, passing that milestone last time, and then it went back down and we were like, ah.
Gerbz: We're back again.
Nixo: So yeah, and also it requires hardware at your home, not necessarily at your home.
Gerbz: That's one way to do it, yeah.
Nixo: We're running a DVT home staker program right now where we had, the idea is hardware still costs $800 at minimum. And so why would you run a DVT home staker rig if you're only making 3 percent on one ETH?
Gerbz: Yeah.
Nixo: Like, that doesn't make sense to buy $800. So what we did is we put out an application and said anybody who makes it through this program is gonna get reimbursed for their hardware at the end of the program. So like, everything that you're making is going to be pure profit.
Gerbz: So helping getting more DVT nodes online.
Nixo: Yeah, just because we've learned that it's so important for how things start.
Definitions
Nixo: I'm going to give you some definitions.
A solo staker is someone who's running 32 ETH that is self custody, meaning they know their validator index and they can exit by themselves at any point, regardless of whatever software they're using. So if they use something, some service to stake, if they have their private key they can still exit by themselves, they don't rely on them.
So that's a solo staker. They can run that at home, a lot of solo stakers do, but you can also run with a service who's like maybe running bare metal for you. I think block staking does that.
Gerbz: Yeah, I do that too, we talked about that. I use AllNodes for my validators, yeah.
Nixo: And then a home staker is anybody who's staking at home, and that's just running the validator at your home. Right now that is mostly solo stakers who are doing that, but DVT is coming online and I think Obol is now live. I'm not sure about SSV, Diva is very close to becoming live.
Gerbz: And DVT is like home staking but it allows you to do less than 32 ETH. You can like, it divvies it up.
Nixo: Yes, so what it does is it matches you to other people who don't also have that 32 ETH. So if I have 3.2 ETH, I can be matched with 10 other people who have 3.2 ETH and we can form a DVT cluster and run a 32 ETH node.
Right now, SSV and Obol are sort of problematic in that you need to coordinate with the 10 people, which is a real big problem because coordinating with people on the internet is already a pain, but like coordinating with ten people on the internet?
Gerbz: No, we need software.
Nixo: So Diva does a good job of matching you with other stakers. And so with Obol, there are people who are home staking right now but not necessarily with 32 ETH. And then a staker, I consider anybody who's a solo staker, a home staker, whatever kind of way you're staking.
Gerbz: Got it. So we got home staker, solo staker, liquid staker? What was the third one? A staker. They're just a staker. Alright, anyone staking? Was there a fourth one? A restaker. They're coming soon.
Nixo: Yeah, they are coming.
Gerbz: Don't even want to get into those.
Staking Options
Gerbz: Okay, so some of the people I just had a call with, on my questionnaire when they signed up to talk, I was like, do you stake your ETH? They're like, yes. I was like, cool. How do you stake your ETH? They're like, Ledger.
Nixo: Okay.
Gerbz: Okay, what they meant was like Ledger has some interface in Ledger Live for staking their ETH. Is it Kepler? Maybe?
Nixo: Kiln.
Gerbz: Yeah, they have some integration with Kiln for people who have 32 ETH or more, I would assume. If they have less, maybe it's like a Lido integration for liquid staking.
Nixo: They have both. I don't know, I know for sure that their 32 ETH is with Kiln. I don't know if their less than 32 ETH is with Kiln. I think it might be.
They also have plugins that you can do Rocket Pool and Kiln. And, you can go and stake your ETH through Ledger, with, for example, Rocket Pool. But it's a little bit, like the user experience, isn't as good as going in and staking natively with Kiln. So people are still like, funneled towards that option.
But I mean, that also would be ideal if Ethereum in general, people talk about like mass adoption and I'm like, we'll be ready for mass adoption when people really don't know what's going on behind the curtain.
Gerbz: This is something I've talked about. Like, any new wallet that comes out now, it could kind of be staking your ETH without you even knowing. Like, maybe all wallets just should be doing that. They should probably disclose it, obviously.
But like, it should kind of almost be a default and I think it actually Coinbase had that sort of as a default for a bit. I think they may have turned it off for some sort of legal reason or I'm not really sure, but yeah. It's just like, stake it all and save some for transaction fees.
Nixo: Yeah. I guess what I would say to people like, "Should I be staking my ETH?" I say stake your ETH if you want to get into it and know what you're doing and stake in the most decentralized way. If you're just yeeting your ETH into Lido, I would say don't stake.
Gerbz: Don't bother?
Nixo: Not don't bother, but like it's not a good time.
Gerbz: Ah.
Nixo: Because Lido is a problem, is problematic right now. So if you're gonna do your research and you're gonna find a more decentralized way to stake, or you're interested in running something at home. Or if you have a hundred ETH and you don't want to stake something at home, you can still look into ways that you don't have to run the hardware.
Because it actually, it's not very profitable right now if you're going to like, cloud stake. You have to have like, more than two or three validators to be able to do that.
Gerbz: Yeah, I think it's like, for, on all nodes, I pay like ten bucks a month. There's a five dollar version which doesn't give you any of the MEV. And then there's a ten dollar upgraded version which gives you, like you can propose blocks and get the MEV as well. So it's like...
Nixo: I didn't know.
Gerbz: An obvious choice, and so weird, like the day that I turned on my first validator like as a test, I proposed to block that day.
Nixo: Oh my god!
Gerbz: Makes no, I was like, oh my god, I gotta do all my ETH! Like, I was so stoked about that. I did know how lucky that was, but like, that was pretty cool. It can happen.
Nixo: It's hard to decentralize things more as time goes on. Things that start out really decentralized, like The Beacon Chain, because it was mostly solo stakers to begin with, will eventually centralize a little bit more.
And so we want, if DVT staking is going to be a thing, we want it to start as decentralized as possible. And with new operators, and not just it be a thing that helps existing operators.
Should People Even Be Staking?
Gerbz: Well, you were just on a very official panel, this is the unofficial conversation. I talk to a lot of just everyday crypto people, investors. Not very technical. Most people are like, they've heard of Bitcoin, and they're like, what are these other things? Those are most of the people I talk to with BitLift.
And I actually just sent out an email like two weeks ago saying to like 700 people, I said if you want to talk crypto, you probably see what's happening with price and you're probably freaking out again like you were years ago. Let's have a call, let's just talk about whatever strategy you want to talk about. Let's talk security if you want to talk about that, let's talk about whatever you want to talk about.
Nixo: I love it because the normal person gets so little representation in media or even like Twitter things, or podcasts. Because everybody wants to talk to the experts, and then you get people who are first onboarding and they're like, wow, I'm an idiot. And you're like, no, everybody doesn't know what's going on here.
Gerbz: Yeah. Or here, read this documentation and figure it out. It's like, ah, it doesn't work like that.
Nixo: Yeah.
Gerbz: So something that came up constantly was like, should I be staking my ETH? So when I found out that you work with EthStaker, I was like, alright, I gotta go down this rabbit hole with people.
I've done a big, like, how to stake your ETH multi podcast thing at one point, but that was pre merge and a lot has happened since. So I want to just kind of revisit it and help people answer the question. Should I be staking my ETH? How to stake my ETH? And so the place to start would be, should people be staking their ETH?
Nixo: Right, so this is going to be a question that's much easier to answer post merge because not only has the merge happened and we're fully proof of stake, because before the merge it was proof of stake, proof of work, running parallel, not really touching each other. Merge happened, it merged those chains.
Gerbz: There was no ability to withdraw as well. So I was like even advising people like, should you take your ETH? Probably, but let's maybe wait a little bit.
Nixo: Yeah. So then a year and some later the Shapella finally happened. Withdrawals were enabled and like, at that point, the proof of stake circle was closed because then you can deposit it.
It actually is processing the transactions rather than just like, attesting to more validators coming on the chain, which it was doing before the merge. And you can withdraw, so. I find it an easy choice right now because you put it in, you can pull it out. And there are lots of different ways to stake.
Gerbz: We'll get to those.
Nixo: I choose to solo stake because I am able to and not everybody is able to. But also, it gives me the most control over everything.
Lots of people choose to liquid stake, and that is just as valid an option especially if that's what's available to you. And it is as easy there to get your funds back out. There is added risk because you're relying on whatever smart contract is creating that liquid staking token for you. Likely stETH or rETH or swETH or...
Gerbz: The list goes on.
Nixo: Many different ones that are now in circulation. So I find it an easy choice. Like if you're going to be holding ETH anyway, if you're not planning on putting that into like, bonds or something else that's gonna get you five, six, seven, percent interest on that, like obviously, yes. I'm gonna be holding my ETH in a wallet, in a cold wallet, I guess now it's like three percent on it. Yeah, definitely
Gerbz: Yeah, and so what I've been telling people is that ETH is designed to be staked now. So before, should you stake your ETH? I don't know.
Now Ethereum's a proof of stake network. It's meant to be staked. It's not, I think people hear staking and they think DeFi stuff. And I think that scares some people because for a lot of people DeFi is just a scary land. So yeah, am I right in saying like, ETH is meant to be staked at this point?
Nixo: So I'll push back on that and also support it. So I don't think that ETH is meant to be staked. Like there is a healthy number that's going to be of ETH staked, right now we have 30 percent ETH staked. And I don't think that we really should need to go beyond that.
Because what happens in that scenario where everybody stakes is that, say 99 percent of ETH is staked. Everybody's like, well, why not? I'm going to get passive interest on the ETH that I already have.
And now, these liquid staking tokens are so accepted that they're used in DeFi everywhere. So why would I not just use the liquid staking token and get passive yield the same way? What's that not scam chain called...
Gerbz: Scam chain?
Nixo: The thing that launched and said you deposit ETH and what we're going to do is we're going to stake it, and we're going to get passive ETH on the chain.
Blast, that's the one. Actually, just a multi stake. So the reason I don't think that is a good idea is because that gets us to like, a 99 percent staked ETH scenario. And in that case, anybody who wants to come on Ethereum has to use a liquid staking token because there's just not enough ETH available, which means that they're forcibly being opted into this more risk scenario. Even though they want as trustless as possible an asset to transact with, and that's ETH.
And so if they can't use ETH, then all of a sudden we're like, forcing them into more and more risk. And also, there is like a centralization issue that happens with liquid staking tokens, which is everybody wants to be somewhere where there's lots of liquidity.
And so, liquidity begets liquidity. So anywhere that you go that stETH is deeply liquid you're like, well, I want to work with stETH. I don't want to work with rETH because there's going to be slippage because there's not enough in here. And so in a 99 percent staked ETH scenario, it is possible that a lot of that ends up being stETH.
Gerbz: Yeah.
Nixo: And so then not only do you have 99 percent of users of ETH opted into this smart contract risk, but you also have one governance structure controlling almost all of the ETH.
Gerbz: Right.
Nixo: And so that's huge because then all of a sudden Lido is the governance structure of Ethereum. They control Ethereum essentially. And if they want to be benevolent dictators, which they think they would be, like, who knows?
But we don't want to, that's the whole point of cryptocurrencies. We don't want to put anybody...
Gerbz: Decentralize.
Nixo: Yes. We don't want to trust anyone to be the benevolent dictator. We don't want anybody to have that ability.
Gerbz: Is there a percentage at which this becomes a risk? I know people have been like, talking about how Lido is getting too big for its own size. Like, is there a point when it is literally too big, like it's a risk to the Ethereum network?
Nixo: Yeah. Right now we're saying 33 percent and earlier I said 30 percent of ETH is staked, 25 percent of ETH is staked. Lido is at 30 percent of all of the ETH staked, and so we want to keep them under like, that 33 percent threshold. Because if they control 33 percent of validators they can theoretically stop finalization.
And, I mean, they wouldn't, there are 37 different operators, the 37 separate operators, but all of those operators operate under one governance structure, and that governance structure is generally controlled by two or three or four votes. And those two or three or four votes are people who are associated with the Lido project.
So they say they're decentralized because of DAO governance, but like, DAOs are largely not functional in the whole ecosystem right now. There are very few that operate in a way that is actually truly decentralized because you do need like, people to take initiative and have motivation.
Gerbz: Yeah, who's gonna vote? Who's holding Lido tokens, I mean...
Nixo: Exactly, so I definitely don't rely on that. Oh, we have 37 operators, they're totally separate, we're DAO governed. And it's like, okay, well, but the DAO is like two, three, four people governing those 37 operators.
So yeah, we'd like to keep that under 30 percent of the ETH staked, 33 percent of the ETH staked. And right now we're at 25 percent ETH staked and there is conversation about what the right amount of stake is.
Gerbz: Yeah, you made a, when you were talking about 99%, I'd never even thought 99%. I was like, whoa. And it made me think I bet ETH would be valued differently than liquid staking tokens at that point, because there'd be such a tiny supply available of ETH.
Nixo: Absolutely.
Gerbz: Strange scenario, yeah.
Nixo: Absolutely. But, I mean, liquid staking tokens are pegged to the price of ETH.
Gerbz: They should be, but supply and demand will take hold, right? If people wanted ETH they'll pay for it.
Nixo: Yeah, and say stETH depegged, that would be a disastrous scenario.
Gerbz: Total disaster.
Nixo: Or say the Lido smart contract was hacked and somehow they were able to change the withdrawal address to something else or change the routing that the withdrawal address has in there. If that ETH from behind that contract was taken, ETH would plummet to zero. All of a sudden, stETH wouldn't be backed by anything, all that ETH is stolen.
Gerbz: Yeah. This is like a systemic issue to Ethereum, and there's a so much experimentation happening here. I think the reason Lido is just going to keep getting bigger and bigger is cause it's the most trusted right now, and this is like a scary landscape.
I am starting to feel like every cycle we sort of have these like, something blows up really bad. It very unfortunately to me feels like it's going to be something staking related. I'm not even saying it's liquid staking, I don't know if it's restaking, I don't know what new thing is going to come out next week, but it's going to be something staking related unfortunately.
Nixo: The fact is, degens pile in with other degens, the farmers pile in, and something collapses. And I'm really hoping that, I think that core devs are doing a really amazing job of putting out fires wherever they can and doing a lot of research into what the incentives are driving.
There was a big conversation last week because two core researchers, Caspar and Ansgar, posted a proposal to sort of like target a good range of ETH staked. Because we do see these systemic risks coming in and re staking is only going to make that worse, because you add more and more yield and more and more people are going to want to pile in.
And so we are having these conversations. Core devs are proposing things, they're doing a lot of research. And I sort of wish that more people, especially stakers, would participate. They're really difficult to understand. I think there are a lot of people doing their best to break down these proposals in ways that are more easily digestible because the more eyes on it, the better.
Watching the Exit Queue
Gerbz: So yeah, but that's so interesting, this idea of like, the timing question. So for example, I talked to a lot of people who are trying to sell some ETH this coming cycle. They're like, all right, it's a bull market, I have some goal, some life goal. Maybe I want to buy a house or a car or put my kid to school. I'm going to sell some ETH.
But it's staked. I've been thinking about keeping an eye on the exit queue. And this cycle, as it progresses, making sure to withdraw ahead of that. Have you thought about that a bit?
Nixo: I don't ever plan on selling my ETH.
Gerbz: That's fair, of course.
Nixo: So lots of people have like, exit targets. And like, I understand the people who call people who don't have exit targets fools. Because I'm like, I... I might be.
Gerbz: Yep.
Nixo: I'm buying all the way into this. This narrative, like I think that Ethereum is the future and I plan on keeping it. Unless I have some medical emergency or my family has some medical emergency.
I don't plan on exiting this stake for a very long time. But there are people who are going to have those life issues that need money, and at that point, I would recommend that people definitely keep an eye on the queue. Because, do you remember right after the merge, like the withdrawals were months, yeah.
Gerbz: Yeah, I know. And so I think there's going to be flippening on that. The exit queue is going to be the one that's super bloated as ETH starts getting to whatever number.
Nixo: Kinda hope so. Yeah. My yield will go up.
Gerbz: Oh, yeah, because it'll be less people staking on the network. Yeah, interesting. It's true. Okay. Yeah, people should reconsider if using Lido, maybe.
Going back to the everyday crypto investor a little bit, another analogy I've been thinking about is like if you have dollars in your checking account, it's like not making any interest. So you just one click move it to your savings account where I mean, nowadays it's like nothing, but technically they're historically like, savings accounts actually paid some interest, right?
You could be like, earning 5 percent yield on your dollars these days pretty easily. I kind of feel the same way about ETH, and so this thing again, should people be staking their ETH? I want to get into solo staking too, we're going to talk a lot about that.
But like, people who are just at home, they have some ETH. What I've been saying is like, the risk, if staking goes bad, like Ethereum goes bad. So you should probably just be staking your ETH, like it makes sense to do it.
And yeah, the 3 to 4 percent isn't that high, but I think another thing people don't calculate in is like, if ETH doubles, that 3 percent doubles.
And no one talks about that. When you see how much the APY, next to like staking yield, you see three to four across the board. But yeah, ETH has doubled in the last couple months and all those tiny slivers of ETH I've been collecting from my validator over the last year they add up.
Nixo: Yeah, exactly. I think it's really funny when people, some solo stakers, will get a little bit salty because solo staking doesn't have a really big advocate. Like EthStaker is it's best advocate, because it's not really like a single money party with VC money backing it. And so like, it's decentralized by nature.
Gerbz: Bitcoin has the same problem actually, yeah.
Nixo: And so some people, sometimes they feel forgotten, they feel like who's speaking for us, and I do my best to like, try to be representative of them.
Smart Contracts
Gerbz: Lido always allowed you to stake whatever you wanted.
And I was like, the smart contracts are pretty new and it's a bit more complicated than like, a simple liquid staking token. So, I don't know how I feel about it. And someone said to me, If you're afraid of smart contracts, then why the hell are you in Ethereum?
Nixo: I like that.
Gerbz: It's a pretty good point. So like, should we be afraid of some of these newer things that are being built on Ethereum?
Nixo: I do think that people should be considering, their risk profile. And so, Rocket Pool is audited. It has, I forget who the auditor is, it has a reputable auditor. It has several audits.
Lido is audited. Both of them are like, very technically sound protocols. Their smart contracts in general, I would say are, like have Lindy effect. At this point, they've both been live for years and it's all open source software. And so, there are definitely black hat hackers.
Gerbz: Lot of eyeballs on it.
Nixo: Combed through that, yeah. And so at this point I would say, make sure that there's a good auditor. Like, look at that auditor, make sure that auditor has done other projects before that are well respected projects.
And wait until a project has been live for some amount of time before you throw in. Like, Swell, Diva, what are the other ones? Like, lots of liquid staking protocols are just coming online and I cannot believe how many people are just throwing their ETH in before this thing is even live.
Gerbz: You know, something that came up a few times, people were pitching me on Rocket Pool and I was like, the smart contracts seem a bit overly complicated, maybe. This was like, they were the first ones that would pair you up with a validator.
Nixo: Yeah.
Restaking
Nixo: Like restaking. There's so much money in a contract that has never been battle tested.
Gerbz: Yeah, I know.
Nixo: I mean, it's been battle tested on testnet quite a bit, but who knows? There could be a black hat hacker who has seen an exploit and is like keeping quiet about it until it's mainnet.
Gerbz: We've seen these things happen. Like, it does happen.
Nixo: It's crypto, welcome to losing your money.
Gerbz: Ah, shit. I know. But that's, I mean it sounds like you were saying if someone's got like a couple ETH and they're sort of like, beginning to dabble. And they want to kind of start building their investment fund, maybe to the point where they get to the point where they could solo stake.
It sounds like, liquid staking, is maybe wait? Would you say?
Nixo: I would say wait, especially if all you have is a couple of ETH. You don't ever want to throw something into a smart contract that is more than you're willing to lose. And that's, I think, that's a generally good practice.
Gerbz: ETH2 is a smart contract, or like the staking contract is a contract, right?
Nixo: Yeah, it absolutely is. And that's the idea is that the staking contract, if you are, if you're solo staking, and there's no other smart contract between you and The Beacon Chain. If the staking contract is exploited, Ethereum in general is...
Gerbz: Yeah, Ethereum doomed. Yeah, it's over.
Which, I mean that's something, we could all say that. You could say the same things for Bitcoin. Any network has this, if this happens, it's over. But that's very foundational to the network. So, that's very unlikely to happen. But, yeah, these things can happen.
Final Thoughts
Gerbz: If you go to ethereum.org/staking, the very top, it says if you've got questions, go to EthStaker.
Nixo: Oh, nice.
Gerbz: Yeah. So I was like, all right, that's cool.
Is the center of the EthStaker universe, Reddit? Or is there another place that like, most people go?
Nixo: Pretty equally split between Reddit and Discord.
Gerbz: Okay.
Nixo: We have a Discord, if people are looking for technical help on their nodes, Discord is a much better platform just for back and forth. Yeah.
But the philosophy of things, news, things that are going on in the staking world, the Reddit is a really good place for that.
Gerbz: Alright, cool. Well, I learned a lot about EthStaker and some ETH staking, and thanks for chatting about it.
Nixo: Thanks for having me.
Gerbz: Alright.