Crypto AMA with Staked (7.10.19)

Guests:

  • Tim Ogilvie

  • Seth Riney

  • Jonathan Marcus

Moderator:


Moderator:

🧩 Alright, let’s give a warm welcome to Tim Ogilvie (CEO), Seth Riney (CTO), and Jonathan Marcus (COO) of Staked!

As a reminder for everyone participating—please keep the discussion respectful at all times.

@Tim @Jonathan @Seth - could you start off by giving us a brief bio on your background as well as how you got started in crypto? And then a short overview of Staked and a brief update on your progress to date? We’ll then be off to the races with questions.

Tim:

Hey! Thanks for the intro.

Tim:

I have spent 20 years building tech companies - ten for other people and the last ten on my own. I’ve always gravitated to data-driven decisions via software. Initially I built in-house solutions (where Jonathan Marcus and I met) and then SaaS businesses to productize them.

Seth:

Hi, thanks Spencer.  I started in hard sciences/engineering (space-based x-ray telescopes) and realized in the first “dot-com boom” that startups were for me.  Have been founding or consulting with companies for 20 years, focused on scalable cloud infrastructure for the last 5.

Seth:

I knew Tim from our days at Yale, and our paths were always meandering but never crossing, until he presented me with the idea of Staking as a Service and I recognized how to do that in an Industrial Strength way.

Jonathan:

Hello everyone! Excited to be here!!

Jonathan:

Prior to Staked, I founded Flavors.me (sold to Moo), helped grow Vimeo from 2-to-16 FTEs as it's first GM, and held a variety of incubation roles at Barry Diller’s IAC, where I met Tim. I almost bought a $40k BTC miner on eBay in ~2013/2014 that I'm not sure would have ever shipped, bought my first BTC in 2015 on Coinbase, and started getting really interested in crypto more broadly in late 2016. I have a passion for building, and operating staking infrastructure seemed like a great way to help many of these networks actually work.

Tim:

re: Staked & progress...

Tim:

Staked wants to help crypto investors earn a yield on everything they hold. We started with staking and today support 12 proof-of-stake networks via public pools and a partner API.

Tim:

Customers include top crypto funds, major custodians and wallets. I expect we'll support 20-25 currencies by end of year.

Moderator:

Good stuff, thanks guys—let's dive right into questions for the Staked team.

Moderator:

As a reminder, I'm going to be posting anonymous questions from our Slido instance too (marked with a *) 

Let's start off with a question to set the table—can you walk us through the staking provider landscape and how is Staked differentiated?

Moderator:

Additionally, can you tell us what staking providers actually do? Most people are aware of the service you guys provide broadly speaking, but I suspect not as many know exactly how the sausage is made.

Tim:

From a customer perspective, everyone wants to earn the yields available on the crypto they intend to hold. To do that, you need to run an honest node, keep it up 24/7 and ensure it doesn't double-sign a block.

Tim:

Our customers are sophisticated investors who think about portfolio allocation not system administration.

Tim:

re: The landscape, our north star is earning the highest yield for our customers. That's both tech and business.

Participant:

Hi everyone. Q - has staked ever faced slashing or penalties on any networks it is supporting?

Seth:

Basically, staking providers run the requisite infrastructure for chain software to execute, and take on-chain "delegations" to providing consensus participation for those coinholders.  From our perspective, we have built an extensible platform to support a diverse set of chains, with flexibility to add new ones rapidly, our goal being diversification. Others may be focused on only a few chains.

Participant:

2nd Q - this seems like an economies of scale biz where one company attracts the most capital to validate for users. This just drives centralization concerns. How do you combat this?

Participant:

Tim can you share your view on how the staking industry may or may not be a margin war to the bottom to win customers.  What are the defensible moats you can build?

Tim:

From a business perspective, we think about impacting the largest % of a portfolio (have the broadest chain coverage) and breadth of offerings (our push into trustless lending, and other yield-generating activities)

Moderator:

* Can you explain what happened with the double signing on Cosmos, what the penalties were, and what the industry best practices are to prevent double signing.

Seth:

We have not been slashed or otherwise penalized, although certain maintenance requires very short periods of down time (like chain upgrades).  Proof of Stake has this implicit paradox - the network is fault tolerant, but each it is difficult for each individual validator to be so, because of the risk of double signing.  We approach this with automation and extensive testing, with a slight bias to be down for a short period of time (our SLA still pays for anything missed), in order to guarantee that we don’t double sign.

Tim:

Agreed that scale matters but both Staked and our customers care deeply about decentralization. In some cases they make conscious decisions to work with others to encourage this. We're ok with that.

Participant:

Q - Hey guys - thanks for coming and doing the AMA. I was curious to hear about how you think the regulatory landscape of staking services will evolve considering any potential compliance risks around delegation/being a validator, and how identity management systems and KYC may play a part in the business in the future.

Moderator:

Great question.

Tim:

Woo...the fun guy! ;)

Jonathan:

Cosmos Pool simultaneously ran two different nodes using the same validator key. At first glance, this seems like a reasonable idea: run a primary node and a backup node to ensure uptime if the primary node (or its data center) fails. Though, it is critical to get the aforementioned type of setup right. In this instance, the primary node failed temporarily, and the backup came online. Sounds good, until it went awry. Details are a little fuzzy, but somehow the primary node came back online and both nodes proposed a block at the same height. Bam! The validator was removed and all of its delegators lost 5% of their holdings.

Jonathan:

We published more details on the Cosmos double sign here: https://medium.com/@staked/slashing-risks-and-validator-diligence-f6901cc9622a

Participant:

Tyvm

Tim:

We take this really seriously. On one hand, we don't take custody so generally have been advised that we don't currently need to do KYC or register as a money services business. But we spend tons of time keeping up with the landscape to make sure that's an up to date view.

Participant:

Understood. If staked was handling like 10-50% of a networks staking isn’t that a major centralization risk though?

Moderator:

Awesome, thanks for sharing

Moderator:

* How is (pooled) ETH staking expected to work? I read that validator computing requirements need to scale as the ETH staked increases (in increments of 32 ETH).

Participant:

Do you think additional service offerings in the future might merit increased compliance needs?

Participant:

How do different staking services differentiate themselves from

one another

Tim:

Assets gravitate to the highest yields. Unlike the mining business, which is a cost-driven business, I think the top-line yield is going to determine where assets go.

Tim:

Definitely

Participant:

Can you talk about industry best practices around key management, cold storage vs. hot storage and how HSMs fit into the staking equation?

Seth:

Basically, the compute necessary to stake is discretized to create a minimum amount of resources to support the network.  There are things we are currently doing for Dash/Horizen/Algorand and Tezos/Cosmos custom validators that tee us up to support the discretization of the compute required to stake Eth, so we are looking forward to it.

Tim:

Reliability & security, marketing, customer relationships, tax reporting, breadth of offering, et al. Much like the "traditional" financial services businesses, I think you're going to see people establish themselves in a variety of different ways. In part, we enable & encourage this by providing highly reliable staking via an API so people can create their own staking franchise with a differentiated brand (or offer ancillary services)

Moderator:

Have you guys looked into the demographics of stakers and delegators? I'm most curious about any stats you've seen around retail/hobbyist validators etc.—do you actually believe there will be a day when mom and pop are actively participating in networks?

Seth:

We currently don''t custody keys of our delegators, but PoS networks require active participation such that cold storage may become obsolete for PoS.  As is the standard with many chains, we use HSM for validator keys, which coupled with our sequestered (in private VPC) validator infrastructure, as well as intrusion detection with automated countermeasures, allows us to have industry leading security.  That said, algorithmic security is the way of the future, so that validator Infrastructure as Code can be deployed across the Atmosphere (ie, cloud agnostic) to be able to absorb any disaster, and we are working on those options for key management.

Tim:

We don't currently present centralization risks, so it's a bit theoretical. But note that proof-of-stake can handle a large dishonest validator, so the risks of centralization aren't quite as severe.

Participant:

is it possible to invest coins into yield seeking contracts like compound or other DeFi products? would it be opt-in for users

Jonathan:

Availability - validator uptime / performance is generally available in the different block explorers, security (Seth will talk about), price, reporting - staking rewards are taxable income, and relationship.

Tim:

We are just about to start audits on what we call a Robo-Advisor for Yield. It's a smart contract that monitors ETH & DAI yields across the DeFi landscape and automatically moves your assets to the highest yielding option.

Moderator:

* With staking as a service firms already partnering with exchanges, is the window for new entrants dwindling creating a moat for Staked and others?

Tim:

The product allows you customize the set of options and will be opened up over time to any yield-generating contract.

Seth:

Hard to replicate Staked, but healthy ecosystem where a focused validator can get traction.  We strive to be a “pillar” of the Validator ecosystem, but decentralized network needs lots of diversity.

That said, if you’re profit-minded, it’s a lot more profitable to spend 10 minutes to get a Staked API key than to replicate what we’ve already built.

Participant:

How is Staked able to support so many different chains? How will it be able to scale if there are 50+ PoS-based chains?

Tim:

We're pretty focused on institutional stakers and helping intermediaries deliver staking rewards to their customers. I think the retail offering will likely be a packaged one. e.g. We have partners who are creating SPVs for staking/lending, selling a basket of staked assets through a network of RIAs, etc.

Seth:

When Tim presented the general concept of Proof of Stake chains to me 18 months ago, it seemed like the perfect use case for an automated Factory approach to Infrastructure as a Service (we leverage Kubernetes orchestration throughout our estate).  Having consulted on large scale ad-tech and financial services cloud estates, I had experience with scaling from clusters of 10 nodes to 1000 nodes based on daily demand curves. So we couple that cross-cloud (atmospheric), scaling core compentency with an extensibility/abstraction layer for monitoring/alerting (chain software volatibility is a big operational consideration as upgrades/forks present "fire drills" from time to time).  So, a combination of process driven management, talented engineers, and automated scale/failover are required to support 12+ chains currently, and are the foundation of our scaling to 10X that.

Moderator:

* Apparently Staked is working on a yield seeking smart contract system. Please can you tell us more about it?

Tim:

See my answer above. Robo-Advisor for Yield.

Moderator:

* In your opinion, what blockchain ecosystem has the strongest community in terms of nodes/validators?

(also would love any insight you guys have about how they were able to build such a community)

Seth:

I think the Cosmos community (and related Tendermint chains like Terra) are strong.  Game of Stakes was a unique way to pull validators together for "co-opetition" and I think that model is being replicated.

Participant:

A successful transition of Ethereum to PoS has the potential to meaningfully increase the TAM for staking services, so much so that one can reasonably wonder if staking-as-service businesses could be profitable at scale without Ethereum PoS in the picture. Do you agree? In other words, is your primary hypothesis linked to Ethereum 2.0 driving the bulk of institutional demand for staking services?

Tim:

We've all been entrepreneurs in the past, so we don't plan on hopes. We have a great business today with scaling revenues. ETH2.0 gets us more excited, but the core business is strong without it.

Participant:

Could you talk about any nuances with staking on sharded blockchains (e.g. will the expected yield be different for each shard)?

Seth:

I'm eager for sharded chain architectures to become standard, but we haven't had any demand for anything that we know to be sharded.  But it's up to the protocols to define the economics based on their architecture, and we'll figure out how to maximize the yield. If you are aware of any, PM me, I'm interested.

Moderator:

Do you believe there will be network effects around specific PoS implementations or does the future look heterogenous? For example, I'm wondering if the majority of new projects someday will launch with Tendermint it's widely supported by the validator community, or perhaps providers choosing to only validate on Tendermint

Moderator:

Follow-up questions: can the current validator community realistically support the 100+ PoS blockchains that will launch in the coming year or so? Do you expect validator specialization?

Seth:

From a staking provider standpoint, standardization on a leading platform makes it easier.  However, I think the success of PoS networks is on their value prop and differentiation from others, and that may be independent of the underlying platform implementation.

Seth:

If validators approach the industry as we do, they shouldn't have a problem supporting 100+ chains.  That said, I think specialization will occur based on their customers, and their costs to support new ones, and we strive to reduce cost to support new ones to nearly 0 such that we don't need many customers to justify doing it.

Participant:

Hey guys, does Staked support governance?

Tim:

Definitely. We view ourselves a technology layer for investors so they maintain their voice in governance. Every network is a little different but we're going to add voting to our current reporting/tax dashboard and allow you to vote directly via the ledger. Today it's manual: we poll on proposals and vote directly.

Moderator:

Can you guys support split decisions on voting? (e.g. 50/50, 70/30)

Moderator:

* Do you believe that Staked should self delegate/stake all assets it supports. If so, what criteria do you choose when deciding on new assets.

Tim:

It's a nuanced answer. There are networks like Tezos where the pool gets one vote, others like Cosmos and Decred where the customer can vote themselves or let the pool vote. If we have large investors who differ in a network like Tezos, we can simply spin up multiple pools so they can vote independently.

Tim:

We are capitalized like a startup, so we can't afford to hold significant amounts of crypto across all the chains we support. In terms of what assets, we support whatever customers tell us to support. Our customers are among the smartest investors in crypto, so they'll do a better job on guidance than we will.

Moderator:

Gotcha, makes sense.

Moderator:

You guys mentioned you don't take custody of anyone's crypto-assets, but do you work with any crypto custody providers? If so, in what capacity?

Seth:

We are currently investor relationship driven, so through our API, self-custody or custodial services can interact to get the appropriate txns to sign.  We are working directly with a couple of Custody providers as well as they bring PoS coins into their supported inventory.

Moderator:

Hey everyone, 15-minute warning. Please get your last-minute questions in!

Participant:

How would you face competition like Coinbase as it already announced to help several projects like Tezos for staking? Eventually there will be more competition from different venue. For example, custody firms may also want to help clients to staking their tokens while under custody.

Moderator:

What networks will you be launching support for in the coming months?

Participant:

How do you handle staking rewards taxes? Are there smart approaches to optimize?

Tim:

Every interesting startup is basically a race between the startup trying to establish independent distribution and the incumbents marshalling their resources to own the category. We wake up every day and run like hell.

Seth:

Who sleeps?

Jonathan:

Orbs, Keep, NuCypher, Skale, Near, Solana (we are participating in their incentivized Game of Stakes style testnet) and a variety of others. Our roadmap can be found here in the Coming Soon section: http://staked.us/yields

Tim:

Our dashboard provides streamlined reporting on staking rewards across the networks we support. Later this year we'll support the TokenTax export format. We don't provide tax advice.

Moderator:

side note: hope everyone's ready for Crypto AMA Tax Edition™️ coming next April

Moderator:

Any last questions?

Participant:

I'm excited

Participant:

Understood. As independent distributors and third party, will you elaborate your advantage over other players by convincing your client using your staking service. What are the reason people should use Staked instead of self serving or leave it to custodies or company like coinbase.

Tim:

Assets move to the highest yields. We deliver the widest breadth of chain support today, will push into lending and other yield-generating assets, and we plan on innovating from there.

Participant:

Is bison trails a competitor in any way?

Participant:

Rather, who do you consider your biggest competitors and why

Moderator:

Last question and then we’re officially at time^

Tim:

We focus on our customers not competitors. We keep our focus on delivering the highest yield reliably and securely and believe good things will follow.

Participant:

🔥

Moderator:

Good stuff. Everyone, let’s give a huge thank you to Staked for coming on!

Jonathan:

Thanks a ton for having us!

Moderator:

Guys, what’s the best way for people to stay up-to-date with developments as well as get in touch?

Tim:

Thanks for having us!

Jonathan:

For Staked chain support, yields and staking: https://staked.us/yields

Participant:

Thanks guys!

Participant:

Thanks so much Tim, Jonathan, and Seth. Really enjoyed the discussion. Best of luck for what’s next.

Seth:

Thanks to all, cheers!