Filipe Goncalves on liquid staking and developer tools at Ankr

0:01I'm Ashton Addison from Block West capital for investment pitch media and today on the Crypto Coin Show we have Felipe goncalves the head of D5 at anchor Felipe welcome to the show and thank you for taking the time hey thank you for hosting me you're very welcome we've had anchor on the show I'm really fond of your guys liquid staking Solutions and I'm

0:24fascinated at learning about all the functionalities and capitalization that people can do with their tokens while they're staking and more D5 functionality seems to be coming out and extrapolating value in different ways as the D5 sector continues to grow and I'm excited to hear the updates from our last talk and how anchor continues to grow I know it is one of the biggest

0:48and best staking Solutions so first of all for those who haven't seen the first interview with anchor let's just dive into what is Anchor focusing on as your main blockchain and staking Solutions and then we'll dive into all the recent details yeah sure so anchor is a fundamentally focusing on the nodes and we started our journey with the full

1:14nodes and validator nodes and at the time we're helping developers to deploy nodes easily without relying on cloud Solutions as that services are becoming commoditized we integrated vertically on the validator Node Side by creating liquid staking so anchor is actually a pioneering liquid sticking and it created eth liquid sticking in December 2020 so it was actually the

1:43first project to go to market with that solution and on the RPC note side we evolved into blockchain apis until a point where we realized that we were kind of centralizing decentralized information and this is fundamentally you know for the sake of consuming blockchain data faster and more easily well then you end up centralizing

2:12the network so we took a step back and we decided to build a network of our PC notes so now we support 16 chains for developers and the main advantage is that it is more reliable because the nodes are not operated by anchor they're operated by anchor and other node providers and it's also reduces latency because we have a very wide network of nodes operated in

2:43Latin America and Australia so if you're a end user located in Australia obviously you're going to get information much faster from the blockchain if you're consuming from a node that is also located in Australia so the our aim is really to be the largest network of RPC nodes so that we can really then have a competitive Advantage when selling our

3:09Advanced apis with the lower latencies than most of our competitors and more importantly for users that are not necessarily located in the big spots right like us Europe and so on and for users in other regions they can still benefit from very yeah low latency Services fascinating and I like that you're also

3:38focused on that centralization issue and making sure that things don't become too centralized or imbalanced and I'm seeing in the news recently with this merge to ethereum 2.0 there are some discussions around the centralization of ethereum and clusters of it in the USA and jurisdictions and I feel like that's not a good sign for a blockchain when now there's discussion

4:04of centralization so I'm glad that's a focus for your group Now liquid staking and just staking in general where anybody you know some end user or beginner to crypto can stake their tokens and get a little bit of a reward it is great because you know you're just holding the tokens anyway but I'm curious about the node infrastructure that you're

4:27talking about are you seeing or what kind of clientele are you seeing open up these nodes and is there an advantage for people that are just used to and only understand regular staking or liquid staking to move into staking and actually running a node yeah so I think here there is obviously different players and I think validators and let's say major delegate

4:57stickers for Otter chains so on ethereum you need to be a validator you cannot really do delegate staking in itself but in order chains you can so I think maybe the difficulty with liquid sticking is that it doesn't offer necessarily higher rewards when compared to just running a validator node or being a delegate sticker however it does have some higher smart

5:21contract risk and basically currently you basically need to convince users to bring more financial services in D5 and more utility for liquid staking so that it really convinces them to outweigh the higher risk of smart contract risk right and currently I think the industry kind of fell into that situation where it creates use cases for

5:50liquid sticking but it makes it very much dependent on farming rewards right so I think we saw it with the liquidity pulls on curve for sde for example where it's obviously made to provide instant liquidity for ethereum liquid sea cream because it's not redeemable right at least not for now which we still need to wait a few months until we see the Shanghai update for ethereum

6:15transition and here the issue is that there is a few things that our capital capital inefficient for liquid staking right so the example of liquidity pools I think it's very easy to understand where if you stake ethereum you can get about four percent but if you deposit liquid sticking into a liquidity pool well then you have half that is in liquid staking still earning

6:42four percent but the other half is in ethereum so then you're kind of giving away half of your rewards and then your expectation is that the trading fees and the farming rewards need to at least compensate your loss of half of the rewards of the staking rewards so that you make it at least as appealing by just instead of just staking obviously well there is a an additional layer of

7:07D5 composibility higher smart contract risk so then you expect to see higher rewards and we didn't really see anyone in the space trying to tackle those challenges and those difficulties and inefficiencies and it's just taking the shortcut of just giving away farming rewards which is something that we've been trying to avoid not only because of the sake of

7:31building things in the toy Capital efficient but also because our anchor token is mainly used as a utility token for our RPC note Network and we want to use it responsibly and not diluted heavily just for the sake of attracting tvl that can be very temporary because other liquid sticking Solutions are actually redeemable such as the caves of BNB so if you give amazing rewards right

7:57now it doesn't mean that the tvl is going to stay in one month fascinating Felipe and I'm glad that you mentioned other chains like BNB because what I'm most familiar with is the ethereum staking and something like Ste on Lido where you can get a token in collateral but because of the F merge staking your ether it's sort of stuck in there and it's not really redeemable

8:24whereas other blockchains it can be and the yields are different and sort of the way that you know the functionalities that you could use with different tokens that you can get while you're staking say you get a liquid token you're able to use that in other ways to capitalize further and I'm curious about BNB as you mentioned and perhaps some of the other chains how

8:46does that work on anchor compared to ethereum and you know are there great incentives for everybody to be staking their BNB on anchor specifically yes so I think like with medic and BNB I think it's interesting examples where on ethereum what we're doing is delegating validation keys to a group of nodes and per medicine BNB because it is

9:15delegated proof of stake where delegated proof of authority in the case of BNB chain it's actually easier in terms of architecture because you already have functional validator nodes and your job as a liquid a creator of a liquid sticking solution is just to delegate stake to existing validators and you just try to make sure that you delegate stick to

9:39validators that make sense that are not going to get some slashing where they offer a decent apy so fundamentally it's the only thing that we do and then we offer to the users a liquid sticking token so the biggest difference is really that it's redeemable so you need to see it a little bit like a primary market and a secondary market so the taxes are the secondary

10:03market and the anchor in our case is the primary markets so when you stake your BNB with anchor you get the Liquid sticking token you have a Redemption price right so it is something that gets updated every day and it goes up on a daily basis however then if you want to sell you can unstake and receive the underlying assets in about seven to ten

10:26days however you can also sell it immediately in a decks and that's the difference with the secondary Market it might have a price that is not necessary necessarily the same as the primary markets so if you're very impatient and you want to sell your tokens well then you should go to your Dex and obviously it's not just for satisfying the needs of people being impatient

10:51instant liquidity indexes is very important to make it acceptable as a collateral so one of the big use cases of liquid sticking is to do leverage staking right is the ability to use as a collateral the liquid sticking token and borrow other assets to take leverage such as the underlying assets and you still see some interesting things right on Matic and BNB and even

11:16on ethereum is that the lending interest is significantly lower than the staking rewards and in the case of Matic and BNB the additional liquidity risk of staking is obviously higher than lending in Venus or Ave but the difference in the yield is still very significant so and that's the cause of the problem if you look into it is more because

11:45of the interest rates model of Ave that is actually not really indexed and adapted to staking so it does not consider the staking rewards as if reference rate right so and I think fundamentally that's the issue where you see like such a huge difference of for example one percent lending interest on BNB while the sticking rewards is five percent and like does it really make sense such a

12:13big difference when the rewards the unbanning period is only seven days so we partner with the with projects such as Midas capital for example to try to solve that kind of issue with isolated lending where we basically created a market where we index the BNB staking rewards APR to the interest rates model of BNB borrowing to make sure that's at the optimal level the

12:42BNB borrowing interest is the same as the sticking rewards so it always makes it profitable for people to do what we call Liquid sticking folding strategies which is the process of just depositing BNB liquids taking and borrowing BNB and then you deposit more b b liquid sticking and you repeat the operation so we believe that indexation is very important and is something that is not

13:07really being used and it's very important to trigger a convergence between liquid lending interest and sticking rewards because fundamentally there isn't a very very big reason to see a significant difference between both rates super fascinating Felipe and so from what I understand you know because of the liquid staking you can stake your BNB get the Liquid BNB and then use that

13:33as collateral to just borrow more BNB and stake it and sort of continue the process and there is sort of that not exactly Arbitrage but Arbitrage opportunity where there's one percent interest and five percent staking reward I would think if enough people did that it was sort of lower you know those numbers would converge as you're saying and the

13:57opportunity would be smaller but I feel like you know and I always press urgency on people that are new to trading or staking about using leverage that there's obviously more risks involved if you're staking up something and getting collateral and the there could probably be risks thereof perhaps if the price of BNB crashes or maybe there are other

14:22risks you know is this something that everybody should be doing or you know what do you see as the risks and rewards from this situation there is obviously a risk but I will say it's more liquidity risk so the liquidity risk is the tuning two ways uni 287 to 10 days potentially if you really want to unstake any in case you don't see an acceptable price on the

14:49secondary market so it's not necessarily something for everyone but if you do have the patience to you know to bury that say liquidity risk is there something obviously that can be considered depending on everyone's personal situation I will say that also having participants that do that kind of strategy it also increases the BNB borrowing demand which increase is

15:14also the lending interest for BNB which then creates an alternative to staking which is more liquid which is just lending BNB but then giving a rate that is maybe not one percent but maybe three and a half percent instead of five percent for sticking so that's also something that can also an alternative that creates like a different risk profile that can attract other people to

15:40indirectly participate into liquid staking there is other benefits for example the concept of a folding strategy is originally the process of Just For example depositing medic on Ave bar wingmatic deposit Matic borrowing Matic but the thing is that it was only enabled because of the farming Rewards and if you look into these peer-to-peer lending platforms you still see that

16:07they still give farming incentives on the lending side and on the on the borrowing side and they do that because they need to trigger like a minimum demand a minimum utilization level to make the product attractive enough with liquid staking you actually no longer needs to have that kind of farming incentives because it just you just use a proof of stake rewards and

16:32and then you just create natural demand for Matic borrowing and BNB borrowing because you can just liquid stick here instead fascinating and where do you see today how popular liquid staking is becoming you know from what I'm aware with ethereum you know quite a large percentage of the total supply of ethereum is now being staked are you seeing people like how's

17:00the growth of the liquids taking on anchor over the past few months despite the market conditions so I think the current liquid sticking I'm not sure we're releasing like a lot of new D5 Advanced users into the market and I think this kind of use cases is obviously good for D5 users but I think the future growth is mostly going to come from B2B use cases

17:31so I believe for example if for example Q coin earned binance earn decides to create some BNB earned strategies obviously they can't use just B and B liquid staking as a as an infrastructure or it can just be one strategy among like a basket of strategies that they're running so they could also decide to just do 80 sticking 20 lending which is something that is a

18:01little bit more liquid because whenever someone wants to redraw they have the 20 buffer that they can take from right so that kind of composable strategy is something that I believe will be used by btb players more and more and liquid sticking it just makes it very easy to integrate in such in such strategies there is obviously other liquid sticking providers so I think that kind

18:30of composable strategies proposed by B2B players will be very important for let's say the upcoming volume of tvl and this is what we expect what one example that we see on BNB liquid sticking we're currently the leaders there and our strategy was different not so much focus on the farming rewards too much but more in Partnerships so we partnered with the with the project

19:00called The Helio and their purpose was to create yield it was to extract yield from a volatile asset such as BNB liquid staking and given it and transfer it into a stable asset so to basically allow people to generate yield but with the stable assets with a stable value versus US dollar so this is something that they've been doing and obviously because they're

19:27using BNB liquid sticking from anchor most of their tvl became our tvl as well right so that was actually very helpful and that's actually contributing for about 80 percent of our tvl currently so that's that kind of strategy that we believe actually will make more sense at least for anchor is really to use Liquid staking as an infrastructure tool for individuals for

19:54institutional investors but also for other protocols if they want to build on top of it and as anger continues to grow is that part of the focus to partner with you know some of those exchanges that you mentioned to just get big clients and partner with the biggest exchanges so when they do staking they're actually using anchor on the back end and the end

20:18users aren't really aware of that I mean the users they should be aware of that I think what's happened with Celsius is maybe the lack of transparency was it was an issue from those providers so I think making sure that you can offer integration solutions that are fully on chain it also allows it to be fully transparent so and I think using liquid sticking allows it to

20:42make it fully transparent instead of using other Solutions where you cannot really offer that kind of transparency when you have manual processes in between such as manually handling delegate staking and dealing the nodes management yourself in terms of Partnerships so obviously we believe that it is more cost efficient for us to partner

21:08with yeah companies that already have a large user base that doesn't necessarily want to interact directly with defy to use indirectly liquid sticking from us instead of us giving away very aggressive farming rewards because in that competitive landscape I will say our competitors they're just dealing liquid sticking we're doing much more than that so we need to be a

21:33bit more responsible about how we give away our anchor tokens and we cannot really like fight in the same in the same space of rewards right however we do have I think the credibility of being a full-fledged infrastructure provider and I think that can play a big weight for those integrators that might want to start interacting with the liquid staking and I think think they

22:01will rather partner with anchor then new liquid sticking providers that came up only a few months ago what do you see Felipe as being you know the key factor to success for during the next Bull Run and let's just say two years from now for anchor to continue to be the number one liquid staking solution

22:28so I think like the liquid sticking is not necessarily the core product of anchor right I think really our Core Business is about building developer tools and obviously the RPC nodes is a main component I think what's really makes sense for us is to potentially expand to different type of nodes where we offer synergies for developers so I think what we really

22:56would like to see in the next two years is that every builder in D5 in web 3 is in some way or another using anchor tools which can be gaming it can be creating their own side chains with the help of anchor it could be yeah the RPC nodes or other type of nodes eventually in the future liquid sticking is a is a great tangible product for non-developers I think it

23:23provides a lot of branding awareness about anchor as well and what you we see very often with new chains that want to integrate and have their chains supported by our RPC node network is that it has very often now liquid sticking which is something that was not happening one year ago so when when you create your own blockchain usually it

23:48always starts with the we need the RPC node providers so that Builders can build on my chain and apis and we need the blockchain Explorer and so on and so forth and very often the part of liquid sticking happens because it's a great way for them to bootstrap their own liquidity right because if you have like BNB chain 80 percent that is staked

24:10I mean it's nice but it's not counting as TV and on your chain unless you're using liquid staking if you're using intense liquid sticking well then it becomes as the first layer of tvl for your own chain and if you then build other use cases using liquid staking that kind of multiplies TVO which she's a nice kind of growth hack that's most of the chains are becoming aware of and

24:34the new chains are willing then to integrate liquid sticking very early on great perspective Felipe thank you for explaining that and now if there are users that are interested in learning more about running nodes or blockchain projects and institutions that are and developers that are looking to look into anchors development tools what is the best way for them to learn

24:57more about that I will say it will be to contact us through Discord so that's usually where our developer Community is more active so I will say that the yeah running a RPC node for example if you're really experienced into that field you can definitely try it out and it is still not a fully like

25:26automated Open permissionless Access but you can definitely get in touch with our team and we can assess the request sounds great Felipe thank you so much for all the insights into the RPC nodes and the liquid staking and developer tools and I really believe that development and infrastructure needs to come first otherwise there won't be anything for the end users to use so I'm

25:50glad that your team is working on that I will leave the link to the Discord and the platform in the description box below as well thank you so much for all your insights and let's follow up in the near future thank you have a nice day