Ethereum’s Culture Problem w/Hasu

Christine welcomes Hasu, a strategic advisor to Lido and strategy lead at Flashbots, to discuss the upcoming Lido V3 upgrade. Lido, the largest liquid staking pool on Ethereum, is evolving from a vanilla staking model to one that accommodates user demand for customization, including leverage staking and compliance with institutional regulations. Lido V3 introduces custom staking vaults, allowing for a tailored infrastructure while maintaining liquidity access. However, Christine raises concerns about the risks associated with this increased customization, which Hasu categorizes into three main areas: protocol complexity, the changing risk profile of Staked EVE, and the impact on node operator decentralization and slashing risk.

The rollout of Lido V3 is cautious, with caps and limits in place, and it does not replace the existing protocol. A rigorous security process, including multiple audits, is in place to ensure confidence in the protocol's complexity and security. Staked EVE can be minted against staking vaults, but rewards are not shared among all holders, and the collateralization ratio varies by vault risk parameters. The ability to mint Staked EVE decreases as a single party's stake increases, helping to control stake concentration among node operators.

While Lido V3 is seen as targeting institutional interest, its gradual rollout may not effectively support large institutions. Over-collateralization presents a disadvantage compared to institutions that could have a one-to-one collateral ratio, introducing correlated slashing risks. Custom setups could complicate the staking process and introduce new risks, requiring institutions to balance liquidity and acceptance in the market when choosing loan-to-value ratios for staked ETH.

The conversation highlights the low risk associated with buying or selling staked ETH and the evolving governance of Lido, managed by a DAO. Institutional understanding of DAOs and blockchain has improved, leading to increased comfort with DeFi and Ethereum. Unlike Coinbase and Kraken, Lido has not faced enforcement actions and is addressing the lack of a clear legal counterparty for DAOs by creating foundations that serve this role. Interoperability is emphasized as crucial, not only between layers but also in legal contexts.

Lido V3 aims to enhance user experience by allowing for greater flexibility and customization in vaults, with deposited ETH always staked in the existing Lido V2 setup. Institutions can establish custom agreements with node operators, facilitating direct discussions without DAO involvement. The roles in vault creation include stakers, curators, and node operators, with governance focusing on significant decisions while a risk committee may handle specific assessments. The DAO will set general risk parameters, hard-coded into the protocol, to manage minting limits.

The discussion transitions to Ethereum's market performance, with Hasu expressing concerns about its underperformance and the resurgence of Solana, particularly due to meme coin activity. He believes Ethereum is intellectually oversold despite its challenges. While Ethereum's scaling issues are being addressed, user experience problems persist, with expectations for significant improvements by 2025, including advancements in asynchronous composability.

The potential of roll-ups in the Ethereum ecosystem is highlighted, emphasizing their ability to customize and differentiate from competitors like Solana. The need to make block space valuable is underscored, with suggestions that Ethereum can set and adjust fees for roll-ups in response to competition. Governance issues within Ethereum are discussed, particularly the challenges posed by proposals like Max Resnick's fee initiative and the Pectra upgrade, which have led to disagreements among developers.

A cultural problem is identified, advocating for a shift from theoretical discussions to practical user benefits and increased engagement with current user needs. Concerns about the centralization of Ethereum development are raised, with most Ethereum Improvement Proposals (EIPs) co-authored by the Ethereum Foundation. The need for a cultural change in development is emphasized, focusing on clear goals and constraints rather than just features.

The conversation concludes with a call for a holistic rethinking of Ethereum's development approach, appreciating the insights shared during the episode.