Native Staking in L2 and the Bankless Society: An Interview with Ether.fi Co-Founder Rok Kopp
The liquid restaking (LRT) trend continues to gain momentum. According to DeFiLlama, at the time of writing, the amount of liquidity trapped in the smart contract of the segments protocols has already exceeded $10 billion.
The largest LRT service is Ether.fi, with nearly $3.9 billion in assets under management. Incrypted spoke with project co-founder Rok Kopp. We talked about the second season of airdrop and the role of the ETHFI token, plans to integrate native staking into L2 networks, as well as the future development of the product.
Let’s start at the beginning – your way into crypto. So you had a lot of different executive positions in different non-crypto companies. And now you’ve started a successful crypto project. Why crypto and why now?
I spent 15 years building various software companies and their go-to-market strategies. I had a great run there. Mike [Silagadze], who’s my co-founder and the CEO of Ether.fi, and I worked together at a company he started out of college called Top Hat. That’s kind of how we met.
Actually, that was when I was first introduced to crypto, around 2012. The developers were all around the computer, I think they were on Hacker News or something, reading about Bitcoin. A couple of them sent a PayPal transaction and got some bitcoin back. That was the first time I heard about it, so I hung around in that space a little bit, not really doing much with it because my focus was on software.
Then I got really involved during the ‘DeFi summer’, which was a big step into it for me. Specifically, I think the opportunity and the potential impact that DeFi can have on the world is the biggest thing that I see.
What initially got me into crypto was the casino aspect; it is the biggest casino in the world, it never sleeps. But then when I started to see some of these utilities like DeFi and then stablecoins coming on board and really getting involved in the Ethereum ecosystem, that’s when things really took off for me. That’s how I got into crypto and started moving in space.
There’s a follow-up question about the early days of Bitcoin. Did you manage to keep it from then on? At least one Bitcoin or some?
The answer is no. Yeah, no life-changing money was made from early crypto purchases by anyone on the team, actually.
So, you got into crypto through ‘DeFi summer’. How have you interacted with cryptocurrency?
I just participated in a lot of different things. I played around a lot on Uniswap, which was probably my first onboarding into it.
And if I think about the evolution and where that led, we actually started and got into the space with a hedge fund. It was just the easiest way to get into the space. So that’s what we did.
Fast forward to last year, the FTX collapse happened, and the next thing we did was look at the counterparty risk that was in the space. We thought there was a lot of counterparty risk with Lido. That’s how and why we started building Ether.fi.
It was really as a solution to Lido, an alternative to Lido. Liquid staking was a crowded space at the time, and the biggest thing we announced was that we were going to build with EigenLayer. That was after we met Sreeram Kannan [founder of EigenLayer] at ETH Denver last year in February, so that came out in March that we were going to build with EigenLayer, and that was before the whole EigenLayer mania started.
We had started with the hedge fund, one of which was an ETH staking fund, and we were staking with Lido, but we realized that we weren’t happy with the counterparty risk. That’s when we started to build and launch Ether.fi.
EigenLayer, as you mentioned, has been around for a while, and now, as you said, there’s EigenLayer mania. Why now? Why is there such a huge amount of projects and hype about restaking and stuff like that? Why is now the perfect time for it?
Yeah, it was certainly the perfect storm of things, and I don’t have a good answer as to why.
I would say the EigenLayer team is super impressive. We obviously work very closely with them. And from the academic side of things, they’re thinking through all the cases. EigenLayer is just so well thought out and put together. And it’s just this natural evolution of staking.
Actually, one of the ways I kind of explain this is by putting it in traditional finance terms. So, you have a central bank and the central bank is going to give out T-bills, which is like staking. You put your cash in there, and in return, I’ll give you some cash on top of that. And then restaking is basically like corporate bonds, right? It’s the next evolution of this.
So, one of the challenges that we face as an industry in bringing the next wave of people on board is to put things in terms that people can understand. So, the concept of restaking, and what restaking is, is basically corporate bonds.
The point mania just took off, right? And so, the hype around EigenLayer, the potential airdrop that it could have in terms of wealth creation, has really gotten people into it. And there’s just so much positive momentum behind it, and the team has done a great job executing. But right now, restaking is just point accumulation, right? It is not online yet. I think sometime in Q2 it should be online and restaking will actually start to happen.
So, super excited about that and to see what it does. And the EigenLayer team has been working hard to get to mainnet, and I think that will be coming in the next couple of months here. So, yeah, super excited to see where it goes. But I guess just to answer the question, again, it’s like, I don’t know why now. I just think it’s a super great idea from Sreeram and the team, and the potential impact restaking has on the Ethereum ecosystem could be the biggest thing since Ethereum.
Sounds impressive. You mentioned the point system, and you chose the point system. This model is very popular now. Why is that?
I think point systems are good because you can tell users what you want them to do. Depending on how you want to grow, what you’re trying to do, whether it’s DEX liquidity or integrating with a particular DeFi protocol, you can incentivize and make very clear to your users what’s important to you.
I actually think from a user perspective, points are super valuable. They’re annoying, but they’re also super valuable. You can say, “Hey, there are these things that the protocol thinks are good. So if I’m a good participant, I’ll get more points.” And that’s kind of how it is. People have taken points in a variety of different ways, and it’s interesting to see how that all plays out. But I think there’s an advantage to points in that you can be very explicit and direct with users about what’s valuable to you as a protocol.
You recently launched the ETHFI. With token features and future capabilities, what would you like to see more of in the future?
ETHFI will have a role in governance – people will be able to vote with their tokens. We are bringing in delegates now who will be able to help with that process as well. The long-term focus there’s a couple of different things that we’re going to do. We’re also going to have a value accrual mechanism. So protocol revenue will come back to the token and accrue to the token.
The first proposal will come out in the next few weeks that people will be able to vote on with their ETHFI token. I think as we move towards decentralization getting that first vote up there is super important.
The value accrual mechanism like Balancer uses like this vote escrow model and so we’ll be looking at doing some things like that as well. I think things will evolve. The role of the token and stuff will evolve over time but those are the first things that we have in mind.
What about DAO? How does this model work in real life? What are its advantages and disadvantages?
I think it’s very challenging to be a DAO early on, because the more decentralized you get, the harder it is to move fast when you’re small and trying to compete. You have to be scrappy and you have to be fast.
We have a process where we’re moving toward decentralization over the years until we get to a point where we’re fully decentralized. And we’re super excited to get to that point. But we know it’s a journey, right? We’re not going to get there on day one. When you’re small, you want to make sure that you can make decisions on your own.
Look at any DAO that’s out there and what’s going on. I think it’s super important to have ETHFI token holders in the community who can generally help guide where you’re going, but they’re also not involved in the day-to-day operations of the company.
It’s super important to figure out the big overarching themes and directions that we’re going in. And I think that’s a really great thing to lean on the community for. The tactics and how that’s executed and done on a day-to-day basis, I think that’s important for the core team to think through and execute. So we’re going to work on that. Over time, we’ll get to a fully decentralized organization, but it’s going to take time to get there.
Ether.fi leads the LRT protocols in terms of TVL. How did you get there? What are your advantages over your competitors and who are they?
I think everybody is still competing against Lido. There’s this term liquid restaking and we’re the leader in liquid restaking. I think staking is just going to turn into restaking. Restaking is the natural extension of that. Basically there’s ETH that’s staked. I think everything will be restaked at some point.
I think for the first time in some time Lido’s market dominance is below 30%. And a huge credit is just to the liquid restaking space and what happened with that. We started building last March, we always built with EigenLayer in mind, so we built things the right way, like we were building from the ground up.
We built our own code. We thought through things. We made sure there was decentralization. We made sure it was non-custodial. Keeping those ethos when you’re building is a challenge. Especially when the bull market starts, you’re trying to get to market faster and you’re doing different things.
So we are native ETH that is restaked. And what I mean by that is the ETH that comes into Ether.fi. If you go to Ether.fi and you put your ETH in, you get ETH in return. We take that ETH and we put that into the Beacon Chain. Instead of putting a liquid staking token into the restaking, we put that in the Beacon Chain and we point that withdrawal address to the EigenPods instead of taking a stETH wrapper and pointing those at the EigenPods.
That was really important to us. And that is one of the big differentiators. The only people doing that in the space right now are us, Renzo, and Swell. So I think natively restaked ETH is a huge competitive advantage.
We were really lucky with the timing. We launched, we basically spent the summer building, we launched in October and then really came out in November and things have just been like growth since then, for 90 days straight we were growing five to ten percent a day and when you do that you just start to compound really quickly so we had 20,000 [ETH] that we started with and just kind of went from there.
I also think we’re a trusted brand. Our team is fully doxed. We’ve built and run companies before. And so like people aren’t worried that there’s going to be a rug or something. We’ve been very open and upfront when there are challenges, we have community calls, we address them, and we kind of go through them. I think that has helped build a lot of trust. We see ourselves first and foremost as a steward of capital. Like we want to protect people’s ETH first and foremost.
And that’s what we’re in this business for. We want to get rewards on top of that and we want to make sure that your ETH becomes more ETH, but we want to make sure that we’re safe first and foremost. That’s why we do things. That’s why we built it in a non-custodial way. That’s why we’re so focused on decentralization.
So that’s kind of the beginning. Our depth of DeFi integration is super important. If you go to EigenLayer, you can put your 32 ETH in there, but then you give up your composability. In crypto, we love to stake. We love to be degens. And so we want utility with it.
So the fact that you’re able to restake and then also go play around in DeFi, that was the biggest competitive advantage we had. EigenLayer’s narrative was taking off. People were hot on restaking. Their TVL was growing a lot. And it was with this native ETH. We gave the first opportunity where people could actually restake their ETH and then still continue to play in DeFi.
The Pendle pool that launched in December, we were the first pool on Pendle with the liquid restaking market. Obviously, it’s become super hot since then. The DeFi integrations and the depth of the DeFi integrations are important.
The next step for us is also to get to L2s. It’s so hard to transact on L1, it’s so expensive. So we’re going to have a huge push to get to L2s. We’re working with LayerZero. We’re going to be on all the L2s. There is no L2 that we don’t want to be on. So we’re going to work on getting deployed on all those L2s. That’s kind of the next step as far as the recap space and where we’re at.
Maybe you want to deploy to other L1s as well?
We are super focused on Ethereum right now. I think there’s some interesting stuff going on, like EVM compatible L1s. And you can just copy and paste code.
And so that’s something we might look at. But right now the majority of economic activity is happening on Ethereum. That’s where we’re focused and we’re focused on building there. Right now there’s so much to do. There’s tons of cool L2s that are coming out so we’re super excited to work with a bunch of those L2s. Obviously the first L2s – Arbitrum, Optimism, Base but also a lot of fun other L2s coming out. Like Mode, super bullish on what Mode is doing.
So it’s really excited about that. The L2 strategy and the DeFi strategy – basically we never want people to have to make a decision whether or not to if they love a protocol. We want eETH to be there. We don’t want them to be like “Hey I love this protocol but eETH is not there and stETH is.” We want eETH to be everywhere. Lido did a really good job with that.
Are you saying that Ether.fi will introduce native staking among all L2s? Sounds impressive.
That is the goal. We’re going to enable native staking on all of them. That’s something we’re super focused on. I just think it’s going to be a really good user experience. So yeah, we are working with LayerZero on that and we should have native staking on all of these chains.
We’re talking a lot about the EigenLayer and how this whole industry is literally built on top of it. What will change once the EigenLayer is fully launched?
I think the whole world changes! You actually start to get to see the restaking rewards and what those will actually be. And so the approach that we’ve taken is we work or identify AVS that we think are building really good projects and we commit capital to them to build on top of us. And so we commit ETH in return, they commit some kind of reward for the block space.
And so we’ve announced partnerships with Omni Network, Ethos, Lagrange Labs. There’s five or six that we’ve announced so far and we’re going to announce more. So we’re really excited about the building that’s going on there
I think everyone in the ecosystem is excited to see ‘points mania’ come to an end. Like, obviously it’s been great and super fun to follow and it’s been beneficial to a lot of people. We’re excited to get to the next, real level of adoption.
That’s where the rubber kind of hits the road. Like you actually see what all these mania points have been about when restaking comes live. So. Will the capital stay? Will it flee? Will more capital come in? I actually think it’s a huge opportunity to get more institutional capital in.
One of the things we’re focused on at Ether.fi is getting the next 20 million wallets into crypto. And we want to be a big part of that, and reward is obviously a huge way to do that. And so we feel like the redemption for that is going to be massive. Institutions in general star for yield. If they can understand where the yield is coming from, that puts them in a really good position. So, yeah, that’s kind of the evolution of restaking and how I think it’s going to go. So it’s going to be very, very fun to watch over the next few weeks.
This is a good time to ask you for some insights. Maybe some future plans. And, of course, the second wave of airdrop.
So in general, uh, we’re live in season two now. Season two started I think March 16th, March 17th, maybe Saturday. We are live in season two now, season two will go until June 30th.
Stake Rank is the new thing. Basically if you stay for a period of time you get like a bigger multiplier on your points and it kind of goes forward from there.
Yeah, season two is totally focused on Stake Rank. We’ve been very public that it ends June 30th, five percent of the ETHFI will be given to the second airdrop.
Tell us where Ether.fi is going next?
We want to have all your operations. Like whenever you have ETH, if you want to be long ETH and you want to transact with ETH, we want you to be able to come with Ether.fi.
So if you think about a traditional bank account, they have a checking account, a savings account, an investment account. For us, we started with the savings account. And so that’s staking and restaking. That’s Ether.fi Stake – the main core product that we have.
I think it’s going to be the way that a lot of people start to get on board with Ether.fi. You know, we continue to add about 25 to 30,000 ETH a day to the protocol. So deposits are still going on. If you want to use Ether.fi, you just go to the app, connect your wallet, put in ETH, deposit ETH and you’ll get ETH back.
When you do that, you start earning Ether.fi points, EigenLayer points, ETH staking rewards, and then also the ability to interact within DeFi. Fast forward, when points are no longer a thing, you start earning ETH staking rewards, restaking rewards, and then you also maintain your composability to mess around in DeFi. So Ether.fi Stake is the first one we did.
Ether.fi Liquid went live two weeks ago. We are now the largest vault on Ethereum. So it’s about 340 million I think right now. But basically you can deploy to DeFi with two clicks. You go in, you connect your wallet, you put your eETH into Liquid, it gets captured and it gets deployed. We work with small expert advisors and Seven Seas and that gets deployed into strategies.
There’s six different strategies that get deployed into Balancer, Uniswap, Pendle, I’m drawing a blank on the other ones right now, but anyway you can just go and see the strategies that they’re deployed into and you start collecting returns. Right now I think it’s 25% yield, you also get 2x Ether.fi points if you’re in Liquid. So if you’re trying to play the points game for season two, Liquid is definitely your game.
Just go take a look it’s Ether.fi and then just click on the Liquid tab and you can deploy there. Start earning APY and then start earning your points multiplier as well. Very bullish on Ether.fi Liquid. We’re going to be coming out with more vaults as well. So we’re going to have a market neutral vault. We’re also going to have something that’s like a high risk vault. So we’re going to have different vaults that are going to be coming out here as well, which is exciting.
And then the other thing that we’re building is Ether.fi Cash. You’ll have a physical credit card that you can transact with. And transact on a day-to-day basis.
We’re working on it now. I guess it’s three to six months out. Ether.fi Cash, Ether.fi Stake, Ether.fi Liquid – it’s like you’re checking savings and investment accounts is basically what you want to do.
So it’s a kind of bankless society, right?
Totally. This is like literally the journey to going bankless through Ether.fi. Liquid is going super well. You know, we’ve shown that we can execute on these products. The next one is Cash. So if we execute well on Cash literally the journey to being bankless has started and is in motion.
That’s impressive. And now a few final questions. What do you think we should expect from the industry in the short and long term?
I think the biggest thing we need to do is just two things. We need to work on our vocabulary. The words that we use in crypto are so hard for a normal person to understand. And until we get things more mainstream, like I just think we’re going to have challenges like onboarding people.
I think that’s super super important for us to onboard the next amount of people because right now there’s a million people in a million wallets that are changing and they’re all going after the same things.
The second thing that I think we need to do is think about real use cases and start building real use cases. Getting away from the casino and building real use cases, like how do you generate real returns, how do you have real economic activity, right, like thinking through those things and really trying to get them through.
Part of crypto will always be the gambling town and the casino. That’s part of what makes it fun. I love the meme coins. But really the crux of it is you need utility and you need to get that utility of DeFi out in the open. People need to understand where the returns are coming from, where the money is coming from. And thinking through those use cases and kind of taking the next thing.
So I’m super excited about what’s being built on Ethereum. I’m super excited about where the crypto industry is going. I’ve never been more bullish on it. But it’s so focused for me on this part of, you know, exactly where we’re going. And how do we get the next 20 million, 100 million, billion people on board with crypto?
Yeah, that’s ambition. You said that you were introduced to crypto in 2012. And I should ask, it was kind of a traditional question from back then, from interviews. If you met Satoshi Nakamoto, if you had an opportunity to ask him a question or tell him something, what would it be?
Well done! I just don’t think it’s well done, I think everything about it is so cool.
Like the fact that Satoshi is still anonymous and the fact that this system has been built and is actually now like a viable alternative is just so cool. I think Bitcoin plays this role like it was the first thing. I think Ethereum is the evolution of it being a program of a blockchain. Is what you actually need to make the whole system work.
But Bitcoin was the entry into that – kind of think of it like gold was the entry into the currency. And then these modern institutions have taken it to the next level and built their fiat kingdoms the way they have. It’s just amazing.
I bet you if you went back 15 years and talked to Satoshi and said to him “Hey, here’s where Bitcoin is now”, he’d be like “Damn, that’s pretty impressive”.
