Staking Summit
Monday, March 18 | 1 - 6 pm EST | New York



See below the notes from the Staking Summit, which were documented by Meltem Demirors and have not been proof read. Please add comments using the mark up feature if you feel your discussion points are missing, were captured incorrectly, or require further context.

Note this discussion was conducted under Chatham House Rules. If you are unclear on what that means, you can find the rules here. We are in the process of drafting a brief summary of the conversation for sharing in a public forum, which will be circulated via the “Staking Central” Telegram for review and edits before sharing.

Looking forward to the next steps!



Summit Overview and Objectives
The initial agenda and topic list was drafted by the organizers as a starting point

See here


Attendees
The below individuals were in attendance. I’ve also included those who could not attend but would like to participate in future events.

Name
Company
Best Contact
Michael Jordan
Galaxy Digital
[email protected]
Graham Smith
Figment Capital
[email protected]
Leah Jonas
Celsius Network
[email protected]
Quinn Lawlor
Arrakis Mercantile
[email protected]
Evan Weiss
EON Capital
[email protected]
Daoud Schelling
Bitcoin Green
[email protected]
Van Phu
Floating Group
[email protected]
Jacob Arluck
TQ Group
[email protected]
Santiago Santos
EON Capital
[email protected]
Joe
Bison Trails
[email protected]
Can Kisagun
Enigma
[email protected]
Meltem Demirors
CoinShares
[email protected]
Jason Stone
Battlestar Capital
[email protected]
Adam Carver
Battlestar Capital
[email protected]
Alex Mashinsky
Celsius Network
[email protected]



III. Brainstorm on Discussion Topics
We had an open discussion of the topics and ideas everyone in the group would like to discuss, and they were categorized, organized, and defined in key categories, as listed below.

Language & Syntax
Distinguishing different types of PoS and communicating that
Not easy to explain to investors what staking, slashing, etc is
Language, syntax, and ways to describe staking that distinguishes work from governance and creates a new and specific lexicon
Financial v technical implications and the difference between chains

Education / Information Transparency / Data Services
How do we educate users and provide information transparency
Communicating from trusted sources
Rankings for governance, decentralization, etc and create grading
Disclosures - how do we set a standard for better disclosures around conflicts of interest

Self-Regulation / Self-Policing
Conflict disclosure
Code of ethics

Tax, Legal, Accounting
Coordinated engagement with regulators
Advocacy efforts and opportunities create templates, tools, and standards, including regulation, tax, control matters, and disclosures
Legal implications of staking - how to design contracts for delegation
Tax implications for how staking is defined - income v dividend
Accounting firms signing off on these different types of treatments - getting Deloitte or PWC to sign off on this treatment

Investment Products & Yield Generating Assets
Creating investment products around staking
Debt
Using staking as a loan mechanism
Figment: using a reverse repo
Derivatives and prediction markets
Self-sustaining fee markets

Network Development & Decentralization
Incentivizing smaller validators and encouraging decentralization - perhaps through UBI / progressive tax
Does staking work as a mining / network maintenance mechanism

Voting
Separating governance from network
Glass Steagal act - separation of duties between types of entities in the crypto ecosystem

Tools and Services
What types of services exist, how to think about them
Categorization of services and common parameters to evaluate
Communication between teams building protocols and service providers around parameters for design
Learning from design mistakes

User Experience
Most of the yield is working nothing - how do we help people understand things like 10%+ yield are legitimate
Creating easy experiences for people to participate in networks

Economic Structure
Scalability of staking strategies
Impact of liquidation / chain switching on networks
Compression of margins and returns over time
Inflationary v deflationary models - explaining it in a way investors understand
Rate fixing / cartel behavior - how do we design systems to prevent this behavior



IV. Setting Agenda of Discussion Topics
Attendees ranked priority issues from 1 - 10, and the issues were discussed in order from highest to lowest priority.

Topic
Priority Vote
Investment Products
110
Tax
108
Economic structures
107
Network Dev
106
Language & Syntax
101
UX
93
Education
87
Tools and Services
86
Transparency
82


V. Discussion of Topics

i. Investment Products & Yield Generating Assets

Ideas for Products
Creating investment products around staking
Debt
Using staking as a loan mechanism
Figment: using a reverse repo
Derivatives and prediction markets
Self-sustaining fee markets

Parameters of Products
Asset: Multi v single asset
Yield: How to price and redeem yield
Price volatility to staking yield
Liquidity for the asset
Borrow - governance rights
Rate: Floating v fixed
Legal implications: paying like for like in interest makes it different than cash products
Structured products:
MLPs and other tax advantaged vehicles: Are there examples of people doing this?
Public v. private vehicles: Without a route to a publicly traded US vehicle
Hedging options on the back end of a guaranteed yield product
Compounding v cashing out / paying out in BTC
Cost basis on gains

Issues with Products
Volatility - need more data to create a robust
Number of robust staking networks
Options - who owns the underlying the rights associated with the network
Tax - when is there a taxable event
Physical v synthetic delivery

Examples of these Products
NeptuneDASH - traded on the TSX, own masternodes and the sole purpose of the entity is to hold the masternodes and distribute the revenue as a dvidend
Hut8 - hold and mine bitcoin
CFTC ethereum post

Next Steps
Coordination and providing liquidity
Treasury management products including staking products
Products sub-group
Who the investors are - want to get money in - how do we get people who don’t own crypto to own some crypto via this staking mechanism
Narrative of bitcoin (scarce) v dividend / earning more


ii. Tax, Legal, and Regulatory

Notes from Topic Brainstorm
Coordinated engagement with regulators
Advocacy efforts and opportunities create templates, tools, and standards, including regulation, tax, control matters, and disclosures
Legal implications of staking - how to design contracts for delegation
Tax implications for how staking is defined - income v dividend
Accounting firms signing off on these different types of treatments - getting Deloitte or PWC to sign off on this treatment

Discussion on Tax
2014-21 memo from the IRS treats staking income as ordinary income
Dividend income - no different than if you were a stock holder
Non passive income - rental income on RE is treated as ordinary income, if you spend over 500 hours per year on it, then it is treated tax advantageously
RSU - could staked interest on chain for something like delegation be treated as an RSU
Savings income - losing out on inflation, so is there a tax benefit here
1099-MISC income - giving clients 1099’s at the end of the year
Go to Britain first to work w HMS treasury on setting a precedent
Fair Market Value - How do you track exchange price / price generally with a reliable market oracle - regulated exchanges
Gibson report
Rules around pink sheets OTC pricing
When cryptopia went down, pricing for a lot of tokens disappeared because they were locked into the exchange. There is no venue to sell.
Looking at LIBOR as an example? Looking at potentially creating a rate-setting mechanism amongst some of the larger players
IRS will come up with guidance in 3-4 years, and they will likely use existing guidance from existing firms in the space

Next Steps
Review memo drafted by Santiago
Private letter ruling
Quote book or creating an inside ticker tape for these assets
Create a public vehicle / group owned PB
Get together the accounting firms to discuss and maybe publish something

iii. Economic Structures
Notes from Topic Brainstorm
Scalability of staking strategies
Impact of liquidation / chain switching on networks
Compression of margins and returns over time
Inflationary v deflationary models - explaining it in a way investors understand
Rate fixing / cartel behavior - how do we design systems to prevent this behavior

Discussion
Most people view scarcity as the most important thing in crypto
Emission schedule, slope of that curve, is very important to the investment value prop
Linear curve v variable curve - relationship between emission schedule and interest in staking
Chorus one / one protocol is focused on maximizing the yield - yield switching as a phenomenon
Principal / agent problem - is it likely that there will be instances where agents ie service providers have an interest that conflicts with that of principals ie investors?
In order to be competitive, have to be able to port assets over easily between service providers
Factionalism in voting - have dynamically adjusting thresholds to ensure there is resolution of issues
Selling voting rights - creating a market for governance
Free rider problems - creating a second token to pay for protocol upgrades - could pay people who buy the token to vote on protocol outcomes
How do you quantify governance v decentralization
Exchanges taking clients’ staking rewards and selling them for their own gain`
Networks will change how they incentivize block creation - limit the % of the tokens locked up in staking

Next Steps
Existential questions for the future of staking
Buyer beware post
Pressuring exchanges to be more transparent staking relationships
Code of ethics via POSA
Possibly litigation of exchanges who are keeping staking rewards

iv. Networks and Decentralization
Incentivizing smaller validators and encouraging decentralization - perhaps through UBI / progressive tax
Does staking work as a mining / network maintenance mechanism

v. Language & Syntax
Notes from Topic Brainstorm
Distinguishing different types of PoS and communicating that
Not easy to explain to investors what staking, slashing, etc is
Language, syntax, and ways to describe staking that distinguishes work from governance and creates a new and specific lexicon
Financial v technical implications and the difference between chains

Discussion
Defining all of the different staking protocols
Is there any service provider who could provide this?
What not to say - don’t call it yield, don’t call it bond, call it interest
Delegation - is it a financial service and does it require signing an agreement
Implications for sharia compliance….
Staking reward is the safest thing to say
Ways to explain staking that could be beneficial:
Anyone who holds a token can participate in securing the network
Environmental friendliness
Governance aspect
Ways to promote utilizing common lexicon
Standardizing v commoditizing language
Not everything should be made equal across protocols but common understanding would be helpful
Functional roles in the ecosystem
Protocol devs
App developers

We did not address points 6 - 9



VI. Wrap Up and Next Steps

Draft a brief blog post highlighting discussion and outcomes of Summit and next steps
Convene a Telegram Group (invites will be distributed, tentatively named “Staking Central”) to continue the conversation
Convene this forum on a quarterly basis, perhaps in a shorter format. We are also looking at organizing a one day “conference” which will be a more structured, larger version of this event
Begin Ecosystem “Map” / Directory efforts - Meltem created Google form, link to add companies here, please share broadly and widely. Will be synced to an AirTable or something on a public site - process TBD.