Dialogue with ether.fi founder: The end of LRT War may not be winner-takes-all

Interviewer: flowie, kit, ChainCatcher

*Guest: Mike Silagadze, * founder of ether.fi

Editor: Marco, ChainCatcher

Reflecting on over a decade of entrepreneurial experience in the education technology field, on April 4th, ether.fi founder Mike Silagadze said in an exclusive interview with ChainCatcher, "It feels more like taking a detour."

Although Mike Silagadze founded Top Hat shortly after graduating from the University of Waterloo, which has become a well-known educational software in North American universities, it completed a $130 million funding round in 2021, reaching a valuation of $500 million.

However, in March 2021, Mike Silagadze chose to sell his shares and step down as CEO. He quickly established a cryptocurrency DeFi fund named Gadze Finance with the funds he earned from selling Top Hat.

After nearly two years of operation, the collapse of FTX and Alameda made Mike Silagadze realize the high risks and limited value of running an asset management fund. He hoped to build new products to participate in the construction of the crypto space.

At that time, the Ethereum restaking white paper was born. Mike Silagadze stated, "It had the same impact on me as when I first saw the Bitcoin white paper and the Ethereum white paper." He quickly assembled a team to establish the non-custodial staking protocol ether.fi.

Unlike other liquid staking protocols, ether.fi allows stakers to retain control over their keys and has a fast withdrawal feature similar to Lido.

In 2024, restaking has become the hottest narrative in DeFi, and ether.fi is also the most prominent protocol in the LRT track. From the beginning of 2024 to now, ether.fi's TVL has rapidly grown from around $100 million to nearly $3.5 billion, increasing 30 times and quickly becoming the leader in the LRT track.

After achieving the milestone of over $3 billion in TVL, Mike Silagadze stated that they will also launch a Cash payment product to attract more users and funds. "In the long run, our vision is to become one of the channels for the mass adoption of cryptocurrency, helping 100 million users enter the crypto space."

From Education Tech Veteran to DeFi Player

1. ChainCatcher: From public reports, we learned that before officially entering the crypto space, you founded the educational software company Top Hat, which is a significant industry shift. How did you enter the crypto space and commit to going all in? What important career experiences do you have?

Mike Silagadze: Shortly after graduating from the University of Waterloo, I founded Top Hat in 2009, which primarily provides digital courseware and textbooks for higher education.

By 2021, 750 of the top 1000 universities in North America were Top Hat's clients. During the pandemic, the number of students served by Top Hat increased from 2.7 million to 3 million. After completing a $130 million funding round in 2021, Top Hat reached a valuation of $5 billion.

But to be honest, founding this edtech company felt like taking a detour for me; I wish I had entered the crypto space from the beginning. During my university years, I learned a lot of programming skills. Like many others, I was very excited when I read the Bitcoin white paper, amazed at how cryptocurrency strangely integrates technology, economics, and politics. I have always been a libertarian, and I believe in the power of stateless currency as a very strong concept. I started buying Bitcoin in 2011 and tried mining.

After running Top Hat for over a decade, I chose to sell the company and officially enter the crypto space. In March 2021, I stepped down as CEO of Top Hat and remained a board member. After selling the company, I made a significant amount of money, which I used to establish the cryptocurrency DeFi fund Gadze Finance.

Gadze Finance is still operational, primarily helping investors earn returns through yield strategies, liquidity allocation, and arbitrage strategies.

2. ChainCatcher: When did you start paying attention to the staking track? The LSD track has also been quite competitive from 2022 to 2023. What prompted you to decide to establish ether.fi?

Mike Silagadze: We spent a few weeks deciding to participate in the staking track. First, the collapse of FTX and Alameda made us realize that running an asset management fund is highly risky, and its value may not be very high.

We wanted to participate in the crypto market through a direct way of creating products. Coincidentally, I read the Ethereum restaking white paper and attended several related lectures. It had the same impact on me as when I first saw the Bitcoin white paper and the Ethereum white paper.

We know that staking protocols like Lido, as early players, occupy a significant share of the Ethereum staking market, and it is challenging for later entrants to differentiate themselves in this staking business.

However, it cannot be denied that their custodial methods still have significant flaws, and the restaking model has opened up new markets, providing considerable opportunities for new players.

I believe that ultimately, staking and restaking will merge, and all staking protocols will become restaking protocols.

3. ChainCatcher: How long did it take to assemble the core team of ether.fi, and what are their main professional backgrounds? What is the current team size?

Mike Silagadze: We currently have a team of about 10 people and are still expanding. The core members include four of us with backgrounds in traditional finance, accounting, and software engineering. We have offices in the Cayman Islands and Denver, and we expect to open a small office in Toronto soon, with the number of employees potentially increasing to 15-20.

The Three-Part Product Development of ether.fi

4. ChainCatcher: What market pain points did ether.fi initially hope to address, or what market gaps did it aim to fill?

Mike Silagadze: We have our own three-part product development strategy. The first product is the ether.fi liquid staking product; the second product is ether.fi's DeFi strategy product Liquid, which is similar to yEarn but currently the largest DeFi strategy product by TVL, reaching $350 million; the third product will be ether.fi's Cash payment product, which is essentially a credit card that allows users to access and spend their crypto assets in the real world.

Although we are currently primarily focused on DeFi liquid staking products, in the long run, our vision is to become one of the channels for the mass adoption of cryptocurrency. We hope to simplify the user experience for ordinary users by creating a suite of one-stop products, helping 100 million users enter the cryptocurrency space.

5. ChainCatcher: In the highly homogenized staking and restaking track, what differentiates ether.fi from its competitors?

Mike Silagadze: First, ether.fi allows participants to retain control over their keys when staking tokens, which is a completely different design. It integrates many features of the staking protocol Rocket Pool to allow anyone to become a bondholder instead of entrusting their assets to node operators. This can reduce opaque counterparty risks.

Technically, bondholders need to generate keys and provide a copy of the effective data key to the node operator. Therefore, it is more expensive and complex.

Secondly, another significant difference is that we are one of the few protocols with a withdrawal feature. As far as I know, other protocols generally do not have withdrawal capabilities; currently, only Lido and ether.fi have this feature. We have a liquidity pool that allows for quick withdrawals, with only very large withdrawals requiring validation.

Lido excels in security and other aspects and is our biggest competitor.

6. ChainCatcher: Most startups adjust their strategies in a timely manner based on market changes during the early stages. What significant strategic changes or milestone events have occurred in ether.fi's over a year of establishment?

Mike Silagadze: Recently, the total amount of ether.fi staking has surpassed 1 million ETH (approximately $3.33 billion), which is expected to account for 3% of the total Ethereum staking amount. This is a significant milestone.

Additionally, on the technical side, our DeFi strategy product Liquid has become very popular and is now the largest DeFi strategy product by TVL.

7. ChainCatcher: Currently, ether.fi's TVL has surpassed $3 billion. Has this growth rate exceeded your expectations? Why have you been able to gain market share so quickly?

Mike Silagadze: It has completely exceeded our expectations. I think the reasons for this result are firstly that the entire market is entering a bull market, and liquidity has improved. On the other hand, the restaking narrative is extremely hot, basically the hottest narrative so far this year, attracting a lot of capital participation. With this narrative bonus, our products are easier to use compared to competitors, leading to greater user participation.

8. ChainCatcher: Can you share the current user profile and business revenue situation on ether.fi?

Mike Silagadze: We have many different types of users. About 40% of the deposits on our platform come from institutions and large players; over half of the deposits come from retail clients with smaller storage amounts.

We have two main sources of income: first, on the basic Ethereum staking product, we charge a 5% staking reward, similar to other protocols. Second, in the liquidity restaking product called Liquid, we charge a 1% staking fee. Currently, our total revenue is estimated to be around $15-16 million, with a very favorable profit margin.

Additionally, we raised $27 million in funding earlier this year and issued our own token. We are not too worried about funding issues and have capital available for investment.

The Outcome of the LRT War is Not Necessarily Winner-Takes-All

9. ChainCatcher: In the LST war, Lido occupies about 30% of the market share. Do you think there will be a similar market structure in the LRT war? What is the key to winning?

Mike Silagadze: I don't think the final market share will be concentrated in just one or two players; it will accommodate more large players. The key to winning lies in attracting more ordinary users to participate in the cryptocurrency space. We hope to break through $10 billion in TVL and attract thousands of new users.

10. ChainCatcher: What are the positive and negative impacts of LRT on Ethereum? How does ether.fi manage risks to maintain a balance between user risks and returns?

Mike Silagadze: Firstly, restaking has brought more diverse methods to the staking market. In the past, Lido was basically the only dominant player, but now Lido's market share is being divided.

Secondly, the data availability AVS introduced by EigenLabs has brought a significant change in pricing for different nodes. As for whether there will be higher risks, I believe EigenLayer is a good manager and has done very well in risk reduction.

Compared to LST, LRT indeed requires more complex risk management. Our approach is to collaborate with third-party companies like the on-chain risk management simulation platform Gauntlet to assess risks.

11. ChainCatcher: For ordinary investors participating in LRT staking, what advice do you have regarding their choice of LRT protocols?

Mike Silagadze: The most important aspects to pay attention to are the withdrawal feature and liquidity depth. In addition to having a withdrawal feature, ether.fi also has deep liquidity, ensuring that $30 million of liquid staking tokens can be swapped without any slippage.

12. ChainCatcher: LRT protocols seem to be very aggressive in incentive points to attract users, but due to issues like complex and opaque rules, it has caused controversy. ether.fi has also been accused of "stealing points." Will you make any adjustments to the incentive points in the future?

Mike Silagadze: In fact, I am very satisfied with ether.fi's incentive strategy. We have been carefully balancing user incentives and user experience. The previous airdrop of ether.fi went very smoothly, and many users received substantial returns.

13. ChainCatcher: What are your ongoing incentive measures to continue attracting users? What goals or roadmap do you have for 2024?

Mike Silagadze: We will continue to advance the previously mentioned three-part product strategy. Currently, our Liquid product has attracted a large amount of user funds, and we will soon launch the Cash payment product, which will be a significant milestone for us, potentially attracting hundreds of thousands of users and billions in funds.