Exclusive Interview with ether.fi Founder: The Re-staking Market Has Become "Crazy," Beware of Potential Systemic Risks

Interview: Wendy, Foresight News

Interviewee: Mike Silagadze, Founder of ether.fi

In less than six months, ether.fi's TVL has rapidly grown from around $100 million at the beginning of the year to over $4 billion, which has left founder Mike Silagadze calling it "crazy."

"The speed of development in the restaking market has exceeded everyone's expectations, including my own."

Mike Silagadze confessed to Foresight News that this rapid growth has made a "small" team of only 12 people feel both excitement and pressure, as they plan to double the team size within six months.

In recent months, the crypto space has witnessed the boom of the restaking market, while discussions around the potential risks associated with restaking have been widespread, accompanied by controversies over airdrops from related projects.

At this unique moment, Mike Silagadze gave an exclusive interview to Foresight News in the Cayman Islands.

After more than a decade of deep involvement in the education technology sector, Mike Silagadze turned to entrepreneurship in the Web3 space. However, for him, this was not a sudden shift but a natural transition step by step. Starting from buying Bitcoin for the first time in 2011, to launching a crypto investment fund after selling his first startup in 2021, and then embarking on a new entrepreneurial journey in the Web3 space, Mike Silagadze, who has experience in entrepreneurship, venture capital, and crypto fund management, believes that while the current Web3 space is filled with the frenzy of capital influx, it is also "much more interesting."

Through the three main products that ether.fi focuses on, he hopes to keep more people in the crypto space without needing to return to traditional finance.

The Restaking Market is "Crazy" - Beware of Systemic Risks

Foresight News: In a recent interview, you mentioned that "99% of people shouldn't start a business, or even join a startup," unless they have a great passion for something. But you have been on the entrepreneurial path for over a decade and are a serial entrepreneur. What kind of passion led you to choose to move from Web2 to Web3? When you launched the ether.fi project, why did you think restaking would be the next big thing?

Mike Silagadze: Entrepreneurship is indeed very difficult and comes with a lot of pressure. For most people, starting a business may not be a suitable career path because it consumes your entire life, and the chances of success are very low. So I think most people might prefer to choose a more normal and safer career that gives them more predictability. In my view, this might also be a good thing because if everyone were a bit crazy and took huge risks, it might not be good for society as a whole. So I think it's a good thing that the number of people with this risk tolerance is relatively small.

I have been investing or doing things in the crypto space since 2011. I read the Bitcoin white paper and was very excited about the idea of Bitcoin; it is a currency of autonomy that allows individuals to have complete control over their wealth, rather than being subject to a government that can confiscate or control their assets. So I believe this is a very important positive force for the world.

At the same time, I was also running a startup I founded right after graduating from university—Top Hat, which is an education technology company. During that time, I was exploring and practicing in the crypto space while also running a startup. I ran that company for about 10 years, growing it to around 500 employees with good revenue, and then sold the company in 2021.

When I sold the company and decided to enter the crypto space full-time, I saw that staking was the largest category in DeFi, with companies like Lido, Rocketpool, and Stakewise being very active in this area. Staking is clearly the largest category, and I also saw the opportunity to create a next-generation staking protocol with built-in restaking functionality (thus ether.fi was founded).

But to be honest, I did not predict that things would become so crazy, nor did I expect this category to grow so quickly. I think this has surprised everyone, including ourselves. I believe this is an opportunity to reshape this massive category in DeFi, but the speed of change has shocked everyone.

Foresight News: You used the word "crazy." Before the interview, I looked at the data, and your TVL has already exceeded $4 billion. For a team of 12 people, do you feel more excitement or pressure?

Mike Silagadze: Both.

What I mean is, we feel a tremendous sense of responsibility towards the hundreds of thousands of users who trust us and entrust their assets to us. This is a responsibility we genuinely feel. But at the same time, we are certainly very excited about being able to build such an important business with such a small team.

I want to say that we are most excited about the next steps for ether.fi. For us, this means ether.fi becoming a more consumer-facing crypto company.

We hope to create an integrated application suite with multiple products that allows ordinary people to easily use DeFi. Currently, DeFi is very complex and difficult for ordinary people to use. Even doing some very basic things in DeFi requires too many steps and knowledge. What we want to do is make it simple, ultimately allowing people to stake, invest, and spend their cryptocurrencies in real life through three integrated products.

Foresight News: As mentioned above, you bought Bitcoin a long time ago, but you didn't really enter the crypto space until now. In a previous interview, you responded that the reason was that "over 95% of the industry is gambling/fraud." Now that you have entered this field to start a business, do you think the situation has improved?

Mike Silagadze: The situation has improved, but (gambling/fraud) still (exists in large amounts), and I don't know the exact proportion.

In my view, basically the entire crypto world is gambling and stablecoins. Stablecoins are a very valuable technology that allows people to protect their assets from some particularly bad governments in the world. So we see a lot of activity in stablecoins, with hundreds of billions of dollars in scale. I think this is remarkable. However, (the other main application area in crypto) is still gambling, where people speculate on various speculative assets. I think that's fine; it will always be a part of crypto.

But what excites me more is the application of crypto in the real world, allowing people to truly benefit from this ecosystem and technology.

Foresight News: Many people believe that restaking also carries significant risks. What is your view on this issue? Is there a possibility that restaking could trigger systemic risks?

Mike Silagadze: The risks associated with restaking are very significant.

So far, most of the risks we have seen are related to the massive speculation and financialization occurring with restaked assets (such as liquid restaking tokens). We have already seen some very complex derivatives and tools built from restaking tokens. And for those liquidity restaking protocols that may not be very robust or well-designed, we have seen users ultimately get hurt when tokens decouple or become illiquid or face other similar situations.

So when users evaluate different projects, these may be the main and significant risks they need to consider now, ensuring they choose more robust protocols.

This is just the current situation. In the future, if there are many restaking services backed by restaking, and if they are poorly designed, unsafe, or have various interconnections with each other or within Ethereum, it could lead to cascading effects and cause significant damage, making it easy to imagine more systemic risks.

So yes, I believe (restaking) carries significant risks, and this is something we often think about at ether.fi. That is why when we launched the protocol, we were the first and only protocol to enable a withdrawal feature, because without this feature, it would pose a huge systemic risk to our protocol. This is also why we are very cautious in choosing which restaking services, which AVS, and how much to restake when we assess the risks associated with restaking.

So I believe (restaking) carries significant risks, and we are taking these risks very seriously.

Foresight News: Vitalik has also expressed concerns about the development of restaking. As a participant in this industry, do you agree with his views?

Mike Silagadze: The risks Vitalik mentioned in his blog post relate to Ethereum's consensus. If restaking becomes very large, it could lead to pressure on Ethereum validators or the Ethereum community to fork or make changes to support restaking.

This is a very real concern. I think these concerns are more future-oriented, while what I just talked about is more about the direct concerns and risks that currently exist.

I think both are very important.

Focus on the Ethereum Ecosystem - Emphasizing Protocol Security

Foresight News: From your previous public statements, it seems that ether.fi will only focus on the Ethereum ecosystem, although theoretically, restaking should be applicable to all PoS mechanism chains, right? Do you have plans to expand your business to other chains?

Mike Silagadze: We have recently just expanded, or rather announced that we will expand to SAFE, which is another L1. It is an EVM-compatible L1. But still just Ethereum, we are just bridging Ethereum to SAFE. I think bridging our liquid staking tokens to Solana or other chains does not violate our principles, but we will not stake SOL tokens or similar things.

What I mean is, we are called ether.fi, so we are very invested in and optimistic about the Ethereum ecosystem. Right now, this is something I still firmly believe in, because Ethereum is still where most economic activity occurs.

I think we will be very focused on Ethereum.

Foresight News: In terms of products, besides the withdrawal feature you mentioned, one prominent feature of ether.fi compared to similar competitors is allowing users to manage their own keys. The issue of self-custody is not a new topic in the crypto space. In your view, why is this important, and what risks might it bring? How can it be mitigated?

Mike Silagadze: I think there are many related risks in terms of custody of keys in staking. Who has custody of the keys—especially the staking keys—is very important. In most cases, almost all other staking protocols give node operators complete control over the validator keys. And this point—at least considering Ethereum's current design—gives them the ability to withhold the ETH that people have already staked. Therefore, we believe it is very important to give stakers and bondholders on ether.fi ultimate control over the keys. This will make the protocol perform more robustly in certain risks associated with staking.

Foresight News: What kind of expansion strategy will you adopt for users? I see you have highlighted the keyword "institution" on your website, while you just said you will become a more consumer-facing company. So will your future business expansion focus on institutions or retail investors? Once more institutions participate, what impact will it have on the entire restaking market?

Mike Silagadze: Both (retail and institutions) are very important. I don’t think you can only serve retail or only serve institutions. In fact, I think the two are complementary. So for us, being able to serve both types of clients is very important.

That’s why we have a self-service retail business, which is part of our staking protocol. (The participants in this market may) mostly be individuals, with thousands of participants being (asset scale) smaller retail investors, but most of the ETH comes from a few large stakers. This includes individuals like Justin Sun, who invested $500 million on ether.fi, which is great. We think individuals like him can be considered institutional investors to some extent. So I think it’s important to support both types of participants.

In terms of risk, I think (the participation of institutional investors) does pose a challenge in some ways because restaking is much more complex than staking. Running restaking nodes, validator nodes, and managing different restaking services is quite complex. Compared to what traditional small single stakers (providing such services for institutional investors) need to do, it requires much more work.

Additionally, from a risk management perspective, it is also complex. In other words, for those deploying ETH, understanding the risks they are taking is also quite complex. It often leads to ETH being concentrated in a few holders, making everything more centralized.

So I think restaking does bring this danger. This is something we are very concerned about, and we have been running a project called "Operation Solo Staker" from the beginning, allowing small stakers to participate in the Ethereum ecosystem, and we plan to invest more in this area in the future.

Foresight News: There are many popular projects in the staking and restaking space, such as Lido and EigenLayer that you mentioned. How would you describe your relationship with them? How do you differentiate your competition in this market?

Mike Silagadze: I actually think restaking is just the next generation of staking. I don’t see them as independent categories. Ultimately, all staking will be restaked. So in a sense, I see us as the next-generation version of Lido.

I think the Lido team and project have done an excellent job in driving the development and growth of the staking space. They have set high-quality standards for this ecosystem. I believe they will continue to play a role in this area. Lido's choice is to allow others to use their staking tokens to build restaking projects. For example, I think Kelp or Eigenpie or some restaking projects basically use Lido's staking tokens, they restake them and create a restaking project around it. We chose to start from scratch and only do native restaking. So that’s why I would describe us as a next-generation staking protocol because we provide both staking and restaking services.

So for users, why would they choose us over Lido? I don’t think using Lido is a bad decision. As I said, I think Lido is a great product, but by using ether.fi, they will take on additional risks. They take on the risks of restaking, but in exchange, they get more rewards from staking and restaking.

So that’s the trade-off with Lido. Objectively speaking, Lido has lower risks and lower rewards, while ether.fi has higher risks and higher rewards.

Foresight News: Staking/restaking is just part of your business, although at this stage they seem to be the core business. Can you introduce some other products you are currently focusing on developing or planning to launch? You have publicly stated that your mission is to help 100 million people enter the crypto space; how do your products help achieve this mission?

Mike Silagadze: Our recent focus is on three products: ether.fi staking, ether.fi liquidity, and ether.fi cash. Staking is the best way to hold ETH. You hold your ETH, deposit it, and earn rewards from staking and restaking; ether.fi liquidity is a DeFi strategy vault. It’s a great way to invest your ETH into DeFi and earn higher returns. This product has already launched, and there are now over $550 million in deposits. It is currently the largest DeFi strategy vault in the crypto space; the third product is ether.fi cash, which is essentially a spending account. Similar to a Visa credit card, it allows you to spend your cryptocurrency in real life. With these three products, you can save, invest, and spend your cryptocurrency without needing to withdraw, like buying coffee.

Our idea is that you can stay in the crypto space and never need to return to traditional banking. You can do everything you need to do in real life in a crypto-native way.

Airdrops - The "Art" of Balancing

Foresight News: I want to ask a question that the community is quite concerned about regarding airdrops. Recently, some projects in the restaking space have sparked controversies over fairness regarding their airdrops. This is almost a dilemma that all airdrops may face, which is the "art" of minimum rewards. In the community, debates like "restaking is a game for the big players" and "high minimum rewards are a feast for the airdrop hunters" always arise. From the perspective of the project party, how do you balance this issue? Those "ordinary users" who neither have significant deposits nor large amounts of funds often end up being the most hurt; is this problem unsolvable?

Mike Silagadze: There is no perfect way to do airdrops; the reality is that it is impossible to satisfy everyone, and it’s very difficult. However, we set a minimum amount. In our airdrop, I remember the minimum was 175 tokens, which at the time was worth about $500 to $600, which felt like a reasonable amount because for some people, this is a significant income.

We set a minimum activity threshold, which actually filtered out about 25,000 Sybil wallets (Sybil refers to users controlling multiple wallets to obtain airdrop rewards). This was mainly to ensure that the airdrop goes to actual users of ether.fi. We chose to do a linear airdrop above the minimum threshold, meaning the more points you have, the more tokens you receive, which we believe is fair and necessary. Because basically, the way some of our DeFi integration partners are set up requires us to do a linear airdrop. Otherwise, many markets would lose stability.

We keep (the airdrop rules) simple. Honestly, I think this is one of the things we did right; we didn’t try to make it too complicated. Because the attention span in the crypto world is very short. If you (want users) to do anything that requires thought, it will be very difficult.

From Web2 to Web3 - A Race Against Time

Foresight News: Next, let’s return to you. Your career is very interesting. Now you are an entrepreneur, but you are also managing a fund. You are still a partner at the venture capital firm Ripple. In the crypto ecosystem, you are not only building new products but also managing funds and investing in some startups. How do these multiple roles help you build better products or run startups? After all, you will have perspectives from different positions.

Mike Silagadze: I think (these roles) are closely related; the fund has actually transformed into ether.fi. The hedge fund we operate, Godsey Finance, is an ETH staking fund. So it naturally transitioned into ether.fi. We are still operating that fund, but it is essentially just a vehicle for entering ether.fi. I mean, it’s just a simple way for us to get into ether.fi.

In terms of the venture capital fund, like most people who have had startups and achieved some success, I do angel investing. I have been doing this for a while, and I have invested in about 20 to 30 different random projects. I see it almost as a charitable way to give back to the community.

Honestly, I think the skills that can truly translate are related to building organizations. In my view, I have worked at several other startups before my first company, then Top Hat, and now ether.fi; I think having experience and skills in building companies is very valuable. Unfortunately, this is a rare skill in the crypto space. Many people in the crypto field do not have experience in scaling or building organizations.

Foresight News: You operated Top Hat for over a decade before selling it, and now, in just over a year since founding ether.fi in the Web3 space, your TVL has already exceeded $4 billion. As a founder, what is the biggest difference between building something in Web2 and Web3? Can you share some personal insights?

Mike Silagadze: Much of it has to do with the differences in industries.

I think every industry has its challenges, and the challenge in the education sector is that change is very, very slow. The incentives among students, teachers, and administrators are very misaligned, like a very broken system where no one wants to be there. For example, professors don’t really want to teach; they just want to do research; students don’t really want to learn; they just want to party; administrators just want to collect a paycheck and build their empires. It’s like this strange system where no one wants to be there, yet somehow everyone is. This makes it less interesting.

In the crypto space, it’s almost the opposite. Everyone is very passionate and excited. There is so much capital flowing in, and while it is very frenetic, honestly, I find it much more interesting, and the pace is very fast.

I think (the rapid development of ether.fi) has a lot of luck involved. We were very fortunate with the timing. We are very grateful to EigenLayer because they have really driven the development of the restaking space, allowing us to benefit from it. In terms of growth speed, a lot of it is just luck. But (setting aside timing) building a good product, executing well (on the development plan), and continuing to release and deliver is something I think we can take responsibility for.

So I think, like everything, it’s a combination of luck and effort. But if I were to describe the difference (between starting a business in Web2 and Web3) from a relatively higher level, I would say that (what we are doing now) is much more interesting, and I enjoy it more than starting a business in higher education. We need to keep up at a very, very fast pace, always focusing on time.

Foresight News: To keep up quickly, what areas will the upcoming team expansion focus on?

Mike Silagadze: Mainly engineering. But we are also hiring some people in business development and operations. In terms of location, primarily in the Cayman Islands, most of the team will be based there. Of course, we also have some people in the US, some in Canada, and one in South Korea, and we may hire a few more people there. So our team is distributed.

Foresight News: Is the main team being based in the Cayman Islands also due to some regulatory considerations?

Mike Silagadze: First of all, it (the Cayman Islands) is a great place to run a crypto company. I feel like almost every crypto foundation chooses the Cayman Islands; there are probably thousands here, and it’s a great base. Honestly, considering the regulatory environment in the US and even Canada, trying to establish a crypto business there is really a bit crazy. I mean, I wouldn’t, because (the regulation) lacks clarity, and it makes no sense to do so.

Secondly, another advantage of the Cayman Islands compared to places like Singapore or Dubai is that it is in the same time zone as Toronto and New York, where I used to live. So far, I have enjoyed living here.

As for the regulatory part, it’s hard to predict. I think we are doing our best to be as compliant as possible. We have geographical fencing, we have terms of service, and we are working very hard to prevent Americans from participating. We have made every effort, but you never know (what will happen); some things seem very random.

I think the US has done a very poor job of creating a clear regulatory framework for crypto, and in my view, it’s a missed opportunity. I hope they can resolve this issue so that people can conduct crypto business more safely in the US.