This interview was done as part of the 2021 Staking Ecosystem Report by Staking Rewards.
The report was sponsored by StaFi Protocol.
T-Systems is part of Deutsche Telekom AG, Europe’s largest telecommunication company by revenue. T-Systems with its Blockchain Solution Center is involved in public blockchain networks on different levels.
Q: What are the biggest challenges for Proof of Stake and Staking, that we still have to overcome / may still face?
A: There are many different challenges. At its core as a consensus algorithm, PoS raises a few questions regarding decentralization. How do you optimize for an equal distribution of stake and thus power? In terms of business acceptance, regulatory and legal issues are expected to be debated more heavily. Every staker is currently operating in a gray zone and the legal battles have not yet settled. Last but not least, education about token economics in PoS are key for mainstream adoption.
Q: What do you consider to be the most important factors to attract users to your staking service offering?
A: We think that, before everything else, staking is about trust in competence.
The question where to stake your assets is, whether you trust in the competence of someone else enough to delegate your assets to them. Individuals and companies have known Deutsche Telekom as a professional technical infrastructure provider for decades and are therefore willing to trust in our expertise.
Thus, we are able to operate highly reliable and trustworthy validators. For example, all of our blockchain infrastructure is run in our own data centers located in Germany. It operates independently of all other node operators which mainly use the big hyperscalers.
Q: How does an enterprise deal with directly interacting with crypto-assets? What has been your journey up to this point?
A: We are looking back on a long and bumpy road, but we are happy that we made it to this point: We, as a traditional TelCo Company, are now running token native business models like staking services.
The first step was to engage the different departments within Deutsche Telekom, e. g. Legal, Tax, Accounting, Compliance. We educated them about Blockchain in general and which services will be needed in the future. With the support of the different departments, we found a compliant way to buy and sell different crypto assets together with our partners Bankhaus Scheich and Finoa. The biggest challenge we encountered on the way was to master crypto custody and tax regulations, but now we are able to run our infrastructure and monetize it in a compliant way. After our first success story with Chainlink and Flow in 2020 we joined forces with the DT Strategy and DTCP team: To not only provide infrastructure for networks but also invest in them as DT. We achieved that in mid of 2021 by investing in CELO Tokens and starting to operate validators on the network. We are happy to say that we are one of the first enterprises being able to interact with crypto-assets and we are working hard on expanding our engagement here.
Q: Since the overall space is not yet matured, at which point do you believe governments and central banks should move to regulate the staking space if at all?
A: In the past few years, a new industry has emerged with the provision of infrastructure for public blockchains. We are pleased that there are incredibly innovative and successful startups to be found globally and especially in Germany. The EU, and Germany in particular, must now be careful not to over-regulate this new industry, causing a wave of emigration of innovative companies. They need to embrace the current innovations and provide regulatory clarity. This would provide the long-expected security for the evolving industry, wanting to plan and invest in the future development. Especially us as a corporate with high visibility and a lower risk profile, that diverges highly from startups, it is essential to get long-term regulatory security aiming to ensure and promote innovation. We support a rough and clear framework to ensure a compliant functionality of the industry, but we fear that an overly detailed regulation might make practical implementation very difficult.
Q: What is the right-to-play of enterprises in Web3? Do you think Web2-native business models apply to Web3, if so, how?
A: To answer this question, I would like to give some background from Deutsche Telekom. Since 1995, DT is providing essential technical infrastructure for the general public in Germany and around the globe.A predecessor of DT started to build the telephone infrastructure in the 19th century in form of cables and poles to enable instant communication over long distances. The next step was the internet, which enables information exchange at scale. Now we are providing infrastructure in form of nodes or validators for public blockchain networks to facilitate global and decentralized value exchange.
As a telecommunication company, it is our mission to provide technical infrastructure and our vision is that public blockchain networks are the next iteration of essential technical infrastructure. But we are not just an infrastructure provider. In our understanding, networks can be supported mainly in the levels of investment, infrastructure and use cases. As DT, we are one of a few companies in the world that is motivated in being involved in all three of them. This is due to the different interests of the various departments within DT and the associated synergy effects. Celo was the first network where we applied this holistic approach and we are more than eager to apply it to other networks as well.
Q: Which upcoming protocol projects are you most excited about and why? Is there a protocol that no-one is paying attention to but should?
A: There is a plethora of relatively unknown protocols with potential but there are a few elephants in the room. Ethereum’s innovation speed to overcome its scaling challenges is just mind-blowing: EIP 1559, ETH2.0 merger and all that’s happening with layer 2 networks. If your concern is interoperability, then check out Polkadot and Cosmos which are really gaining traction.
In our opinion, the landscape will look very different in 1-2 years from now but not because of the new kids on the block taking over, but because proven platforms like Ethereum become ever more mature and value creating.
Q: Which network or protocol in the market has so far proven to have the best “product-market-fit”? And why?
A: The answers seems obvious. There are only two networks which have consistently proven a solid product-market fit and they are both PoW: BTC as a decentralized and censor resistant store of value and Ethereum as an unstoppable decentralized Turing machine. And they are successful for very different reasons: While Bitcoins has never changed its value proposition and remains incredibly stable compared to the rest of the protocols, Ethereum is the everchanging ecosystem which manages to adapt to every single challenge that’s being thrown at it.
Q: Do you see staking yields competing with DeFi yields? What are the implications of this on network security? How to balance these?
A: We see staking yields complementing DeFi yields in many DeFi protocols already such as liquid staking via Lido, so we wouldn’t see a competition per se.
This answers a slightly different question, but staking yields are compromising network security once MEV strategies become too extreme. This is going to be hard to balance: On one hand: MEV methods are desirable for both miners and stakeholders. In fact, they could become the main source of income for infrastructure providers. But on the other hand, correlated multi-party MEV strategies spanning over multiple blocks impair security and decentralization.
Q: We have seen a lot of talk about PoW’s energy consumption in recent months. How important is energy efficiency for PoS’ case when it comes to long-term adoption?
A: Besides capital efficiency, energy efficiency is one of the main benefits of PoS. Still: the energy debate around almost exclusively Bitcoin’s energy consumption is to a large extent populist and simplistic answers are given to a complex question: Does Bitcoin use less energy than the infrastructure it strives to replace and how is this energy generated?
It is also clear: Assuming Blockchains become mainstream and all next-generation blockchains relied on a PoW-based consensus, the effects on energy consumption might be disastrous. Energy efficiency and usage of sustainable energy sources remain important challenges, not only for blockchains but for any innovation.
Q: What is your vision of the staking economy/industry in 5 years?
A: We assume that the industry becomes more professional and decentralized. At the same time, we expect massive consolidation in the next 2-3 years. Especially layer 1 networks really have to prove their value contribution or they will remain in the dust of history. In the future, retail investors will be able to participate easily and staking will be integrated seamlessly in end user interfaces. Why not have your wallet define and execute a staking strategy for you with a guaranteed yield? This idea seems more like 12 months away than 5 years. We are just opening the box of pandora here… and remember: 5 years ago, Ethereum was just a toddler.
Q: Ethereum 2.0 – What are you most excited about? What are you concerned about?
A: Honestly, there isn’t much NOT to be excited about. Ethereum has some interesting 1-2 years ahead while merging to Eth2. Concerns are e.g. in the area of breaking composability in multi-shard or multi-execution environments.
Q: With an increasing market-lead for proof-of-stake based networks. Is there a future for proof-of-work besides Bitcoin?
A: We see the future of networks in alternative architectures than PoW. PoS has advantages in terms of energy consumption and capital efficiency. With more applications coming to blockchains, PoW wouldn’t scale either. Although the Bitcoin maxis wouldn’t want to hear it: Why not fully emulate Bitcoin or other PoW protocols on the EVM, assuming you can give the same security guarantees?