Looking back on his more than 10 years of entrepreneurial experience in the field of education technology, ether.fi founder Mike Silagadze said in an interview with ChainCatcher on April 4: “It’s more like taking a detour.”
Although Top Hat, founded by Mike Silagadze shortly after graduating from the University of Waterloo, is already a well-known educational software in North American universities, its valuation reached US$500 million after completing a US$130 million financing in 2021.
But in March 2021, Mike Silagadze chose to sell his shares and resign as CEO. He used the funds earned from the sale of Top Hat to quickly establish a cryptocurrency DeFi fund called Gadze Finance.
After running Gadze Finance for nearly two years, the collapse of FTX and Alameda made Mike Silagadze realize that running an asset management fund is very risky and has limited value. He hopes to build new products to participate in the construction of encryption.
At that time, the Ethereum re-staking white paper was born. Mike Silagadze said: "It touched me the same way as when I saw the Bitcoin white paper and the Ethereum white paper." He quickly formed a team and founded the non-custodial staking protocol ether.fi.
What makes ether.fi different from other liquid staking protocol is that ether.fi allows stakers to retain control of their keys and has a quick withdrawal function similar to Lido.
In 2024, re-staking has become the hottest narrative in DeFi, and ether.fi is also the most prominent protocol in the LRT track. Since the beginning of 2024, ether.fi's TVL has rapidly grown from about US$100 million to nearly US$3.5 billion, an increase of 30 times, and has quickly become the leader in the LRT track.
After achieving the milestone of breaking through the $3 billion TVL, Mike Silagadze said that Cash payment products will also be launched to attract more users and funds. "In the long run, our vision is to become one of the channels for large-scale adoption of encryption and help 100 million users enter the cryptocurrency field."
From an education technology veteran to a DeFi player
1. ChainCatcher: From public reports, I learned that before you officially entered the crypto field, you founded the educational software company Top Hat. The industry span is very wide. How did you enter the crypto field and firmly go all in? What are some important professional experiences?
Mike Silagadze: I founded Top Hat, an educational software company that provides digital courseware and textbooks for higher education, in 2009, shortly after I graduated from the University of Waterloo.
By 2021, 750 of the top 1,000 universities in North America are Top Hat's customers. During the COVID-19 period, the number of students served by Top Hat increased from 2.7 million to 3 million. After completing a $130 million financing in 2021, Top Hat's valuation reached $5.
But to be honest, starting this education technology company was a detour for me, and I wish I had entered the crypto field from the beginning. I learned a lot of programming techniques during college. Like many people, when I read the Bitcoin white paper, I was very excited and surprised at the strange way that cryptocurrency combined technology, economics, and politics. I have always been a libertarian, and I believe that the power of stateless currency is a very powerful concept. I started buying Bitcoin in 2011 and tried to mine it.
After running Top Hat for more than ten years, I chose to sell the company and officially entered the crypto field. In March 2021, I stepped down as CEO of Top Hat and only served as a member of the board of directors. After selling the company, I received a large sum of money and used it to establish the cryptocurrency DeFi fund Gadze Finance.
Gadze Finance is still in operation and it mainly helps investors obtain returns through income strategies, liquidity allocation and arbitrage strategies.
2. ChainCatcher: When did you start paying attention to the staking track? The competition in the LSD track was also fierce from 2022 to 2023. What prompted you to decide to start ether.fi?
Mike Silagadze: It took us a few weeks to make up our minds to participate in the staking track. First of all, the collapse of FTX and Alameda made us realize that operating an asset management fund is very risky, but its value is not necessarily high.
We hope to participate in the crypto market directly by creating products. I happened to read the Ethereum heavy staking white paper and participated in several lectures on related topics. It touched me the same way as when I saw the Bitcoin white paper and the Ethereum white paper.
We know that Lido and other staking protocols, as the first players, have occupied a large share of the Ethereum staking market. This part of the staking business is also difficult to differentiate, making it difficult for latecomers to occupy the market.
But it cannot be denied that their custody method still has huge flaws, and the heavy pledge model has opened up new markets, providing new players with considerable opportunities.
I believe that eventually staking and re-staking will be merged, and all staking protocols will be re-staking protocols.
3. ChainCatcher: How long did it take to form the ether.fi core team? What are their main professional backgrounds? How big is the team now?
Mike Silagadze: We are a team of about 10 people now, and we are still expanding. There are 4 core members including me, with comprehensive backgrounds in traditional finance, accounting, and software engineering. We have offices in the Cayman Islands and Denver, and we plan to open a small office in Toronto soon. The number of employees may increase to 15-20 in the near future.
ether.fi product development trilogy
4. ChainCatcher: What market pain points did ether.fi hope to solve or what market gaps did it hope to fill at the beginning?
Mike Silagadze: We have our own product development trilogy. The first product is the ether.fi liquidity staking product; the second product is ether.fi's DeFi strategy product Liquid, which is similar to yEarn, but it is currently the DeFi strategy product with the largest TVL, with a TVL of $350 million; the third product will be ether.fi's Cash payment product, which is actually a credit card that allows users to obtain and spend their crypto assets in the real world.
Although we are mainly working on DeFi liquidity staking products now, in the long run, our vision is to become one of the channels for large-scale adoption of cryptocurrency. We hope to help 100 million users enter the cryptocurrency field by creating a set of one-stop products to simplify the user experience for ordinary users.
5. ChainCatcher: In the staking and heavy staking sectors where homogeneity is more serious, what are the differences between ether.fi and its competitors?
Mike Silagadze: First of all, ether.fi allows participants to retain control of their keys when staking tokens, which is a completely different design. It integrates many features of the staking protocol Rocket Pool so that anyone can become a bond holder instead of entrusting assets to node operators. This can reduce opaque counterparty risk.
Technically, it requires the bond holder to generate a key and then provide a copy of the valid data key to the node operator. Therefore, it is more expensive and complicated.
Secondly, another major difference is that we are one of the only few protocols that have a withdrawal function. As far as I know, other protocols basically do not have the ability to withdraw money, and currently only Lido and ether.fi have withdrawal functions. We are similar to Lido in that we have a liquidity pool with fast withdrawals, and only very large withdrawals require exit verification.
Lido does an excellent job in terms of safety and other aspects and is also our biggest competitor.
6. ChainCatcher: Most startups will adjust their strategies in a timely manner according to market changes in the early stages of their start-up. In the more than one year since ether.fi was founded, what important strategic changes or milestone events have occurred?
Mike Silagadze: Recently, the total amount of ether.fi staked has exceeded 1 million ETH (approximately US$3.333 billion), and is expected to account for 3% of the total amount of Ethereum staked. This is a huge milestone.
In addition, in terms of technology, the DeFi strategy product Liquid we launched is very popular and has become the DeFi strategy product with the largest TVL.
7. ChainCatcher: Currently, the TVL of ether.fi has exceeded 3 billion US dollars. Has this growth rate exceeded your expectations? Why were you able to gain market share so quickly?
Mike Silagadze: It completely exceeded our expectations. I think the reason for this result is that the entire market is heading towards a bull market and liquidity has improved. On the other hand, the heavy pledge narrative is too popular. It is basically the hottest narrative so far this year, attracting a lot of capital participation. Under such narrative dividends, the products we built are easier to use than those of our competitors and can get more user participation.
8. ChainCatcher: Can you reveal the current user profile and business revenue of ether.fi?
Mike Silagadze: We have many different types of users. About 40% of the deposits on our platform come from big players such as institutions and funds; more than half of the deposits come from retail customers with smaller deposits.
We have two major sources of income. First, on the basic Ethereum staking product, we will charge 5% of the Ethereum staking rewards, just like other similar protocols. Second, in the liquidity re-staking product called Liquid, we charge 1% of the staking fee. At present, our total revenue is expected to be US$15-16 million, and the profit margin is very considerable.
In addition, we raised $27 million earlier this year and issued our own tokens. We are not too worried about funding issues and we have funds available for investment.
The LRT War may not end in a winner-takes-all situation
9. ChainCatcher: In the LST war, Lido alone occupied 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 for players?
Mike Silagadze: I don’t think the market share will be concentrated in just one or two players in the end. It will accommodate more big players. The key to success lies in whether we can attract more ordinary users to participate in the field of cryptocurrency. We hope to break through the TVL of 10 billion US dollars and attract thousands of new users.
10. ChainCatcher: What are the positive and negative effects of LRT on Ethereum? How does ether.fi currently manage risks to maintain a balance between users' risks and returns?
Mike Silagadze: For the first time, heavy pledge has brought more diversified methods to the pledge market. In the past, Lido was basically the only one dominating the market, but now Lido's market share is being divided.
Secondly, the data availability AVS launched by EigenLabs introduced a way to price different nodes, which is a very significant change. As for whether there will be higher risks, I think EigenLayer is a good manager and has done a very good job in reducing risks.
Compared to LST, LRT does require more complex risk management. Our approach is to work with third-party companies such as Gauntlet, an on-chain risk management simulation platform, to assess risks.
11. ChainCatcher: For ordinary investors who participate in LRT staking, what suggestions do you have for them to choose the LRT protocol?
Mike Silagadze: The most important thing to pay attention to is the withdrawal function and liquidity depth. In addition to the withdrawal function, ether.fi also has deep liquidity, which can guarantee the swap of $30 million in liquid pledge tokens without any slippage.
12. ChainCatcher: In order to attract users, LRT protocols seem to be very aggressive in point incentives, but they have also caused controversy due to complex and opaque rules. Ether.fi has also been questioned for "stealing points". Will you make any adjustments to the point incentives in the future?
Mike Silagadze: Actually, I am very satisfied with ether.fi's points incentive strategy. We have carefully balanced user incentives and user experience. The previous airdrop of ether.fi went smoothly, and many users received very considerable returns.
13. ChainCatcher: What are your incentives to continue to attract users in the subsequent stages? What goals or roadmaps do you have to achieve in 2024?
Mike Silagadze: We will continue to advance the product trilogy mentioned above. At present, our Liquid product has attracted a large amount of user funds. Next, we will launch the Cash payment product. The launch of this product will be a huge milestone for us and may attract hundreds of thousands of users and tens of billions of funds.
