174 - EigenLayer Will Change Ethereum Forever

Is re-staking the biggest thing to happen to Ethereum since MEV? We’re joined by Sreeram Kannan who walks us through Eigenlayer. The re-staking protocol that is set to change the trajectory of Ethereum forever. It may even be launching pretty soon… ------ ✨ DEBRIEF | Unpacking the episode: https://www.bankless.com/debrief-sreeram-kannan ------ 🪂Airdrop Alpha is waiting for you on Bankless 🪂 https://www.bankless.com/the-ultimate-guide-to-airdrops?utm_source=YouTubeRSS&utm_medium=Info&utm_campaign=Airdrop_Alpha https://www.bankless.com/the-ultimate-guide-to-airdrops?utm_source=YouTubeRSS&utm_medium=Info&utm_campaign=Airdrop_Alpha ------ BANKLESS SPONSOR TOOLS: 🐙KRAKEN | MOST-TRUSTED CRYPTO EXCHANGE https://k.xyz/bankless-pod-q2 🦊METAMASK LEARN | HELPFUL WEB3 RESOURCE https://bankless.cc/MetaMask 👾STADER LABS | ETHX LIQUID STAKING https://bankless.cc/Stader ⚖️ ARBITRUM | SCALING ETHEREUM https://bankless.cc/Arbitrum 🗣️TOKU | CRYPTO EMPLOYMENT SOLUTION https://bankless.cc/Toku 🎮IMMUTABLE | GAMING ECOSYSTEM https://bankless.cc/Immutable 🛞MANTLE | MODULAR LAYER 2 NETWORK https://bankless.cc/Mantle ------ Topics Covered 0:00 Intro 7:51 How Big Is Restaking? 9:41 What is Restaking? 16:22 What Was The Aha Moment? 21:32 Restaking Explained (Simply) 25:11 Where Does Eigenlayer Live? 29:40 Slashing on Eigenlayer 42:20 Risks of Restaking 57:23 Restaking Networks 1:05:27 Designing Modular Trust 1:07:43 Eigen DA 1:10:35 The 3 Aspects Of Trust 1:14:18 Tokens On Eigenlayer 1:17:54 Why Start a Network on Eigenlayer? 1:24:22 2 Uses Of Economic Security 1:26:06 Eigenlayer Alignment 1:30:42 Restaking Risk Management 1:36:19 Takes on Vitalik's Post 1:46:55 When is Mainnet Launch? 1:49:59 How Will Restaking Change The World? 1:56:59 Outro ——— Resources: Sreeram Kannan: https://twitter.com/sreeramkannan Vitalik’s Article ‘Don’t Overload’: https://vitalik.ca/general/2023/05/21/dont_overload.html Sapiens by Yuval Harari: https://www.amazon.com/Sapiens-Humankind-Yuval-Noah-Harari/dp/0062316095 ------ Related Episodes: MEV: https://www.bankless.com/-cryptos-existential-threat-mev-panel https://www.bankless.com/125-matt-cutler https://www.bankless.com/-cryptos-existential-threat-mev-panel ---- Not financial or tax advice. This channel is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. This video is not tax advice. Talk to your accountant. Do your own research. Disclosure. From time-to-time I may add links in this newsletter to products I use. I may receive commission if you make a purchase through one of these links. Additionally, the Bankless writers hold crypto assets. See our investment disclosures here: https://www.bankless.com/disclosures

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Speaker 00

  If you can remove trust frictions, then it massively enhances our ability to cooperate with each other. Just like the internet is the information superhighway, crypto could be our coordination superhighway. And once I got this, it fit in with my own life philosophy. I'm like, okay, now this is something that even if it doesn't go anywhere in three years, five years, you know, this will go somewhere in 30 years because it's an upgrade. And an upgrade to humans is what I was looking for.

• 0:29Ryan Sean Adams?

  Welcome to Bankless, where we explore the frontier of internet money and internet finance. This is how to get started, how to get better, how to front run the opportunity. This is Ryan Chauhan Adams. I'm here with David Hoffman, and we're here to help you become more bankless. I think we've got another opportunity to front run the opportunity today, this time with restaking. This is a phenomenon. I think David thinks restaking will change everything. And so we have the father.

• 0:57David Hoffman?

  There's no going back.

• 0:58Ryan Sean Adams?

  There's no going back now. We have the father of restaking, Sriram Kanon. He's the founder of Eigenlayer. The concept behind restaking is pretty simple. You stake your ETH, and then you stake it again. And it sounds deceptively simple. This is the first episode where we go down the restaking rabbit hole. A few takeaways for you today. We talk about what restaking is going to do to Ethereum. Have we just opened Pandora's box? Number two, we talk about all the cool things that can be built on top of restaking. Number three, we talk about Vitalik's concerns about restaking. What happens when ETH stakers become polyamorous? Number four, we talk about Eigenlayer. That's the protocol that Sriram is building, how

• 1:38Ryan Sean Adams?

  it maximizes the surface area for non-zero-sum games. And number five, we talk about what happens if restaking is maximally successful? How does crypto change? How does the world change? David, why is this episode significant?

• 1:53David Hoffman?

  It's not often when a new innovation comes into the fold of the crypto economic world that goes as deep in the tech stack as Eigenlayer does, as restaking does. And this is why this, the discovery of restaking.

• 2:10David Hoffman?

  Many people, myself included, has compared to the discovery of MEV. Once upon a time, we discovered that you could extract some value by arbing trades on Uniswap. And then the snowball rolled and now we have a billion, multi-billion dollar industry of MEV and different parties. And now there's being like Ethereum EIPs in order to account for MEV. People think that Eigenlayer and restaking are similarly as big as that discovery. Once you learn that you can restake your Ether to one thing, why not restake it to more things? And this is where I'll pull in my Skyrim mods metaphor. If you, I don't know if you've ever modded a game, Ryan, but you can, you can download the base game, the base Skyrim game.

• 2:54David Hoffman?

  And then you can go to these hobbyist enthusiasts lists of Skyrim mods and you can start installing some mods to make your game better. But then you can, you can continue to do that and you can start to get really weird with the mods that you install. When you're just talking about like weird mods that turn like guards into chickens and gives you foam swords. Like you're on the weird end of the spectrum of mods and that's fun inside of Skyrim. That's fun. It's fun inside of a game where like the consequences are your computer crashes. It's different when we are talking about global economic networks that transact, you know, trillions of dollars of value. So there's a lot at stake here, just like how there was a lot at stake with MEV. There is a lot at stake with restaking.

• 3:36David Hoffman?

  And similarly, how MEV also changed the nature of Ether, the asset. I think restaking is also going to deeply change the nature of what Ether is as an asset. This is not sadly a topic that we were able to get into with 3RIM. So Ryan, you're not going to have to save that for the deep.

• 3:52Ryan Sean Adams?

  Oh my God. Yeah, I really.

• 3:53David Hoffman?

  I've got some thoughts about how Ether, the asset, is impacted by restaking. And I know that this is a topic that I know Justin Drake and Dankrad and many others on the Ethereum research team are also thinking deeply about. And so I want to share all the thoughts in the.

• 4:08Ryan Sean Adams?

  Yeah, I've got an inkling like this could be almost as big as ultrasound money as kind of the burn in terms of economic effects. Like I don't think you can actually understand Ether, the asset or Ethereum, the network. Without understanding restaking, I would go that far. But let's continue that discussion in the debrief. The debrief, of course, is our episode that David and I record after the episode with our raw, unfiltered thoughts. It is available right now on the Bankless Premium RSS feed, which is available to Bankless citizens. You can upgrade through the link in the show notes, become a citizen, and get access to the Bankless Premium feed where we'll talk about that. All right, guys, we're going to get right to the episode with Sriram. But before we do, we want to thank the sponsors that made this episode possible, including our number one recommended crypto exchange.

• 4:53Ryan Sean Adams?

  This is an exchange you absolutely need to have an account on. It's called Kraken. Go check them out.

• 4:57David Hoffman?

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• 5:41David Hoffman?

  Mantle is a modular Layer 2 built on the OP stack, but uses Eigenlayer's data availability solution instead of the expensive Ethereum Layer 1. Not only does this reduce Mantle's gas fees by 80% compared to other Layer 2s, but it also reduces gas fee volatility. Mantle has a decentralized sequencer set, eliminating the risk of downtime and censorship on the network. And because Mantle implements multi-party computation nodes, Layer 1 settlement execution is shortened from seven days to as low as just one or two. Mantle is the first Layer 2 built by a DAO and is backed by one of the biggest DAO treasuries in the world, BitDAO. Mantle already has sub-communities from around Web3 on-boarded to help the growth of Mantle, like Game7 for Web3 gaming, or EduDAO for the world of D-Side,

• 6:24David Hoffman?

  and Bybit for TVL liquidity and on-ramps. Check out Mantle at mantle.xyz and follow them on Twitter at @zeroxmantle. Immutable is at the forefront of Web3 gaming, on a mission to bring digital ownership to every player, offering the world's best games and game development platform. Immutable lets game builders and players focus on great gaming experiences. So, build your next Web3 game on easy mode with Immutable's leading full-stack Web3 gaming platform. Its built-in UX features, like the Immutable Passport, are designed for games to scale to the next billion players coming to Web3. With Immutable, players can sign up with an email, pay with a credit card, and experience a frictionless purchase flow inside of games. So, discover your next favorite game and explore a network of 150 games

• 7:08David Hoffman?

  building on Immutable, including such titles as Gotham Chain, Guilds of Guardians, Illuvium, Ember Sword, and Metalcore. So, join Web3's largest ecosystem of games and players. Build, play, and connect at immutable.com.

• 7:21Ryan Sean Adams?

  Bankless Nation, excited to introduce you to our next guest. Shriram Kannan is the founder and CEO of Eigenlayer, which is a new protocol that lets you stake your ETH across multiple networks at once. People call this "restaking." That may have been the buzzword you've heard before. Shriram is also the director of Blockchain Labs at the University of Washington, where he and others research crypto economics. Shriram, welcome to Bankless. How are you doing?

• 7:47Speaker 00

  Very good. Thank you so much, Ryan and David. Looking forward to talking to you both.

• 7:51Ryan Sean Adams?

  Okay, well, we got to start here. I'm just going to hit you with the big question everyone's wondering. Shriram, did you just open up Pandora's box with this restaking thing?

• 8:00Speaker 00

  It feels like that. And I think it's, you know, you all mentioned somewhere earlier that this is kind of like the MEV thing. You know, you discover one R bot doing something on the side, and then suddenly you just realize all the consequences going downstream of that. I think this is something like that. The idea that the security can be supplied flexibly.

• 8:26Speaker 00

  That leads to so many consequences that are some predictable, some are highly unpredictable.

• 8:32David Hoffman?

  Yeah, the metaphor that Sri Ram is talking about is in an article I wrote on the Bankless Newsletter, trying to explain restaking to people, which is and why so many people have been compelled to think and talk about this. To elaborate on the metaphor that Sri Ram brought up, like, once upon a time, we discovered this arb on Ethereum doing this weird thing with Uniswap. And then that turns out was like the tip of the iceberg of what we now call MEV, which is a multi-billion dollar vertical inside of the crypto space that had, it has extremely massive implications. And so this is kind of, we kind of feel the patterns once again emerging with restaking. It's like, oh, restaking. And then the ball goes and goes and goes and goes and goes.

• 9:18David Hoffman?

  And so this might be the very beginning of a very long part of a new frontier in the world of crypto. So as a content producer, Sri Ram, thank you for opening that box because it gives us a lot of things to discuss and talk about.

• 9:33Speaker 00

  I heard some people from EF say the same thing as a researcher, you know, open up a whole new area so that we can all, you know, geek out about it.

• 9:42Ryan Sean Adams?

  Well, Sri Ram, I think we want to get to restaking and actually define that for folks, because I do think this will be maybe first in a series of content that David and I put out on a bankless about restaking. I think it's going to be that big, as big as MEV was. But first, I think I'd actually love to hear more about you, Sri Ram. So it's actually, from my perspective, you seem to sort of burst onto the scene in crypto, at least. And but I know you've been actually teaching this at the University of Washington for a while. Could you tell us about your crypto journey? So like, how did you get into crypto? How did you start researching this restaking thing? What's kind of your day job? What's your interest in the space? Give us some about, like, who are you, Sri Ram? Tell us.

• 10:27Speaker 00

  Thank you, Ryan. My interest in peer-to-peer systems goes way back to my masters and PhD I did between 2006 and Eleven uh where I worked on peer to peer wireless systems. You know, this was an era where we were thinking about how do you build wireless in a place where there is not enough wireless infrastructure? No base stations, no access points. Can you kind of have nodes just talk to each other from like ad hoc connections and multi hop? Just send information from one to the other to the other till you get to your destination. So that was my PhD thesis, uh, you know, at that time. And, you know, uh, we, our hope at that time was basically that we don't really need like a lot of infrastructure

• 11:10Speaker 00

  in, in places where there may not be enough wireless, uh, you know, infra. So however, it turned out that, uh, you know, uh, even in places, developing countries and other places, there was widespread, uh, infrastructure deployments. And the only real people interested in what we were doing was, you know, DARPA and the US Defense and so on. So I moved out from working on like peer to peer wireless to, uh, work on computational genomics. You know, I was a postdoctoral scientist at Berkeley, Stanford, you know, started here at the lab at the University of Washington, all working on, you know, computational genomics, trying to understand how, you know, information is encoded in the DNA.

• 11:52Speaker 00

  And, uh, like around twenty eighteen, January, uh, my PhD advisor called me and he's like, hey, Sharam, you know, there is this, uh, peer to peer systems like that we studied for many, many years. There's this thing called Bitcoin. And the two problems we used to always think about from a theoretical viewpoint is what is the maximal throughput of these systems? Peer to peer systems and what is the minimal latency, right? Like, you know, whenever you see a wireless advertisement, they're like, oh, one GBPS and like twenty millisecond latency. This is the kind of thing that you have to obsess about if you want to design those systems. And he's like, oh, this system is the worst in throughput and the worst in latency. But it has some other like amazing properties.

• 12:35Speaker 00

  So can, do you want to come research this? And I'm like, oh, I have, uh, I have memories of doing this before and that didn't end up well. So I don't want to do this. I came to genomics because that's something that I think is really useful to all of us. But it took me like three to six months of like thinking about the underpinnings of what this could be. Why actually I wanted to study peer to peer, all of these things. But really like the, the tipping point for me was, you know, um,

• 13:06Speaker 00

  Realizing how it fit with one of my core principles, and this actually comes from Yuval Noah Harari from his book Sapiens, where he mentions that the evolutionary advantage of humans is that we cooperate flexibly in large numbers, right? Like, it's not that we're intelligent. It's not that we're anything else. It's the fact that we cooperate flexibly in large numbers. And so if this is the evolutionary advantage of humans, anything that boosts this ability to cooperate flexibly in large numbers is a kind of like a civilizational upgrade. And that's the context through which I started seeing crypto is, you know, if you can remove trust frictions, then it massively enhances

• 13:49Speaker 00

  our ability to cooperate with each other. And, you know, just like the internet is the information superhighway, crypto could be our coordination superhighway. And once I got this, it fit in with my own life philosophy. I'm like, OK, now this is something that even if it doesn't go anywhere in three years, five years, you know, this will go somewhere in 30 years because it's an upgrade. And an upgrade to humans is what I was looking for. So I got in. So that's the story. But I've been mainly doing research at the University of Washington. You know, we came up with new consensus protocols, scalability layers, data availability, game theory for some of these things. This is the kind of thing like code infra is what professors are usually good at. I used to work on everything on the infrastructure and protocols outside of new cryptography.

• 14:34Speaker 00

  So that's the research at the University of Washington. And how it led to Agon Layer is when I was doing this, you know, the first instinct I had when we came up with new consensus protocols is like, oh, let's just take this and go show the Bitcoin guys how cool it is and then they'll just upgrade themselves.

• 14:54Speaker 00

  And I realized like, you know, my own naivety in thinking that.

• 15:00Speaker 00

  And then like I started interacting with the Ethereum guys and I'm like, wow, this is much more, much more welcoming, much more open to new ideas. But I still felt that there is, you know, this is a massive protocol and nobody is going to upgrade or change their protocol like randomly in different directions. It takes like, you know, several years of commitment to go in a certain direction. And the thing that I was left wondering with was, you know, this phenomenon of at that time, what we were calling prof coins, right? Professors had to come up with, you know, as they came up with new consensus protocols, the only way that, you know, that could come into the industry was that you had to go build a whole new L1. And the only way to build a whole new L1 is to have a token of value securing it.

• 15:44Speaker 00

  And this, I thought, was a complete misfit to what professors are used to doing because, you know, they come up with new cool technologies, but not to build new ecosystems or create like a decentralization movement. And that was kind of like, at the base of my thinking is how do we repurpose existing networks to go to other things so that this, you know, latent energy, which I was perceiving a lot, is a lot of really good ideas exist in the academic sphere, even as implementations, but never make it into reality. And so that is kind of the beginning of the journey that led to Eigenlayer.

• 16:22David Hoffman?

  So was there like a aha moment? Was there a eureka moment for you? When did Eigenlayer as a concept pop into your brain?

• 16:30Speaker 00

  Yeah. So for many years I've been having this question, which is, you know, how do we repurpose existing trust networks? And, you know, we had many different variants of ideas. How do you do, how do you use proof of work trust to supply it to somebody else, some other chains? We wrote a bunch of papers on that. But what happened was I had, you know, as a professor, one of the main milestones is to get tenure. So I got my tenure here at the University of Washington, Seattle, and that meant like I can take a year or two leave and go explore whatever other things, you know, I want. So I took a leave. I said, okay, I'm going to kind of figure this thing out, which is how do you supply trust flexibly?

• 17:14Speaker 00

  And we called our project Eigenlayer even before we had a solution to the problem.

• 17:21Speaker 00

  The Eigen layer is basically Eigen is your own layer. So anybody should be able to come and build their own like, you know, ideas and technologies into this common system. So that was the vision. We didn't have a solution to how to do it. Initially, we had a different version of the ideas and so on. Took like over six months to evolve into its form. But the main kind of like epiphany was basically that we were looking closely at merge mining. The idea that you can supply the Bitcoin proof of work trust to anybody else by saying that the same hashes that you're doing in the Bitcoin proof of work or in Ethereum proof of work before the merge can be supplied to secure another network. But there were major problems with this thing, which is what made it not take off.

• 18:06Speaker 00

  And the major problem was if you're mining Bitcoin and mine another like, you know, altcoin, right, using the same proof of work energy. If something, if even if hundred percent of the miners mine this other coin, if they go and attack this other altcoin, they have no penalty. At least if they attack Bitcoin, they're going to lose the value of Bitcoin, which means they lose the value of the equipment that they've invested heavily in. But if they go attack this altcoin, nothing happens to anybody. Like they're, most of their value is in the Bitcoin. So, you know, so merge mining had this like zero crypto economics associated with it. So it's just easy come, easy go, right?

• 18:50Speaker 00

  Like you're not putting anything, you know, no skin in the game. So why would you think? It was all carrot, no stick. Exactly, exactly. And Bitcoin's kind of like that too, but the stick in Bitcoin is that, oh, you invested a lot in your mining equipment. And then, you know, the mining equipment's value goes to zero if you go try to attack Bitcoin. But that's not the case when you attack an altcoin, which is like a, you know, even more, one more level laden on top of it. So you get basically no incentive transfer. And this and the the fact that one of the most important reasons we went to proof of stake is not even the energy and the issuance and all these things. It is the ability to do negative incentives, right?

• 19:35Speaker 00

  And that is such a powerful thing that, you know, one of my underlying, you know, when when you think about how to cooperate flexibly in large numbers, one of the underlying important things is that there should be like a working system of karma, like, you know, attribution of who did what, and they should get the thing that they did. You know, you do good, you should get good back. If you do bad, you should get bad back. You cannot socialize, you know, your your own like attacks, whereas privatize your own gains. And this is the kind of system that proof of work was. Because if you go and do an attack, then everybody's all Bitcoin holders are affected. Right? But your own bribes you'd gain or like whatever value you gain, you gain separately.

• 20:19Speaker 00

  Whereas proof of stake had this very fine-grained karma, which is that if you go do an attack, you will lose your ETH, not anybody else. So I think having this fine-grained system of like positive or negative incentives is super powerful in actually creating these kinds of systems. And okay, you know, can we do instead of merge mining, merge staking? And that's what later became restaking.

• 20:48David Hoffman?

  It's interesting to see that the argument for proof of stake for Eigenlayer, for restaking, is similar to, it seems like a logical continuation of why proof of stake in the first place. A lot of the arguments that you're giving, I remember Vitalik saying, like, about just the economic security model between proof of work and proof of stake. Like, what's more secure? If you lie to the if you lie to the system that somebody comes, takes all your money versus you lie to the system, you just stop receiving new money. Like, the one where you just have all of your money taken away from you is going to be much more secure because that incentive. And also, just like the idea of flexible security just makes sense in a Turing-complete proof of stake platform.

• 21:31David Hoffman?

  But I'm wondering if we can just try and do the extreme, explain like I'm five, maximally simple, left left side of the bell curve explanation of restaking. So people people understand Ethereum staking. There's no way they can listen to Bankless and not understand what Ethereum staking is. So starting from there, what is restaking in its most simplest form?

• 21:52Speaker 00

  Yeah, restaking is the idea that the same stake that is used for securing the Ethereum proof of stake network can now be used to secure many other networks. That's the simplest version. So in staking, what you do is you lock a bunch of stake and then you're saying, I'm going to validate the Ethereum blocks correctly as per the rules and the covenants let down in the protocol. If I don't do it, I'm going to lose my eat. That's the covenant that you're opting into when you're staking in Ethereum. If you restake, you use the same stake in Eigenlayer, like you take the same stake,

• 22:34Speaker 00

  now you not only add a covenant that you're going to validate Ethereum blocks correctly, but you add covenants that I'm validating David's new oracle correctly, or Ryan's new like chain correctly. And if you don't obey these covenants, you may lose your eat, just like you lose your eat in the Ethereum base layer. And one way of visualizing this is, you know, you all talk a lot about like blockchains as nation-states kind of analogy, right? And if you think of like Ethereum as a nation-state, you have the stakers or the validators who are the, you know, army for this kind of nation.

• 23:15Speaker 00

  This army secures against certain kinds of, you know, attacks, which is you cannot do a double spend, you cannot do an invalid block, like these are the basic things that you get when you're basically validating the Ethereum blockchain. But to have a functioning, you know, system, you not only need this ability to secure this kind of a land border, which is block validity and double signing and stuff, you also need all kinds of other things. You need to make sure that your bridges work correctly, you need to make sure that your data storage protocol works correctly, you need to make sure that some other like features, all of them work correctly.

• 23:58Speaker 00

  Can we repurpose the same like validator set or the army to go secure all these other things? And, you know, that's like protecting the naval border and like protecting the air surface, right? Like, so that's basically the expansion that we're doing is, you know, instead of restaking, you can also think of this as programmable staking. You know, when you're staking, you're basically opting into the specific covenants laid out in the Ethereum protocol. In programmable staking, you're opting into any sets of positive and negative incentives other people write, and out of your free will, you can opt into that and say that, hey, I'm going to go secure these five other things or 10 other things.

• 24:38David Hoffman?

  So with Eigenlayer, it simply says, hey, you've taken your Ether and you have opted into slashing conditions on the beacon chain. Would you like to opt in to additional slashing conditions for other chains? Additional, would you like to take additional risk to do other things for other chains? And the reason why somebody might say yes to this question is because the things that if it's an Oracle network or another like Layer 2 or a data availability network is that, well, you get paid for that risk. You get paid for the opportunity to validate other chains. And so, Trivam, that brings me to my next question. Where does Eigenlayer actually sit in the tech stack? Is it a smart contract in the application layer?

• 25:21David Hoffman?

  Is it some like software that like you run as a sidecar along with your Ethereum node? Like where, where actually is Eigenlayer?

• 25:30Speaker 00

  Yes.

• 25:32Speaker 00

  The way I think about Eigenlayer is it, you know, just explaining functionally, it is Eigenlayer is a series of smart contracts which interacts natively with staking. So that's the important thing. So somehow you have to be able to stake in Ethereum and then specify to the Eigenlayer contracts that you have given this power to it, right? Which is the power to slash and the power to incentivize, you know, the power to earn rewards. And so Eigenlayer is functionally a system of smart contracts on Ethereum. And if you are a staker and you want to opt in to Eigenlayer, you have to go to the, so there are two forms of restaking that we allow. One is called native restaking, which is normally when you stake in Ethereum, you

• 26:16Speaker 00

  set your own like hardware wallet as the withdrawal address so that when you withdraw, your money goes into the Ethereum execution layer address, which is controlled by your hardware wallet. Instead, if you opt into Eigenlayer, you add one intermediate step in the withdrawal flow. You go and set to the Ethereum.

• 26:37Speaker 00

  Staking, you say that the withdrawal addresses in the Eigenlayer contracts, a specific region in the Eigenlayer contract you control called an EigenPod. And in that EigenPod, you specify that the pod owner is your hardware wallet. So essentially, it's just adding one more step in your withdrawal flow. Instead of directly going into your wallet, it's going to go to a contract, which is partly controlled by you and partly has the slashing power given to the Eigenlayer contracts. And then you can now like potentially withdraw. So then in the normal mode, if you did everything right, according to the Eigenlayer system, you'd be just able to trigger the withdrawal. It goes to your pod, you know, where you control the money, and then you can withdraw it back. Except if you have done approvable violation

• 27:20Speaker 00

  according to the Eigenlayer contracts in one of the covenants that you opted into, you might lose a portion of your ETH and only be able to withdraw the remainder of the ETH because you got that portion slashed. So and when you're doing this, you know, this is the on-chain actions that a staker is doing, which is opting into the system. The off-chain action is because you're opting into this new David's storage protocol or Ryan's new chain, you have to download the node software for those other things and then run it. And we provide an interface for making it easy to do all of these things. But you have to actually download it and run it in your off-chain thing. Because you know that if you don't run this thing and like make claims and stuff, firstly, you're not going to get the rewards

• 28:02Speaker 00

  and you may be subject to the slashing conditions that you're opting into. So Eigenlayer has two parts. One is the on-chain part, which is, you know, you have the smart contracts which is opting in. And then you have the off-chain part, which is you have to download and run these other things. So while logically, this is how it works and technically, this is how it works. I think at an abstract layer, it is almost like putting a hook into the root of Thrust of Ethereum. You have staking, which is the kind of very base of Ethereum. On top of which you have the consensus layer beacon chain. And then you have the execution layer, get nodes. And you have the particular ways in which blocks are produced. But somehow it's able to kind of like go to the very, very root, which is the stake.

• 28:45Speaker 00

  And then say flexibly transfer like attributes of the decentralized trust that emerges from there to other services that may want to rent portions of this trust.

• 28:56David Hoffman?

  So for those who aren't familiar with Ethereum staking, you set a withdrawal address to an Ethereum address. So that when you are done staking, the ether goes to that address. And presumably you would set it to your address. But what, Sri Ram, what you're saying is that in this scenario, you actually send it to the Eigenlayer address. And that Eigenlayer address is like the enforcement layer part of Eigenlayer, where like if you need to be penalized, that is where you would get penalized. So like you actually don't get your ether back until you go through like the enforcement, like the gateway to make sure that you've done all of your duties correctly for all these other networks. And these other networks are you're also doing, you're doing, you've signed up to do some sort of certain role for these other networks, be an oracle network, a layer two.

• 29:41David Hoffman?

  And they will go also to that contract and say, hey, this person did their duties. We don't need to slash them. You can let all of the ether go out and back into their actual address. Or they will say, hey, they actually, they did do something bad. They need to get slashed. But that brings me to my next question. Does that mean that Eigenlayer is really only suited for objective things? Where the thing that you have signed up to be a re-staker for can actually make a on-chain proof that this person or this entity did some, a slashable offense? That's my intuition. Is that correct?

• 30:13Speaker 00

  That's partly correct. The way we think about it is if you think about what is the root of decentralized trust? Another mental model, which may be helpful for some of the listeners is You know Eigenlayer is, you know, first mental model is Eigenlayer is Restaking or a programmable staking protocol. The second mental model is Eigenlayer is a marketplace for decentralized trust. If you think about decentralized trust, right, you know, when you think of what is a crypto solution and what is not a crypto solution, you basically say that anything with a decentralized trust is a crypto solution, anything without decentralized trust is not a crypto solution. It's a very sharp boundary. So decentralized trust is the raw material out of which all crypto products are manufactured.

• 30:55Speaker 00

  And the decentralized trust in Ethereum is distilled in a specific way. You take this like, you know, group of nodes and stake and stuff, and there's a particular coordination consensus layer called the beacon chain. And then there's a particular execution layer called the EVM. And then on top of which there's a particular things like the gas limits. And then it induces this thing called block space. Oh, you have 15 million block space, 15 million gas every 12 seconds or whatever. And that essentially Ethereum itself is a marketplace for decentralized trust, right? But it's decentralized trust distilled into a specific product called block space. So you have this notion of decentralized trust, it goes to the consensus, goes to

• 31:38Speaker 00

  the execution, it goes to the gas limits, and then creates an object called block space. And the block space economy is clearly emerging in Ethereum to be one of the preeminent economies in the crypto space, precisely because the raw material of, you know, like I said, every crypto solution needs decentralized trust. And Ethereum is a marketplace for decentralized trust. And but it's a marketplace for decentralized trust distilled in a specific direction, using a certain consensus protocol, using a certain virtual machine, a certain scalability layer, and a certain gas limit, leading to this economy of the block space. But decentralized trust itself is much more, can be supplied potentially in a much more raw manner. And that's what Eigenlayer is.

• 32:22Speaker 00

  Eigenlayer is a marketplace for raw decentralized trust. And what is raw decentralized trust? Like, what is decentralized trust composed of? Decentralized trust is composed of the economics of decentralized trust, which is, oh, I have some amount of money staked, and if, you know, these services or some combination of these services go wrong, then those ETH will be burnt or redistributed or whatever the covenants are. So that's number one is the economics of it. But number two, even in Ethereum, this is by itself insufficient. If it's only the amount of each stake that matters, then we wouldn't have to worry about decentralization. We would say, let BlackRock stake thirty five billion dollars and then we'd be fine. Like, why do we worry about home stakers? Why do we worry about, you know, solo node operators and all of this?

• 33:07Speaker 00

  It's because the trust model of Ethereum itself is not purely reliant on staking, on money. It relies on a combination of money and collusion resistance. For why is this? Because money only lets you slash objective violations, even on Ethereum, right? Like you, if you double sign, then it's an objective violation. I know David signed block number thirty with hash X and block number thirty with hash Y, and that's just not allowed. So I'm going to slash David. Like, it's an objective, on-chain, verifiable, algorithmic thing. But what if like David and Ryan and everybody collude? And then they're not allowing certain transactions to go on chain. They're censoring a fraud proof. They're censoring an oracle input, like whatever things.

• 33:52Speaker 00

  They've taken some off-chain bribe and going and doing this stuff. Censorship is not on-chain verifiable because how do we know inside the blockchain that David has excluded some events from the blockchain? Because, you know, there is no locus, there's no reference point for us to know that. We need, therefore, block producers to be divers, right? Like, because that's integrating different specters into block production. Because if there is many, many independent agents who are actually doing it, the probability that all of them can collude and form some invalid input or like censor is going to be much lower. And not only that, like in Ethereum, we also have this concept of social slashing.

• 34:36Speaker 00

  And the concept of social slashing is needed because

• 34:41Speaker 00

  Safety is algorithmically slashable, like safety violations. If you violate safety, like, oh, you know, you sign two things or you sign an invalid block. These are objectively verifiable. But liveness or censorship, liveness violations or censorship is not objectively verifiable, but it's objectively verifiable. From us outside, it's obvious if a fraud proof has gone into Ethereum and not been included for seven days. This is why Vitalik and others encouraged that the fraud proof time period not be like one hour. In practice, likely one hour is good enough, but just to make sure that in the most extreme event, if censorship is happening for seven days, it's human observable. It's knowable for all of us.

• 35:24Speaker 00

  You know, people are going to shout, somebody is going to tweet, somebody is going to write in the Reddit posts and in the Ethereum forums and so on. So the idea, the way Ethereum is structured is safety is on-chain observable and slashable. So safety violations are enforced based purely on economics. Liveness is enforced by two different things. One is decentralization, which is integrating a variety of different perspectives so that different people have opportunities to engage in block proposal. But also, from the outside, we have a vantage point to see and say that like something bad happens and we can safely agree on that something bad happened, which is censorship happened, then there is an ability to fork.

• 36:06Speaker 00

  So these two things interlock together to create the Ethereum security model, which is the guarantees of the base layer that you have safety and you have liveness. And so that's just like explaining the underlying modules of decentralized trust in Ethereum itself, so that now I can explain the same thing at Eigenlayer. So now, when somebody is wanting to build new services, they need to think of how do they take these raw elements of decentralized trust and then compose the services they want to compose. This is a very sophisticated task, right? Like, you know, we had Vitalik and Justin Reek and Donkrad and like very sophisticated actors actually come up with these protocols. And we expect the same thing to be true at the Eigenlayer level as well.

• 36:51Speaker 00

  So what are the raw elements of decentralized trust that Eigenlayer can supply? On the one side, we can supply economic trust. Why can we supply economic trust? Because you're restaking. Right? If you're restaking, then you know, essentially you can subject yourself to slashing. And anything objectively verifiable can then be slashed through the Eigenlayer system. That's number one. So you can supply that. So what if you had a protocol that or aspects of the protocol like liveliness, like censorship, that do not rely on economics alone, they need a notion of decentralization. You could come to Eigenlayer and just borrow the Ethereum decentralization. You could somehow say that I only want the home stakeholders of Ethereum to participate.

• 37:34Speaker 00

  I only want these group of nodes to participate. And then say that I only want a decentralized quorum. I don't care whether they bring 35 billion or only 350 million, because it's not the economics that drives this particular aspect of trust. I want as many distinct agents to participate as possible in my consensus protocol. You know, let me give a kind of like a very tangible example, secret sharing. I take a secret, okay? And I want to distribute the secret to many, many nodes. And there's a covenant in the secret, which is that if something happens, then reveal the secret. Right? If that thing doesn't happen, don't reveal the secret. What I do is I take my data and then encode it into small portions. And no one person has all the data.

• 38:15Speaker 00

  I take these like, you know, 5,000 home stakeholders in Ethereum and split this secret and send it to all of them. Now, the only way I can reconstruct the secret or, you know, more than a majority of them come together and reveal their portions, then I can use an algorithm to stitch all those pieces together and then recover my secret. So this is called Shamir secret sharing is a basic cryptography primitive. And if you want to build something like this, you know, economics is not useful because it is not observable, it is not objectively attributable, whether David and Ryan and others like colluded together and revealed their portions of the secret. Because who knows, maybe they met in a secret room in, you know, in the bankless office and revealed the secret.

• 38:56Speaker 00

  Whereas it's not observable, so I'm only relying on collusion resistance. You know, if I bring 5,000 home stakeholders from around the world, where are they going to meet and reveal the secret? They may have to go through some, you know, it's not easy. So by building this barrier. You can actually bring aspects of decentralized trust. So Eigenlayer is a thing which allows slashing only for objectively attributable offenses, but it allows the usage of decentralized trust for other things. Imagine I can have an oracle which allows people to bring in inputs but has no slashing. You are taking an assumption when you're using the oracle that a majority of the nodes are honest. And if you take a very distributed group of nodes, it's possible that your assumption is satisfied.

• 39:38Speaker 00

  So just like the Ethereum protocol designers had to have like a very first principles understanding of what is decentralized trust, what are the aspects of decentralized trust? How do we combine them to actually make something useful and productive? Builders on top of Eigenlayer also need to have the same first principles understanding of what aspects of decentralized trust exist? How do you mix and match these two uptime services that have the properties that you want?

• 40:04Ryan Sean Adams?

  This opens up so many different channels. I feel like we could go down Sri Ram and, you know, I'm conscious of trying to take all the paths at once. So we'll do our best to kind of navigate because you've opened up so many different topics of discussion here. So we'll try to get to them all, including the applications that this enables, which feels like where you left that conversation. But just so I'm understanding it, so the idea is that Eigenlayer is really sort of modularizing decentralized, the decentralized trust of Ethereum. So Bankless listeners should know that, like, obviously, we think, and I think generally it's accepted, Ethereum is maybe the most decentralized network out there. If not, then, you know, some people would say it's number two to Bitcoin, you know?

• 40:45Ryan Sean Adams?

  So anyways, one of the most decentralized networks out there, if not the most decentralized network out there. And what Eigenlayer is doing through restaking is modularizing the decentralized trust component. So in the way the market could buy decentralized trust from Ethereum is through block space sales. That was the commodity that you could purchase. You want Ethereum's decentralized trust? Here, we've turned it into a block that you can purchase, right? And that was the export from Ethereum. What restaking and what Eigenlayer is doing is essentially saying, Wow, that's not the only form of decentralized trust. It's not the only commodity we can actually produce.

• 41:26Ryan Sean Adams?

  There's a layer down, which is further, which is this concept of decentralized trust. And it could take a different form. It doesn't have to be block space. And it can take the form of economic trust and decentralization. But essentially, any chain or any application can tap into that supply of decentralized trusts and create something different out of it. Not block space, but maybe something different. And that concept in itself is very, very, very powerful, I think. And I think we're just scratching the surface of imagining what it could be useful for. But Sriram, your counsel is like, hey, and if you're designing an app or designing a chain to take this new primitive into account, you have to really understand what you're doing, right?

• 42:11Ryan Sean Adams?

  This is like potter's clay and you have to like make sure it forms the use case very precisely. One thing I want to ask, though, is from a staker's perspective. So many Bankless listeners hold Ether, the asset, of course. Maybe they're staking it, some portion of it. I want to be clear on kind of the risks that somebody takes on when they re-stake. Okay, so first of all, it seems like they have to have their ETH staked in order to re-stake it, right? So we're saying that, where you can't do this with raw ETH, is that correct?

• 42:44Speaker 00

  That's right.

• 42:45Ryan Sean Adams?

  Okay.

• 42:45Speaker 00

  That's right. So you can either do it with ETH staked or you can do it with liquid staking tokens, like if you already have like Arith or, you know, let's say Lido staked ETH, you could deposit the staked ETH. You could also theoretically do it with, you know, just raw ETH, you know? But the assumption is if you're okay with the risks that come with restaking, you should likely be okay with the native staking. So that's, that's the assumption.

• 43:15Ryan Sean Adams?

  Got it. Okay, okay. So the first layer of risk is fairly well understood by the market. That is, you stake your Ether, some risk associated with that. A lot of that is protocol risk. If you stake it with a third party or staking pool, then you accept another protocols layer of risk. So that's a risk layer one. Risk layer two, which might be Eigen smart contract risk. So you guys are putting some code out there and we all, you know, cross our fingers, do security audits, have, you know, high Lindy effect, make sure the code is secure. There's the chance that that is not secure, that there's some element of risk associated with that. And that would apply across all of Eigen layer, anything that uses Eigen layer for restaking, right? So that's a second layer. That is correct. Okay. That is correct.

• 43:58Ryan Sean Adams?

  And then the third layer is the new slashing conditions and that can be application specific. And folks can kind of opt into that. What this, what this, I guess, reminds me of almost is we use the kind of the nation state analogy a little bit earlier. And I'm almost like, Bankless is called Ether, the internet bond for, for quite a while. Like Ether when staked is kind of a, a bond. It's almost like a treasury bill. It's a T bill that we create. And if you look at, um, you know, the one year short term treasury market in the U.S. The yield right now of that is 5.3%, right? Which is kind of interesting, 5.3%. Ether, the asset when staked is about in that range, right? When you include MEV and such, we're between four and 6%.

• 44:41Ryan Sean Adams?

  So the invitation here is to take that, almost like you would with T bills, and be able to use those T bills to economically secure something else. That is almost an analog here. Of course, like T bills are not really very fungible in the U.S. And one might argue they could be or they should be. I kind of feel like I'd rather have a T bill than use dollars, right? Because that T bill is giving me the, you know, the 5% interest rate that maybe I should be entitled to. But that is not a fungible unit, but on Ether it really is. And so you can use your staked ETH, the protocol risk of Ethereum and restake it. And you take some other risk in exchange for some reward.

• 45:21Ryan Sean Adams?

  And we would imagine that reward would be obviously beyond the risk free rate of staking ETH. Don't be triggered, Bankless listener, when I say risk free rate, okay? I'm using that very precisely. Of course, all crypto is risky. You could lose what you put in, you know this. But the risk free rate for Ether is like, if you want to return on. Ether, there's no better place than actually staking Ether. There's no less risky place than staking Ether. So that becomes the risk-free rate. And then anyone who wants to tap into the trustless security of Ethereum is going to have to pay some premium on top of that. So from a staker's perspective, you could stake your ETH at like 4% to 6% annualized.

• 46:06Ryan Sean Adams?

  You re-stake it in Eigenlayer, you take on some smart contract risk, and then you opt into the applications or chains you want to support, and you can further increase your yield above the risk-free rate. So there's more risk here, but now I may be going from a 4% to 6% type yield to like a 7%, 8%, 9%, 10%. You really can't predict this because you're just the marketplace for this, and the market will determine what the true yield is. Is this all correct?

• 46:34Speaker 00

  That is absolutely correct. In terms of things like the smart contract risks on Eigenlayer, I think definitely that is a significant aspect of how we think about,

• 46:47Speaker 00

  you know, when we try to build systems, we are trying to think of not only mechanisms on, you know, how to audit the contracts, how to make sure that we have very minimal surface, but still, we also think of other things. For example, in Eigenlayer, there is when, before you withdraw your money out, right? There is a withdraw lag of seven days. And this is true for most staking and unstaking protocols. It is not a short-term activity like a bridge where you're like, "Oh, you know, why is my fund still there?" It's a long-term activity, it's much slower in time scale. And this lets us exert some amounts of other controls.

• 47:31Speaker 00

  For example, we have an ability to pass the contracts. There is something called the Community Multi-Sig, which is composed of members not from the Eigenlayer team, and it can upgrade the contracts. So having like a system of like checks and balances so that we can minimize but not eliminate the risks. Associated with the Eigenlayer system. These are steps that we have taken, but absolutely correct that even if the Eigenlayer system has some amount of risk, each service that you're opting into has also some additional risk because you have to trust their smart contracts and such. And we have put in measures for some of those things as well.

• 48:12Speaker 00

  For example, one of the things that we do is there is a committee called the slashing veto committee, which basically the role of the slashing veto committee is if you got illegitimately slashed because of a bug in the slashing contract, then they can veto the slashing. They cannot add new slashing, they can only veto an existing slashing. And what this does is also segregate, because you know, you have this veto committee, which can veto slashing, some set of, and this veto committee will only accept some set of services, right, because they have to be able to understand the service in order to veto what is a legitimate and what is an illegitimate slashing. So what this does is create a tiered system where there is a permission tier,

• 48:56Speaker 00

  which is on boarded by this veto committee, because you know, they're going to vet the various conditions. For example, like the composition of trust that I mentioned, you should only have objectively attributable flaws, or false. You should only, if you're using subjective things, then use decentralized trust. Don't try to slash it. Like all of these kinds of things, which are protocol specifications, can be checked by this onboarding committee in the permission tier, which is protected by the slashing veto. There's going to be another permissionless tier where if you built a protocol, if you built a service and it is well ossified, then you would say like, who's the slashing committee? I don't need them, I'm veto committee, I'm going to go to a tier which is not protected by this. But you need to be able to convince the stakeholders who are now taking an excess risk, right?

• 49:40Speaker 00

  Because they're not protected by the veto committee. You're, you need to convince them. And if a random like DGEN protocol is built on top of this other service, it's up to them to then go and convince the stakeholders that they have to go like do this crazy thing. So by creating a system of checks and balances and, you know, internal social consensus inside the Eigenlayer system, the slashing veto is an internal social consensus, right? It's a, it's a system of like, you know, participants which can basically veto slashing. They cannot add on slashing, but they can veto slashing. So things like this actually create a very.

• 50:15Speaker 00

  Nuanced system which has a lot of internal checks and balances. But at the end of the day, the high level picture is what Ryan laid out, which is you have your ETH. You won't earn additional rewards for validation services. So you use the Ethereum base layer staking. That is the absolute risk minimal thing that you can do. On top of which you may say, oh, I like these protocols. These are pretty risk minimal. I'm going to opt into them. I want to just say one important thing, which is that if you look at the scope of what possible revenue opportunities exist in Ethereum or in blockchains broadly, you know, you have things like, oh, I can go and participate in decentralized finance.

• 51:00Speaker 00

  I can go and participate in a landing market. I can go and participate in a kind of like a market making or whatever, and then earn like a bunch of yield. But all of these yield, you know, all of DeFi yield is you're underwriting some price risks. That's what you're getting a yield for. You're underwriting a price risk. Like you are saying, oh, I don't believe like E2USD is going to change that much or like this to that is not going to change that much. And because if it does, you're going to lose money. I'm going to underwrite like some volatility risk. That's what you're doing in a landing market. Like you're underwriting some set of like financial risks, price risks, when you're like trying to gain yield in DeFi. But really, and this is not unique to blockchains. Blockchains make them transparent, right?

• 51:44Speaker 00

  Like and verifiable that some of these conditions and covenants are held. But that's the only reason you have a non-zero yield is you're underwriting price risk. Because if that's not the case, then you don't get any yield. What happens in Eigenlayer is that we have this realization is validation yield is the unique thing about blockchains. So what is validation yield? Validation yield is you hold a bunch of ETH and then you put it down, you lock it down in a contract, and then you are providing a service, right? It's a service provider fee. It's a combination of locking up some money and providing a service. That's what staking yield is. And staking yield is non-zero because of an information asymmetry. What is this information asymmetry? As a staker, you know, you're honest.

• 52:27Speaker 00

  And if you understand the protocol and its risks, which is, it's theoretically doable, right? If you understand the protocol and its risks, you can basically be sure you won't lose your ETH unless you're malicious. Right? Whereas an external party like, you know, you look at me and you say, oh, Shri Ram, maybe he's good, maybe he's bad. So you don't know that I'm I'm honest or not. You're going to say, oh, but I see he's putting down his money. And if he's not honest, he's going to lose this amount of money. So from your point of view, you're saying, I don't know if he's honest or not, but if he's not honest, he's going to lose this money. So it's predicated on this information asymmetry between the service provider and the

• 53:08Speaker 00

  service receiver. It's a very unique form of field that is created inside the crypto economy. And and and it can underwrite a lot of digital trust like, oh, I'm a I'm I'm I'm a server and I'm providing a certain service. I'm a storage provider and I'm providing a service and I'm I'm I'm a metaverse like, you know, system and I'm providing a certain service. There's all kinds of these services that people want to provide. And because it unlocks this new kind of economy, which simply doesn't exist anywhere else, there's no parallel to this. So the the rate here is could be quite different from the rate that you would get on other instruments.

• 53:46David Hoffman?

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• 55:13David Hoffman?

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• 55:39David Hoffman?

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• 56:22David Hoffman?

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• 57:23Ryan Sean Adams?

  We're going to get to all of the different applications in just a minute and what this innovation can breed. But just, I want to pause on the staker piece. Guys, staking is about to get real interesting. Like, real interesting. Because imagine now you are a staker and you have the opportunity to maybe juice your yields by some amount and there's thousands of different options in order to do that. And I'll remind Bankless listeners, as usual, in a competitive marketplace, higher reward equals higher risk. Okay? So you want to go sign up for the double-digit APY? You're probably taking commensurate risk associated with that.

• 58:07Ryan Sean Adams?

  If you don't know what you're getting into, you better not go do that. But imagine this kind of competitive marketplace competing over that decentralized trust. And as a staker, you're kind of at the center. You're what all of the other chains actually want and demand. I think this is very fascinating and you can see why we are so fascinated by this topic is because there could be entirely like rating agencies just based on rating the risk of different Eigenlayer type of applications or chains and like entire... This is going to spawn so many different industries and different companies. That's why we're so excited about it.

• 58:50Ryan Sean Adams?

  We should probably get to some of the new things that can be built on Eigenlayer. David, you want to take that?

• 58:56David Hoffman?

  Yeah, just to really reiterate this, I think it's important to be able to put into people's brains like what these new networks actually could be like, all right, you can re-stake your ether. We haven't answered the okay to what question. So like Sriram, to what would, what are some examples of like networks that could come alive because of restaking, because of Eigenlayer? Like, can we just make this like really concrete for listeners' brains?

• 59:22Speaker 00

  Yeah. So if you look at the kind of broader crypto economy, I think, let's start with this high level observation that decentralized trust underpins pretty much all crypto solutions, right? And so you start with that, and then you say, okay, what are the other innovations people are doing, which are currently potentially outside the Ethereum ecosystem that we can now like supercharge with this 35 billion plus dollars of staking that exist in the Ethereum ecosystem? Number one, new chains, right? Like you look at, oh, I'm gonna start this new chain. And why do you start a new chain? You start a new chain because you have a new consensus protocol. Okay, this new consensus protocol is gonna achieve finality in like half a second.

• 1:00:07Speaker 00

  Okay, that sounds pretty cool. Can we bring that to Ethereum? You stake ETH, and then you opt in, and now you're running a new consensus protocol. And this new consensus protocol can get finality at like one second or half a second. And if finality is broken on this new consensus protocol, I'm gonna be able to slash ETH. It's an objectively attributable offense of signing two blocks with the same block number. That's a superpower. One example, like take any L1 is now part of this restaking economy. Okay, but that's not all. Actually, I think this idea that you you're going to build all these silos of many chains, I think is not a good model. I

• 1:00:49Speaker 00

  wanna, you know, draw the listeners into a old model that happened in the internet. Like, imagine it's 1994, and you wanna build your web application.

• 1:01:01Speaker 00

  What would you do? You would basically have to build your own server. Make sure the server is performant. You'd have to build your own like identity stack. Say, okay, you know, how do you log in people? You would have to build your own payment stack so that when they come to your website, they know what they're doing. You have to build your own database stack so that you have like a history and stuff stored. And then you would have to build like the thing that you really wanted to build. So this is the internet web application development in like ninety four. But how does it look in twenty twenty three? You'd say, oh, AWS is the server of choice or whatever Azure or something, right? Like, so you choose one of the clouds. Then you say, I'm going to choose like a SaaS service, like an, you know, OAuth as an identity

• 1:01:46Speaker 00

  as a service or a payment as a service using Stripe or PayPal or something else. Use like a DB as a service on top of it. And then like tie all of these together and then, hey, I just do the one special thing and then create my application of choice. So that's what, that's what you do today. And what we envision is, of course, like you want to bring this same kind of like a development economy into blockchains. The problem is AWS cannot be the substrate, right? Like the substrate needs to have decentralized trust. We already established that that's what demarkets a blockchain solution from a non-blockchain solution. Now we have the decentralized trust substrate, which is Ethereum stakers putting down money and computational resources to supply that trust.

• 1:02:30Speaker 00

  Agile layer makes it more flexible. Now you can have services built on top, like just like the SaaS software as a service was the corresponding economy in like the cloud era. You build many SaaS services and then any end application concatenates these SaaS services to form the application of choice. Imagine like a composability layer. Imagine a bridging layer. Imagine an oracle layer. Imagine an identity layer. Imagine a settlement layer. Imagine a ordering layer. Like when you're building like already the modular economy has started to hint at what this looks like, right? You have a sequencing layer is separate. You then have a bridging layer is separate. You then have a settlement layer is separate. But our data availability layer is separate.

• 1:03:14Speaker 00

  But this is not all the components is what I'm trying to allude to. Just like you look at the SaaS economy, there is many, many, many SaaS services. You know, a typical web application uses 15 SaaS services and concatenate它们, right? And we would expect the same thing to happen in crypto. Like, why would we think otherwise? And SaaS is one of those categories where you can take one concept and then like dive deep and really kill it. Like secret sharing is a SaaS service on the crypto world, right? Like secure multi-party computation is a SaaS service. Trusted execution environments and doing a particular thing on top of it is a SaaS service. There's many, many, many core primitives that are missing in the crypto economy to actually build all the crazy things that we envision to build here.

• 1:03:57Speaker 00

  And so to make it a little bit concrete, so I just want to present a high level vision and then I can make it a bit concrete. Let's just look at the role of modular economy today on Ethereum and kind of envision what are the missing components and how we can supplant them with Eigenlayer. Because some people get very confused when they look at Eigenlayer. They're like, oh, is this gonna be competing with the Layer 2 landscape? No, it's completely complementary to the Layer 2 landscape. Why is that? Layer 2 is not, is what? The architecture of Layer 2 is the way to scale Ethereum. It's the way to scale any decentralized blockchain. Why is it? It's because you offload computation, you offload memory management into a separate system and then provide cryptographic proofs that these have been done correctly to this

• 1:04:41Speaker 00

  decentralized network. If you didn't do this, if you just said, oh, I have like Ethereum, I'm going to re-stake and then run like thousands of chains. Now every validator needs to run like thousands of chains? That doesn't make any sense. Like, we are not, we are going to kill decentralized trust if we try to do that. So what we need is these services that are highly scalable, that can then be built on top of each other so that we keep the underlying notion of decentralized trust intact. You know, a degen version of restaking that could have been built like even one year back would have been take a liquid staking token, just let, you know, stake the liquid staking token, fork Solana and then run on Ethereum cross network.

• 1:05:23Speaker 00

  This would be like a very bad way of designing restaking because it will kill the decentralized trust on which this system is built.

• 1:05:30Ryan Sean Adams?

  You just gave somewhat a great idea, I think, Sri Ram. Guarantee that happens.

• 1:05:34Speaker 00

  I'm sure, right? And but the thing is, the way Eigenlayer is designed is it allows for modular aspects of trust. Somebody could build that, but somebody can also build the more decentralized, the more stable version. We're launching everything together as opposed to saying that this is the only thing you can do with it. Because when that's the only thing you can do with it, all the stake starts drifting towards that. Because, you know, there's no yield to be decentralized. You need to be centralized in order to make any yield. And so we're trying to preserve the core values of Ethereum while allowing this marketplace. And that's why I want to highlight like what we can do for the rollup landscape using something like Eigenlayer. So number one, data availability, right?

• 1:06:19Speaker 00

  Like, the total data bandwidth of Ethereum is somewhat constrained. It's right now at 83 kilobytes per second. And there is a roadmap in Ethereum to expand this from 83 kilobytes per second to 1.3 megabytes per second using this method called donksharding. It'll take two to three years to get there. But can we, you know, in the free market, everybody trying to build new interesting things, can we take some of those best ideas and already try them out on Eigenlayer? And the first attempt is what we are doing ourselves, a solution called EigenDA, which is a data availability layer. It runs at 10 megabytes per second, not even 1.3. It's basically just donksharding, but built with, because it's a more flexible, more open system, it doesn't have to interface with consensus and other things that core donksharding has to.

• 1:07:04Speaker 00

  You can actually like do a lot of interesting things at this layer. And, you know, that's, that's one thing that we're already building. And we have a roadmap to get from 10 megabytes per second over time to even 10 gigabytes per second, so you can scale this out 1000x. So, you know, we envision the crypto economy to grow, you know, so big that, you know, megabytes per second is not going to be enough. So that's one example. Rollups all need data availability. And can we provide a cheap And sustainable version of data availability where everybody doesn't have to download everything like nodes do very little work. They use data availability, sampling and other ideas to actually scale the system. So that is EigenDA, one example.

• 1:07:44David Hoffman?

  Can we actually hang on EigenDA just for a little bit, just because it's it's super concrete and I just it's worth just unpacking this part of the story. I think it's just a good, good way to understand Eigenlayer. And the way the, if we're using nation state metaphors, which I guess we are so far in this episode, maybe like, uh, Dang Sharding or data availability inside of Ethereum. Native data availability, Ethereum has data, it doesn't have too much of it. It's very, very constrained on that because it's decentralized. And so maybe Ethereum's data availability is like the United States Postal Service. Whereas Eigenlayer's data availability is like UPS, like maybe it's more in the free market, more is to is a more in the private market. And, and so it can compete on that threshold, it can compete in that, in that world.

• 1:08:30David Hoffman?

  And it also doesn't have to be constrained by the low movement that happens at the nation state level. Like you've really got to wait for, for 4844 for Dang Sharding to actually come to main net. Maybe the private market can move faster and it's good that the private market and the actual like enshrined protocol of Ethereum, like these compete with each other. These are, this is an open, free, free marketplace. Let's make sure that we have.

• 1:08:55Speaker 00

  There is one like really cool vision that we have for Eigenlayer is that it is a, it is a place where many EIPs compete before it becomes enshrined. So same idea for layer twos, right? Like we have, you look at charting, right? Which was basically like state enshrined like rollups, right? Basically, it's, it's an execution charting is a particular version of rollups that has to be fixed and enshrined and like built by the core protocol team. Whereas, you know, layer twos where free market. Competition on top of like, oh, you know, I'm building scroll, you're building ZK things. So many varieties of ZK EVM, so many varieties of optimistic rollups, all of them

• 1:09:36Speaker 00

  compete on this free market. And the best ideas are of course, over a longer time scale, going to be absorbed back into Ethereum. These protocols, you know, the free market protocols will continue to have an edge because, you know, they're not going to, they're going to have newer and newer features. Whereas the core protocol will also upgrade. And this is the same roadmap that we see because you need to be battle tested a lot. And there was no place for battle testing all these different ideas before they get enshrined. If it was at the more deeper levels of the protocol stack. And that's what Eigenlayer furnishes, exactly what you're saying, which is that it allows for free market competition on say, like, what is the right version of like, Dunksharding? Many people build like these different versions. And then somebody's like, oh, actually, this is the right thing.

• 1:10:21Speaker 00

  And maybe not the one EigenDA is building, but somebody else is building. And that then goes and becomes part of Ethereum itself, or a three to five year time scale. Whereas on that layer, people are still innovating and saying, oh, it's 10 gigabytes per second is not enough. We want to do 10 terabytes per second. And that's what runs on that.

• 1:10:36Ryan Sean Adams?

  The important thing about this too, is that it is secured by the same Ether stakers. Essentially, it's the same kind of economic security that is securing, that could potentially secure EigenDA, as would secure Dunksharding.

• 1:10:53Speaker 00

  That's right. So while the economic aspect of the trust, so there were three aspects of trust on the Ethereum core layer. One is the economic aspect of the trust. The other is the decentralization aspect of the trust. And the third is the social forking aspect of the trust, right? Remember when some transactions not included, you can fork Ethereum? That third aspect of trust is missing in Eigenlayer, even if 100% of stake is restaked, right? Even if every staker restakes and runs, when Dunksharding is running, if a block data is missing, Ethereum will fork around it. Because, I mean, that's the protocol. It's the protocol folks around like invalid states. Whereas on Eigenlayer, if the same thing happens, we have no ability to socially fork Ethereum. So there is a difference. The

• 1:11:38Speaker 00

  dividing line is the protocol concerns.

• 1:11:42Speaker 00

  Basically has social fucking, which is like a nuclear option, like, you know, going with the state analogy, like the nuclear power is only with the with the state. It's not with the free market. And so that's something I want to delineate. But everything else, the decentralization, in fact, it's possible to have more decentralization on Eigenlayer than on Ethereum. Why would I say that, even if the validator set is the same? It's because you could say that I'm excluding these whales, like who have, who control like the top, you know, I take the top 30 validators and remove it. And only the remaining ones all have power. So to get to a majority, to get to a majority in Ethereum, I may need like 30 or 40 nodes because they have a dominant amount of stake. No, I remove those 30 or 40 in my service and then say I only have the remaining 9,960.

• 1:12:26David Hoffman?

  It's like all the solo stakers, let's say.

• 1:12:28Speaker 00

  All the solo stakers, exactly.

• 1:12:29David Hoffman?

  Big blockchain.

• 1:12:31Speaker 00

  Exactly, exactly. So you could build like really, because it's modular, you can isolate like a, you know, you have this laser-like ability to say, I only want these things. I don't want those other things. Or somebody might say, I want, I'm building a Solana on like Ethereum. I don't need these like slaggards from home, like trying to opt in. I only want economic security. I just go with these like just Coinbase and like big, big liquids taking protocols, good enough. That's fine. Like, that's the free market and that's what it needs to do.

• 1:13:00David Hoffman?

  And picking up on the the whole like USPS UPS metaphor, I want to bring in a third player here, which is like Celestia. Celestia is a data availability solution that is outside of the fold. It is a layer one blockchain that is meant to be a data availability solution, kind of in the same way that Eigenlayer DA is also a data availability solution. But Celestia is secured by its own token. So it's like the USPS of Canada. I don't know what it's called in Canada, but the point is like a different, Canada Post, it's Canada Post. But and that's the point of like that we're really trying to drive, drive home here is that, well, with Eigenlayer with resaking, we can have the benefits that Celestia has,

• 1:13:43David Hoffman?

  that Canada Post has, if Canada Post is meaningfully that much better than USPS. We can bring that into the fold, have it be secured by ETH stakers. And then also have that that data availability solution that is free market competitive, but closer to home if you consider home to be Ethereum. How do you like that for a metaphor, Shri Ram?

• 1:14:03Speaker 00

  That's that's really good. The one thing I want to say is like, you know, the Celestia guy is bad from Ethereum. And if there was something like this, maybe several years back, it's possible that even Celestia would have built on top of this kind of a common layer. And also, I want to mention that there is a benefit for having your own token, for services building on top of Eigenlayer. And why is that? That's because that aspect of the token, you can do social forking, whereas you cannot do social forking on ETH. So you can have things like dual staking, where you say that, oh, there is a kind of ETH stakers are securing this, but also my own token stakers are securing this. But if this service goes wrong, I can socially fork these guys.

• 1:14:46Speaker 00

  And so that imposes some kind of like an economic penalty, but it only can be enforced socially. So there are all these aspects of trust, like I think Ryan mentioned earlier, like when you're constructing these protocols, you have to think from first principles, what is happening? And try to build, you know, enough attributes in different layers, just like Ethereum has thought very deeply about these things. So, yeah, that's how, when you're building a protocol, maybe you need your own token, but it's an addition to like whatever trust is coming from Ethereum, because Ethereum doesn't have social forking, and you want to have social forking on your token. And data is considered stored or available only if both these different corams agree that data is considered stored. So you can mix and match aspects of trust.

• 1:15:29Speaker 00

  Not only services are modular, trust itself is modular, right? Like, you're gonna say, I need decentralization trust for this. I need economic trust for that. I need social forking trust for this. Like, all of these different things come together in order to make your particular service.

• 1:15:43Ryan Sean Adams?

  I don't know if we're stretching the analogy too far here with, with, you know, Canada and the US and Canada Post versus the United States Postal Service or something. But what's interesting is Canada certainly would not want to, speaking on behalf of a Canadian citizen here, that's me. So, Canada would certainly not want to leave its social. Forcing over to the US, right? It would not want to like opt into the US congressional rule of law, that sort of thing. Right? Of course, but Canada does benefit, I would argue, and I think if you ask any Canadian, they would also agree from the US's military security. It's kind of there's this sort of umbrella of a security that the United States of America kind of provides in Canada.

• 1:16:26David Hoffman?

  Yeah, don't mess with our hat.

• 1:16:27Ryan Sean Adams?

  In various ways, right? Yeah, in various ways, like ops into that, you know, NATO and other sort of alliances. So it does tap into that military network, which is very interesting. And you don't know how all of this will shake out. Anyway, observation, I don't, I don't see Canada Post being supplemented by the United States. But, but they do use UPS, which I don't know what that means. And there's, there's FedEx in Canada as well. I don't know what that means in our analogy here.

• 1:16:56David Hoffman?

  Well, they're all United States domiciled companies, right? And so can be spawned inside of the Ethereum network and then also be data availability solutions for non Ethereum chains. So it can, it can go cross border. Shri Ram, you brought up the idea of tokens inside of these restake networks. And I want to bring up a counterpoint that I do Eigenlayer to restaking that I think people will, will want to hear asked. And that is, so says Shri Ram, I want to go and spin up my own chain or start my own Oracle network or do something. I want to go start a new network. My main motivation for why I would want to do that would be like, I get to issue a token and I don't really care about letting all the ETH whales secure my network because

• 1:17:41David Hoffman?

  they already have all their ETH. I would like to generate my own brand new wealth. I want to distribute my new wealth to all my early adopters and all the ETH stakers and the ETH maxies can go F off because I'm going to go issue a new token. And that, that's always been actually the reason why we've enjoyed tokens because they are network bootstrapping mechanisms. They really have solved the bootstrapping problem. So why, why would, why would people want to start their own network with Eigenlayer when they could just issue a token? Like you're taking away the cool thing about this whole industry, which is issuing tokens. So what would you say to this?

• 1:18:14Speaker 00

  That I would say history proves otherwise. You go back to 2013. Okay, and you could say, why would, in fact, Bitcoiners were saying, why would all these applications come and live inside one common tent, the Ethereum, and just be a DAP on top of this Ethereum network? How would Ethereum network itself be secure enough to hold so many applications? It's an unstable equilibrium, is what people said. So two, both the aspects combined here. One is, why would you want to be part of this kind of like a big tent thing? Number one. And number two is, how would this tent be big enough? Like, how would there be enough stake and value in this to actually secure all these things?

• 1:18:57Speaker 00

  And the answer is, we saw both the things happen, which is, pretty much all DAPs were built on Ethereum till Ethereum was saturated. Right, like in block space, you know, the Cryptocities thing happened, and then people are like, oh, maybe this block space is not infinite, and it's going to get saturated at some point. So maybe we need to build another L1, or go build one another L1. And it is because it's much, much easier to bootstrap your network if you don't have to also do your security, right? It's the same reason why, like, no, you know, same thing happened in the cloud, right? Like, you go back in 2001, 2002, you'll read articles, or 2005, even 2010, you would see, read articles that say, there's no way companies will migrate to the cloud.

• 1:19:42Speaker 00

  Except now, like, only the absolute, like, biggest ones even think of running their own, like, server infrastructure. Because it's a headache. It's a super specialty to actually go run a cloud, right? It's not something you want to do. It's going to add huge overheads. It's exactly the same thing. So, you know, first is, DAPs have tokens, right? Like, we're not against tokens. DAPs have tokens, and their tokens can be used for bootstrapping. And in fact, on Eigenlayer, you can use your token for bootstrapping without having any fee, right? Because initially, on Ethereum, if you're building a DApp, initially, all the users still have to pay the gas fee of Ethereum, which is, could be expensive. And whereas if you're building something on top of Eigenlayer, you would say, I'm compensating

• 1:20:27Speaker 00

  stakers directly from my own tokens, small fraction of my own token. And because it's restaked security, it's shared security across so many systems, the per-system fee is much lower, right? So here's a very simple way of visualizing this. Let's say there are thousand applications, each of which can have like, afford like, one million dollar worth of security because of the fee they are paying. If you aggregate all of them, you get a one billion dollar security with the same fee basis. And everybody's enjoying the one billion dollar shared security. It's just much better. And shared security is much better than disaggregated security. We see this in the real world, we see this inside blockchains. So the cost of purchasing that security is much lower because it's shared.

• 1:21:09Speaker 00

  It's not like, I have to, you know, Canada could say, you know, it's big enough to say that I can have my own army, right? But, or they do, but not to the same extent that US does. And because they're sharing in, or partaking in this through like a variety of like, soft and hard agreements, that's the same thing that will happen in this space, is you don't need to bootstrap your own system. So actually, bootstrapping your system is one of the hardest things, you know, and we see this time and again, right? Because what happens is, when you try to bootstrap your own system using your own security, you can only supply services to things of value less than your, your token value, right? Imagine your token is a, kind of like a new chain, and it's worth like hundred million.

• 1:21:52Speaker 00

  Now, you can really supply security only worth hundred million through this token. And that restricts your own like, ability to gain adoption. Whereas if you come and use a restaked security, maybe you get thirty-five billion of security. And maybe now you can offer services to everybody in the ecosystem, and that grows your market. So that's number, answer number one. Answer number two is if you look at the SaaS economy on, on the cloud era, you see, this is one of the most productive for VCs and for entrepreneurs, because you can take a narrow slice and then kill it.

• 1:22:28Speaker 00

  Say, I am the identity layer for X kind of like for social login. It's a very, very narrow thing like, but there are so many things that rely on this narrow thing that it's worth it, right? Like, that's the same thing we envisioned would happen. If somebody would come and build like a service, like ordering, sequencing transactions for all the layer twos is a narrow service. But it's built on like Ethereum, Ethereum's great security. Firstly, as a rollup, that's much more compatible to say that, oh yeah, it's secured by Ethereum. You know, it's the decentralized sequencing coming from Ethereum stakers. Much more attractive for a rollup to opt in. Otherwise, they'll be like, why do, why should I touch your token? Like, why should I not like use Ethereum?

• 1:23:13Speaker 00

  And so there are ways in which this market, like you can enhance your market share by opting into the system. You have your own token as a value capture mechanism where a fraction of the fees get routed to your token. You can use your token even as a payment token. You pay fees in only that token, possibly. You use your token as an incentive and bootstrapping mechanism. You could also use your token as an additional staking mechanism. So you can do all of these things. But the benefit of sharing in, of having in a pool security layer is quite a lot. So I think people will opt in.

• 1:23:44Ryan Sean Adams?

  So, so Eigenlayer is not going to be a token killer per se, but it could, and it might very well kill use cases for tokens as they relate to economic security. So if you are using a native token for decentralization, economic security for those guarantees, you should probably be a little bit worried about what Eigenlayer and restaking is doing. But this doesn't kill the general purpose of tokens. There are all sorts of other tokens. In fact, from a market perspective, it might make tokens more efficient value accrual mechanisms because you can tap into them directly.

• 1:24:23Speaker 00

  That's right, except I add an asterisk on the token not being useful for staking. There are two uses of economic security, two ways in which you get economic security. One way is that you have objective attributable things like slashing. So that gives you some amount of economic security. The other kind of like economics that is at play in staking is value alignment. You know, if you're holding a certain token and staking it, and even if there's no slashing, a majority of the stakers won't like go and try to do something bad in the system because that affects the value of their own token. And so we do expect things like dual staking, where each staking exists as a separate quorum and your own token staking exists as a separate quorum.

• 1:25:08Speaker 00

  And then you aggregate information from both of these quorums and say that, oh, the ETH quorum has said this and your quorum has said this. Only if they are within some reasonable deviation, that's considered a valid input. So there are ways in which, you know, your token can be used even for staking and security, but only as a complement to this kind of general purpose, slashable security, which is much better derived from something like Ethereum. It's a much more, a much less volatile store of value. It is, it doesn't fluctuate based on your own tokens like, you know, value proposition. So even if your token goes down in value, you still have the large amount of economic security intact, rather than going through a death spiral.

• 1:25:49Speaker 00

  Where your token goes down in value, then your, your chain is considered less secure. People exit and then your token goes down even further. And then it's just a kind of a spiral down. We've seen these spirals in this space. You guys have covered a lot of it.

• 1:26:03David Hoffman?

  Yes, we have, yeah. You, you said the word alignment, which I've been hanging out with a number of the Ethereum researchers. And the topic of Eigenlayer alignment or re-staking alignment is like, it's the new brain candy for the Ethereum research team. I think even Justin Drake has talked about like, yeah, I'm into, I'm into Eigenlayer alignment in the same way that Ryan and David are into AI alignment, similar problems. Existential?

• 1:26:33David Hoffman?

  Well, one's existential for Ethereum, the other's existential for humanity. And so like, I'll articulate this this way, is like, currently, pre Eigenlayer, pre restaking, in our naive, protected form, before restaking came and penetrated our bubble, all of the Ethereum stakers were this homogeneous group of people that had one network to do their one job, which was to secure your one network. Now with restaking, we have what I've dubbed "network polyamory," where like ETH stakers can actually, you know, go flirt with other networks with their original stake, but they can also stake for additional networks. And now Ethereum,

• 1:27:13David Hoffman?

  which used to have a very monogamous relationship with its own ETH stakers, now these ETH stakers get to go have other relationships with other networks. And so no longer are the ETH stakers committed to this one single Ethereum network, which is one problem. But then it also continues from there, which is that, well, some set of Ethereum stakers can go and sign up for Network A, and then some set of Ethereum stakers can sign up for Network 2, and that can fracture and go forth. And all of a sudden, we used to have this nice pool of Ethereum stakers, which had one job, which was to secure Ethereum, and now we have a fracturing of this pooled security to secure 20 different chains of dubious, perhaps, levels of commitment

• 1:27:56David Hoffman?

  to Ethereum. And so this now threatens Ethereum security, is the concern here, because like, what was once dedicated to Ethereum can now go and just do this de-gen-yield-farming thing. And now Ethereum as a whole is less secure as a result of that. What would you say to this?

• 1:28:13Speaker 00

  It is approximately correct, in that, basically, when you're sharing security, you're giving up a portion of the security to these other layers. But your own security also goes up as a consequence, right? Because US is the security supplier for the rest of the world, you are gaining fees from all these things. That means US upgrades its own, like, security battalion, right? And that's the same thing that's happening through restaking, is the total amount staked. Right now, let's say, like Ryan pointed out, it equilibrates to the market rate of like 5%, 5.5%, whatever. And as, and that means like right now, whatever, 35 billion worth of ETH is staked, right? And if you want this to go to 100 billion worth of ETH staked...

• 1:28:56Speaker 00

  The core protocol itself may not have enough incentives to actually drive it to that that level. But because you're getting staking and restaking yield together, the staking yield plus restaking yield may be enough to stretch the security from like a 35 billion budget to 100 billion budget. So there is, I completely understand and acknowledge the concern. Also, I think, you know, in the short to medium term, there is a lot more information sharing between firstly, the Eigenlayer kind of like teams and the Ethereum like protocol teams that is important. But over the medium term, maybe even the protocol information passing, like how does something like Eigenlayer or any restaking protocol communicate information with the staking protocol better?

• 1:29:41Speaker 00

  Like, so that is that aspect of it. A very simple technical version of it is called smart contract triggered withdrawals. Right now, who holds the validator key, they can trigger the withdrawals. But there is in the roadmap of Ethereum, Danny Ryan and others are putting together the idea of contract triggered withdrawals, that a smart contract which has the withdrawal key can trigger the withdrawal instead of the validator has to trigger the withdrawal. So that's an example of information sharing between like Eigenlayer and Ethereum. Then over the longer time scale, there are more complex information sharing mechanisms like shared insurance and other things we're working on internally and sharing with Ethereum folks. But over the long, long term, I do hope that something like restaking or programmable

• 1:30:24Speaker 00

  staking becomes part of the Ethereum protocol itself. Because it's such a powerful thing that actually like, you know, having it and and you know, over time, as we remove all kinds of subjectivity and battle tested, it's possible that something like Eigenlayer can become core part of the Ethereum protocol.

• 1:30:41David Hoffman?

  Sri Ram, when you tell me that I can take my Ethereum and I can restake it to get more yield, my, the first place my brain goes is like. Okay, how many times, though? Like, can I restake to all the chains? In the article I wrote on Bankless, I've been using this. In a way to explain what resaking is, I've been using the Skyrim mods as like this metaphor where like, if anyone's ever modded a game, you start with like the biggest, most common mod because it's the most useful and it's the least likely to crash your game. But then you inevitably like, okay, what about the next mod? And then the next mod, and then you go down the long tail of mods. At some point, you're installing something completely ridiculous and then you try and open up your game and it crashes.

• 1:31:23David Hoffman?

  So like the metaphor here is that like when all of these Ethereum validators, Ethereum stakers, are given the option to sign up for additional slashing conditions because they get more yield, they're going to sign up for all the slashing conditions that they can. Just like layer on all the mods, like juice my yields up to 20%. Humans aren't good at this whole risk thing. Yeah, I think this is kind of should be considered the base case for a decent, a decent portion of the Ethereum stakers who are going to sign up for a lot of extra yield because we've seen that before. So like, what's the risk here? Is this a legitimate concern? Like, why is this, why is this not going to kill Ethereum?

• 1:32:01Speaker 00

  Okay, so you know, I like the idea of the Skyrim mods. I think what we want is if somebody installs a Skyrim mod and the mod crashes, that's totally okay. Somebody installs a Skyrim mod and the server burns, that's not okay, right? Like, that's the principle that you want to hold here. So how do you make the server not crash, but the mod crash, right? Like, the mod crashing is like their karma, like they did something bad, like their, their service not well-built, it should not have good protections. But, you know, Ethereum stakers should not get like, their stake should not be burnt or something for that. How do we do this? Is partly by holding to the core standards of what I explained, which is have objectively attributable slashing conditions.

• 1:32:47Speaker 00

  When you have objectively attributable slashing conditions which are well vetted and on boarded, then what happens is you get so imagine somebody builds newer and newer consensus protocols. So just take this as a special example, right? Consensus protocols, Ethereum has a consensus protocol, all other chains have their own consensus protocols. And I would say the the project to figure out the best consensus protocol is nowhere near done. Like it's academically an ongoing exercise as well as, you know, industry innovation has still not stopped. So what do we do there? The slashing condition is very simple. What's the slashing condition? If you sign two messages which are conflicting with each other, right? Like two, two blocks, then you get slashed. So the slashing contract can be the same

• 1:33:32Speaker 00

  contract across hundreds of consensus protocols. So you have a very well vetted, simple slashing protocol. In fact, you could also have in your node software, something we call an anti slasher. What it does is, I don't know, I cannot trust these hundreds of different node software that I'm running, but I have this thing, but that whenever I'm signing a message, I'll make sure I don't sign a conflicting message. I'm basically forward simulating the slashing contract and making sure that I'll never trigger the slashing contract. So this is called an anti slasher module. So you just double check this and now you go degenerate into like hundreds of different consensus protocols. Nothing happens to you. By the way, this is the same thing that

• 1:34:13Speaker 00

  happens on Ethereum, right? On Ethereum, when you're staking, you're really staking into all applications that are built on top of Ethereum. It's just that the only slashing condition that you have is the Ethereum's slashing condition, right? So when people think about like, oh, you know, new services building on top is adding leverage, that's already there in proof of stake, right? You stake, what if tomorrow, like, you know, a $1 trillion stablecoin protocol launches on Ethereum, it is going to increase leverage and that's, that's default built in into the structure of proof of stake. It's just that it's going to generate enough fees over the longer term that because you're generating more fees, more, more things going to get staked, because more things going to get staked, the total value of each itself grows.

• 1:34:56Speaker 00

  All of these second order effects is what regularizes this economy. The same thing happens also on EigenLett. Okay, so the high level is how do you make sure that stakeholders are protected? And like I said, the two-tiered system is what we are building. That's our best attempt at saying that here's a grade of like service, which has gone through all this kind of vetting. And we want to do our best in guiding that and bring best of the community members into that. And there's going to be a permissionless tier, which we will say is don't use, you know, use at your own risk, it's extraordinarily risky, whatever. And we will see basically what happens is risk stratification, which is, you know, stakeholders are usually like low-risk taking, right?

• 1:35:39Speaker 00

  Among all the family of like, you know, DeFi, Dejans and others, stakeholders are want stable, long-term yield, you know? So that's the kind of people who are participating in this economy, or they want to support the Ethereum ecosystem and want to contribute their own decentralization to it. So we basically kind of expect that to be like a very high-grade, low-risk tier. But there'll also be like a free tier, because if we don't enable it, somebody will enable it. And, you know, it's just, there is an emergent economy there that, you know, the only thing that we can do is to educate. And, you know, you two are at the top of that game.

• 1:36:17Ryan Sean Adams?

  I appreciate you saying that, Sri Ram. We certainly try, but the only way we move forward is honestly with conversations like this. Where we're, it's all we're doing is we're just airing our education and putting that out in podcast form. The other thing I do to get educated is I read posts by this guy named Vitalik Buterin. He's pretty smart. I don't know if you've heard of him. He wrote a fantastic post. I think it was fantastic. I'm still sort of trying to walk through the implication of what he was trying to say and what this means. But it was a post entitled "Don't overload Ethereum consensus." I'll read a few things from it over the years. Did you make him write this? I feel like, I feel like it. So Vitalik says this in the post.

• 1:37:01Ryan Sean Adams?

  "Over the years, there have been a number of ideas, usually at the thought experiment stage, to also use the Ethereum validator set and perhaps even..." Ethereum social consensus for other purposes. One of those other purposes he mentions is restaking. He also mentions Eigenlayer. And this is Eigenlayer feels much more beyond the thought experiment stage. Okay, this is going to main chain type of stage. And he says, "The purpose of this post will be to explain in detail the argument why, in my view, a certain subset," in italics, "certain subset of these techniques brings high systemic risk to the ecosystem and should be discouraged and resisted.

• 1:37:43Ryan Sean Adams?

  A certain subset of techniques, maybe like restaking, that use the Ethereum validator set, Ethereum social consensus, for another purpose, should be discouraged and resisted." I'm curious, what do you think Vitalik was saying in this post? What was your reading of this post?

• 1:38:02Speaker 00

  Yeah, I think the title, "Do not overburden Ethereum consensus." My read of the actual article is, "Do not overburden Ethereum's social consensus." And essentially, it is creating this layering principle. What is the concerns of the state and what's the concerns of the free market? Right? And Ethereum had to go through this growing pains like very early in its life at the application layer. The application layer, you had things like the DAO hack. And how does, you know, the social consensus of Ethereum respond to this? And one of the very important things that Vitalik and others had to do is do this one-time thing where like, okay, you know, we're going to revert this, but only for this time. It's not going to happen again and again.

• 1:38:47Speaker 00

  And set a boundary and a shelling point that people don't assume that they can take excess risk and then externalize it back to the protocol. The way I think about it is, you know, you guys talk a lot about this, like, you know, banks, right? Banks go and take risks and, you know, they may crash. And if they crash and burn, they're going to come to like the government and say, hey, you know, bail us out.

• 1:39:09Ryan Sean Adams?

  2008. That's exactly what happened. Too big to fail.

• 1:39:15Speaker 00

  Too big to fail. We also heard that in the crypto space, if you remember. Somebody said, we're gonna be too big to fail. Yeah, let's not say those words.

• 1:39:26Speaker 00

  But the thing is, I think basically, I read the article as basically saying, hey, now that we're going beyond applications, now that we're talking about raw decentralized trust being supplied, I want to make it clear, or at least Vitalik's wanting to make it clear, what aspects of decentralized trust may be usable and what is not usable. And he's basically saying, social consensus is sacred. Don't touch it. Don't signal that, oh, you know, if something happens in A, B, C, D protocol, like I have the backing of Ethereum. And he doesn't single out restaking. I think it's true for things like layer twos. So you can't say, oh, I'm a big layer two. If I fail, then Ethereum's gonna fork around

• 1:40:09Speaker 00

  my failure. If you're a big like application, like, you know, if you're a Uniswap, if you're a maker, because, you know, this has already been said for the applications, it doesn't have to be spelled out, but it's the same principle. If you're a big DAP on top of Ethereum, if you're a big stablecoin, if there's a failure, we're not gonna fork around you. Same thing for restaking. If you restake and, you know, if your restaker said, and he gives these examples where like, you know, and we've internalized all this in internal discussions with both EF, but also reading all of the things that Ethereum researchers have written over the years. The idea that, you know, you don't want to fork. So, one of the issues that could happen, you know, when social faking would be triggered is

• 1:40:51Speaker 00

  a lot of like honest parties lose their money in a way that they didn't anticipate. And one way you might not anticipate is if you slash nodes for failures of disagreeing with the majority. In the normal mode, you assume that the majority is right, right? And if you say that, oh, whenever you disagree with the majority, I'm gonna slash you. Let's say I build an oracle and say that, hey, you know, anybody that disagrees with the majority is gonna lose their ETH, right? And then now what could happen is a lot of stakers who opted in may basically say that a majority is malicious and now like a minority which is honest gets slashed relative to the majority. And then everybody's like, oh, my God, I trusted the majority and it's,

• 1:41:35Speaker 00

  you know, creating these problems. Now you need to go for Keith, right? Like, so those are the kinds of examples where you don't want that to happen. In the same way, things like hacks, smart contracts hacks, that's why we built in things like the slashing veto, which is a social consensus internal to the protocol rather than saying it's external to us and Ethereum has to fork around failures. So that's, that's how I read it is as marking the boundaries of the layer. The Ethereum core consensus, the, the social consensus is reserved for core protocol functions. And like I mentioned, the core protocol function for which we need social slashing is censorship. Other than that, we don't need social slashing for anything. Everything is algorithmic. Maybe if there's a failure in get or like

• 1:42:20Speaker 00

  all the consensus layer clients or something like that, there is a possibility, but we should not be using this nuclear power for anything else.

• 1:42:26Ryan Sean Adams?

  My summary of Vitalik's post is no bailouts. No bailouts.

• 1:42:31Speaker 00

  That's the shortest summary possible. I agree with that completely.

• 1:42:34David Hoffman?

  I think your, your answer to this is, is the same. It's like, hey, if, if you loaded up all those mods and your computer crashed, that's on you. That does not go back to the server. And that's the same thing that Vitalik's saying in his article is like, okay, it's fine that your server crashed because that's the choice that you made. But it's, the buck stops at extending that back to the, to the main hub. And that is, and that is simply something that I think you, Sri Ram are saying like, well, it doesn't matter if they load up all the mods because, and so long as Vitali, we follow through on Vitalik's post and accept that, hey, there's no bailouts. If they, if we accept that there's no bailouts, you can load up all the mods that you want because all the consequences are on your machine or on your ETH stake. I think, I think your answer to these things are, are the same, just to articulate in two different ways. Is that right?

• 1:43:19Speaker 00

  I think that's correct. And, you know, we've been talking to the E F researchers over the last like one and a half years. And this is the first thing Dankrat told me like one and a half years back is, don't overload social consensus, you know, do anything else. Once you said it, it's gonna happen. It's much rather that somebody who cares about this ecosystem do it than like somebody who doesn't. But I think the other risk that is not necessarily mentioned in Vitalik's article is things like over financialization of native restaking. So things like, you know, you're going to draw a loan against the collateral that you're using. So basically, you I can layer is not a DeFi protocol, right? Like, we are, we want to supply

• 1:44:04Speaker 00

  validation services. We are not supplying like DeFi services. So what it means is, you're not going to be able to take out a loan against your like collateral position or whatever kinds of things. And it's because, you know, it's not going to be on boarded in the permissioned, you know, comedian. People wrote things like, oh, how is she I'm gonna mediate. I'm not mediating this. The slashing, there's a slashing veto and the slashing veto kind of onboard services on who which set of services are low risk. And it's very important that this happens. It's possible to build financial applications on top, but with a layer of buffering. So imagine you build like a liquid staking product. So just take Ethereum, right? Like, you know, a liquid staking protocol,

• 1:44:46Speaker 00

  you take a liquid staking token, and then you go and do something in a lending market or whatever. Any issue happening there doesn't affect the core, you know, staking protocol because it's buffered by the liquid staking. So that could be liquid staking on top of something like I can layer, and then that buffers some of. So there are layers that are going to be built. But what is built or what layers very important. And so in our layer, we are building validation as a service. That's the core thing. And we have basic rules. Use only objective slashing. Use a slashing veto. Slashing veto is powered to onboard. Use, you know, if you're using anything which is not objectively verifiable, just use decentralization, don't use slashing. Don't assume that you're going to be bailed out by Ethereum social consensus. That if a majority

• 1:45:30Speaker 00

  of you, if you trust a majority of the Ethereum nodes, to be honest, and they are not, for whatever reason, you're on your own. That's the trust model. And that's how like Eigenlayer is going to work.

• 1:45:41Ryan Sean Adams?

  Yeah, the no bailouts point is, I think, a very valid one. And yet I am also comforted by the fact that there have been many candidates on Ethereum for the Too Big to Fail designation in the past. I remember when Maker Dow was one of those and DAI was. I remember another one that, you know, said that anyone who controls USDC will be kind of the kingmaker of a future Ethereum fork. You know, another candidate for this is Lido. Another one is the various exchanges, you know, the binances where the Coinbase is the Kraken. Now it's restaking as kind of a candidate for, you know, for. I'm strangely comforted that there are so many candidates for Too Big to Fail in all separate categories.

• 1:46:22Speaker 00

  Really, really, really good point. That's a really good point because all of them have to agree to actually do anything.

• 1:46:26Ryan Sean Adams?

  And I doubt they will agree, which is, which is also a contributing fact to this decentralization. So, Sriram, this has been, you know, an exciting journey and really like understanding what restaking is. I think we've got to, you know, tie this off with understanding where Eigenlayer is as part of the deployment process. So when you guys launching, is there going to be a token? I know, like, we've talked about using ETH for security, but we've also talked about use cases for like a token maybe somewhere else. So tell us about launch date for mainnet and token. And then I've got one last question for you and then we'll close on that. But what are the specifics? When do you guys go on mainnet?

• 1:47:05Speaker 00

  Okay, so if you think about the structure of our marketplace, it's three sided. We have stakers, you know, people with who are putting in the ETH. We have node operators who may be the same as the stakers, maybe different, right? You know, you could be your own node operator or you could delegate to somebody else. And then we have services, which is people building bridges, oracles, whatever other kinds of things on top of the system. And we have three sides to the marketplace. So we are basically going on a phased roadmap where we launch one side at a time. We're starting with staking. You just restake. You cannot do anything with it, but you understand what is going on with the ecosystem. As now new stake on boats into Ethereum, they have a one time opportunity to set the withdrawal credentials when you stake is when you can set the withdrawal powers.

• 1:47:49Speaker 00

  So, you know, people who want to participate in the Eigenlayer ecosystem may want to restake in the beginning. So. The three phases are like turn on stakers, then turn on delegation and node operators, and then turn on like actually working services on the mainnet. And so there is a same set of phases going on in the testnet. We're already on a public testnet on Gorley with adjust restaking. So there'll be a corresponding thing on the mainnet. Then there is a delegation, there'll be a delegation on the mainnet. Then there are services, services on the mainnet. So that's our launch roadmap and we expect this to take like the first version is going to be between Q2 and Q3 and then every quarter after maybe the next phase gets on.

• 1:48:31Ryan Sean Adams?

  Of this year, starting.

• 1:48:33Speaker 00

  Yeah. The first phase is going to be between Q2 and Q3 of this year. And then the every, every phase is like a quarter after, you know, something like that. Basically, we expect the system, the whole system to be functioning once all these three sides are on boarded. So in terms of whether we have a token, we don't have a token. The, the design philosophy in Eigenlayer is we start with something very specific, performing a certain role, this protocol. Think of Eigenlayer as a protocol. It's designed with very similar aesthetic to Ethereum in the sense of, you know, try

• 1:49:13Speaker 00

  to make the protocol neutral, try to make all the decisions pushed to the agents, you know, for example, which liquids taking tokens do we allow? We allow all liquids taking tokens. It's up to the services to figure out which tokens they want to respect and so on. So there's a lot of agency pushed out to their services rather than very specific decisions being made at the protocol level. But as the protocol evolves and we understand the role for governance, we may have to think about how to create a decentralized governance, you know, so we are committed to a progressive decentralization roadmap rather than to decentralization on day one.

• 1:49:52Ryan Sean Adams?

  So Sri Ram, as we wrap this up with kind of the last question, I want to bring this round, round circle to where we started, which was kind of your arc and how you really got interested in crypto and what you're here on earth to go do. And something you said earlier was like upgrading humanity. Maybe, maybe that's the reason you got into computational genomics, upgrading humanity on kind of the genetic level. And that would apply maybe to individuals and groups. But then you discovered crypto and that was really an opportunity to upgrade humanity on as a social technology on the social level to allow us to coordinate across large groups even better. It's funny, you mentioned the book Sapiens. I know David and I have mentioned it many times on the episode. That was actually a very salient book for me when I was getting into crypto and kind of understanding the

• 1:50:37Ryan Sean Adams?

  why, the impact that this technology could actually have. I want you to imagine five years from now, where we have restaking in Eigenlayer, restaking as a core primitive is now successful. What does that do to forward the goal of upgrading our social technology? Like, I think people outside of crypto right now, after 2022, deservedly so, like, I understand their perspective are saying, uh, what is crypto doing for the world? Like, because I saw a whole bunch of Ponzi schemes and I saw this guy named SBF making out with like $15 billion. Like, what are you guys actually doing for the world? And right now,

• 1:51:19Ryan Sean Adams?

  of course, their bare case is nothing. Crypto is meme coins and scams and there's nothing lasting there, which I think is bullish for builders like us who see something more. So take us five years in the future, restaking is a core primitive. We are able to export trust from our blockchain networks in different forms, not just block space. What does the world look like? What have we accomplished? What's on our crypto resume?

• 1:51:43Speaker 00

  Can I take you 20 years forward? You know, that's the timescale.

• 1:51:45Ryan Sean Adams?

  Go for it.

• 1:51:49Speaker 00

  So let me start with the core principle. Like, one of my, like, very fundamental principles is, you know, non-zero-sum games. If you think about, like, a zero-sum game is where, like, one has to win. For one to win, the other has to lose, right? And a non-zero-sum game is where both of us can win. There are really only two kinds of non-zero-sum games. Number one is cooperation. Like, we coordinate together. Like, you and David and Ryan could have gone their own ways, but coming together, they produced this, like, really amazing podcast. And so coordination is one example of a non-zero-sum game. The other non-zero-sum game is innovation. Innovation is, I take sand and I make silicon out of it.

• 1:52:33Speaker 00

  I take air and I make spectrum out of it, right? Like, all of these amazing things where, you know, it's nothing and then it becomes something. Like, these are the two, like, fundamental things. And it's the, one of my, like, kind of life metrics is maximize the surface area of non-zero-sum games, right? Like, the more non-zero-sum games we produce, the more net output. You know, otherwise, it's all like, I lose and you win, or you win and I lose, or somebody else loses. It's not fun. So how do we maximize the surface area of non-zero-sum games? Is we have to maximize the ability to cooperate, the ability to coordinate. What are some examples? I think, again, some of these things are best seen, like, when we take back, like, 2,000 years, right?

• 1:53:18Speaker 00

  Like, how does society look like? You know, imagine you're living in your own tribe. There are certain virtues of, like, a tribe which we're missing in the modern world. For example, you know, I know my teacher. Like, I build a one-is-to-one relationship with my teacher. And, you know, if my teacher's not doing well and, you know, I, you know, I don't take care of my teacher, that's shame on me, right? And that's an example of a one-is-to-one, long-term relationship between a teacher and a student, and that's broken in the modern world. Same thing with the farmer and, like, the consumer, or, you know, all kinds of different relationships. But the problem with those kinds of, like, tribal relationships is they're one-is-to-one, they're long-term, which is awesome, but... You can only form it within the small group of people that you trust, right?

• 1:54:02Speaker 00

  Otherwise, there's no long term, there's no way to exchange goods and information and like, you know, learn from people who are outside your small group. So what we've done in the world is to move from that to very decent, you know, very multi, a multitude of people contribute to our education, a multitude of people contribute to our health, the multitude of people work together in producing our supply chain and all of these things. But what, the way we've structured it is by pricing out each transaction into money. That's what has basically made this trustless, right? Like I go and learn some, something from somebody, from a piano teacher and I pay him like a hundred dollars an hour, whatever. So we price out each transaction, but what that does is break the long-term alignment, right?

• 1:54:47Speaker 00

  To have long-term alignment, we need two things. We need long-term memory and long-term enforcement. You need a system which remembers who your teacher was when you were in your fourth grade and who inspired you into going into this direction. You need to be able to make a commitment to that teacher that, hey, if I do well, I'm gonna pay you X, you know, long-term income shares. You need, when you're going and dealing with a doctor, you need to be able to engage in a way that essentially aligns your long-term fates much more tightly than the medical system does today. When you're engaging with the global supply chain, you have to understand where like effects come from and go back.

• 1:55:27Speaker 00

  So essentially, I think of this as broadening the system of karma, like the ability to attribute. And karma itself is a system of memory and enforcement, right? Like it's, it's a theological, philosophical concept that, you know, if you do good things, good things will come back to you. But you need a system to measure, track all these things that you actually did. And things like staking and slashing are like some simple examples, but not the only thing that we want to produce. Okay, so that's on the cooperation side. The cooperation velocity can be increased massively when you have global systems of memory and global systems of enforcement. On the other side, if you think of what enhances innovation, innovation's enhanced

• 1:56:11Speaker 00

  when it becomes permissionless. When I can build on top of your things without your permission, because you don't need to know who I am, I can just come up with some new things and build it, and you don't need to trust me. Because we are all interacting with each other on top of this like trust engine, which is the blockchain, innovations get decoupled from trust. Trust is underwritten from the blockchain and innovations decoupled and underwritten at a different layer. That lets innovations compose with each other. So I see essentially crypto as turbocharging the two core reasons why we can have non-zero sum gains, or in other economic terms, why we have growth in this world.

• 1:56:53Speaker 00

  And I think, you know, by working relentlessly towards this goal, you know, we can do something really fun together.

• 1:56:58Ryan Sean Adams?

  That is a very comprehensive, very cool answer. And I like that 20 year vision. I think if we can introduce the world to how crypto is scaling non-zero sum games, cooperation, scaling reciprocity might be another word for karma, and scaling innovation and permissionless tech, that certainly would be something, would be quite transformational. So Sriram, where are, I guess, maybe the first few steps of a thousand mile journey? But here we are with this concept called restaking. Thank you so much for coming on Bankless and educating us about this today. We appreciate you.

• 1:57:31Speaker 00

  Thank you so much, Ryan and David. This has been such an awesome opportunity and a privilege to talk to the Bankless listeners today.

• 1:57:38Ryan Sean Adams?

  Here we go. Bankless listeners, some action items for you today. We mentioned a few things to go read. One is, don't overload the consensus layer. That's a post from Vitalik. We'll include that, a link in the show notes, of course. I gotta include the book link, Sapiens, from Yuval Noah Harari. It's one of my favorite books. It was mentioned, so any excuse I can do to inject this in the show notes, I'll take it. Gotta end with this, risks and disclaimers. Of course, none of this has been financial advice. Crypto is risky. We don't know what the future ETH yield will bear, nor all the restaking protocols that you could ape into. But be careful out there. We are headed west. This is the frontier. It's not for everyone, but we're glad you're with us on the Bankless journey. Thanks a lot.