Season 5 | Episode 4
In this episode of Bell Curve, Mike and Myles are joined by Eigen Layer Founder Sreeram Kannan. They dive into Eigen layer's supply & demand sides, its interactions with Ethereum restaking, and the team's vision for the end game of Ethereum LSTs and restaking.
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Timestamps:
(00:00) Intro: Pre-Interview
(01:33) Interview Start: Sreeram
(02:19) High Level Eigen Layer Overview
(13:59) Supply & Demand Sides of Eigen Layer
(14:23) “Permissionless Ad”
(15:18) Supply & Demand Sides of Eigen Layer
(26:06) Eigen Layer & Ethereum Restaking
(37:24) Eigen Layer Demand Side
(45:00) Vote Extensions & Proposal Commitments
(49:15) Ethereum Restaking Prediction
(55:20) Role of Eigen Layer Governance in Restaking
(1:12:53) Eigen Layer & Liquid Staking
(1:22:03) Future of Validator Services
(1:31:05) Recap: Post-Interview
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Follow Sreeram: https://twitter.com/sreeramkannan
Follow Myles: https://twitter.com/MylesOneil
Follow Mike: https://twitter.com/MikeIppolito_

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Use code BELLCURVE30 to get 30% off Permissionless 2023 in Austin: https://blockworks.co/event/permissionless-2023
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Resources:
Eigen Layer
https://www.eigenlayer.xyz/
https://twitter.com/eigenlayer
https://forum.eigenlayer.xyz/

Witness Chain (Proof of Decentralization)
https://witnesschain.com/
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Disclaimer: Nothing said on Bell Curve is a recommendation to buy or sell securities or tokens. This podcast is for informational purposes only, and any views expressed by anyone on the show are solely our opinions, not financial advice. Mike, Jason, Michael, Vance and our guests may hold positions in the companies, funds, or projects discussed.

Welcome back to another episode of bell curve.

Before we jump in quick disclaimer, the views expressed by my co-hosts today are their personal views and they do not represent the views of any organization with which the co-hosts are associated with nothing in the episode is construed or relied upon as financial, technical tax, legal, or other advice, you know, the deal.

Welcome back to another episode of bell curve today, Miles and I are going to be talking to a Sri Ram Kanan, who's the founder of Eigen layer.

1 of the interesting intersections of 2 very hot topics in crypto today, which is liquid staking and restaking.

We're going to be diving deep into that intersection.

And we sort of cut this conversation into 2 different parts where we actually look at eigen layer of the protocol.

We divided that talk as we sort of described eigen layer as a social coordination mechanism or a marketplace in between Ethereum stakers and runners of middleware or other protocols that want to access that stake.

So we talked about the supply side and the demand side of that market, which was a fascinating conversation.

Then we talked about sort of this intersection in between liquid staking and restaking more towards the end of the conversation and some of the very interesting dynamics in between, frankly, protocols like Lido and Eigenlayer.

I think Eigenlayer is top of mind for a lot of people, both in terms of excitement and potential concern.

And so I think we want to dig into both sides and really excited.

Welcome back to another episode of Bellcurve here.

Myles and I are joined by Shriram, the founder and CEO at Eigenlayer.

Looking forward to go deep into Eigenlayer and risk taking.

Have enjoyed listening to the Bellcurve earlier.

Well, we can just get right into it here and I want to caveat, you know, we're gonna start with sort of a brief overview of Eigen layer, but we're gonna assume a little bit of knowledge here because we want to leave enough time to dive into some of the technical, extremely nerdy sort of questions that Myles and I have for you here.

So I want to say, if you're looking for kind of a higher level overview and you aren't as familiar with the concept of restaking and eigenlayer, Sriram did a great episode on bankless.

I would recommend that you go check that out.

But for now, Sriram, maybe could you just start actually at that high level and maybe keep the explanation relatively concise?

Could you just give an overview of what Eigen Layer is and maybe explain the 2 sort of fundamental innovations of restaking and kind of creating an open marketplace for trust?

1 way to think about it is if you ask what is a blockchain solution and what is not a blockchain solution, and you want to find like what is the key ingredient that makes something a crypto or a blockchain solution, you would say probably that's decentralized trust.

Add any, you know, take anything and then add decentralized trust to it, you'd call it a blockchain solution.

You remove decentralized trust from it, you'd no longer call it a blockchain solution.

So in some sense, you know, the dividing line for what is a crypto or a blockchain solution is decentralized trust.

So it is the raw material out of which the entire crypto economy is manufactured.

And the first marketplace for decentralized trust was actually in our view, Ethereum.

The idea that, hey, I'm building this common platform, you know, it's programmable, people can build arbitrary new applications or modules on top of it.

And when somebody is building an application, You know, at that time, Bitcoin has said, like, why would you think that people would come into the same platform?

And the idea is, because you're getting a common pool of decentralized trust and applications building on top of Ethereum consume this decentralized trust and pay a certain fee.

1 way of thinking about this is Ethereum distills this decentralized trust into block space.

It uses its own consensus, it's staking, and there's a consensus protocol on top, there's an execution layer, the Ethereum virtual machine, there's a gas limit, and then there's a certain amount of block space.

And then, so block space is just the distilled form of decentralized trust that Ethereum is selling.

And clearly, you know, we talk about block space as being 1 of the most important commodities in the crypto space.

But you can ask, why not sell the raw material, decentralized trust itself, rather than the distilled product, which is block space?

Eigenlayer is a marketplace for raw decentralized trust.

What is the aspects of decentralized trust?

You know, in a proof of stake system, staking, which is the amount of economics that underpins it, there's some amount of stake.

Number 2, that is decentralization itself.

Each of these nodes don't talk to each other or collude.

And I think a combination of decentralization and the economics, the crypto economics together make up decentralized trust.

And What we observed is while there is this marketplace of decentralized trust that Ethereum has already created, it is at the application layer and I can only consume it if I write a smart contract on top of this platform.

But for many, many reasons, I may want to access more raw decentralized trust because my protocol, imagine I'm building a data storage protocol like Filecoin, and I want a bunch of nodes as well as some bonded economics, you know, somebody making a promise that they are not going to violate the covenants of the protocol.

And to do this, I had to go, or the Filecoin guys had to go create a whole new network of nodes as well as a staking token of value.

And we ourselves, when we created earlier protocols, we were forced to actually think about, do we want to start a whole new layer 1 with its own economics underpinning it?

And I think over the many years I've been thinking about this question, which is how do we enable any innovator to come in and build on top of a common framework for decentralized trust?

And in our view, Ethereum is the closest because of the wide availability of node validators, the availability of stake itself, as well as the alignment of the ethos of permissionless innovation, which is I think the underpinning of Ethereum.

And because of these several factors, we think Ethereum is the natural source of decentralized trust on top of which 1 could build a very interesting economy or a marketplace of raw decentralized trust.

What Eigen Layer does factually is it lets stakers in Ethereum who already put, you know, in Ethereum, you put 32 ETH and make a promise that you're going to continue to validate Ethereum blocks correctly.

And if you do not, then the protocol might remove a portion of your ETH.

So the promise is credible because there is, you know, you're putting your money where your mouth is.

You're not just saying that you're going to do it.

You're actually committing to do it in a way that is, if you violate the covenants, you may lose your ETH.

And so that is precisely the same thing we want to extend to other protocols.

You put your ETH in the Ethereum protocol.

And then Eigen layer is a series of smart contracts on top of Ethereum.

It's not a new L1 or anything, just a system of smart contracts on Ethereum, which allows Ethereum stakers to opt in to serve other systems.

And to serve another system, you would have to be able to download and run software for this other system.

Imagine you're running a different, like a Filecoin-like node.

You need to have the Node software for actually running and storing the data and so on.

And on the Ethereum smart contracts, you somehow have the ability to indicate to the Eigen layer smart contracts saying that, hey, I'm going to go and validate these other chains.

going to go and validate these other chains.

promised that I'm going to go and validate these other chains or other protocols.

Now you have, if you don't do it, you may lose your stake.

So that is the core promise that the staker is doing, opting into new services.

We call these AVS, actively validated services.

I mean any protocol that needs N nodes to actually talk to each other and come to some kind of consensus, that any kind of a protocol can be built as an actively validated service.

So an actively validated service is being built, or somebody who wants to come up with a new actively validated service, what they do is they write a smart contract on Ethereum that can talk to the eigen layer contracts, which specifies who can register for my contract, what is the payment I'm going to make if Miles is storing 1 gigabyte of data, I'm going to pay him 1 ETH, whatever set of conditions that we want.

And then we also specify what is the slashing conditions.

Or if you're claiming that you're storing a data relative to this hash, I may ask you randomly to reveal portions of the data on the Ethereum chain.

And if you don't, then you may lose your ETH.

So there is a set of conditions that you're opting into.

So what this does is suddenly, instead of working with the distilled product of decentralized trust, which is block space, you're working with the raw aspect of decentralized trust And you can allow people to build arbitrary protocols on top.

1 analogy I think which has helped root this conversation is if you look at 1994 internet and you want to build new web applications, you have to build your own server stack, you have to build your own payment stack, you have to build your own identity stack, you have to build your own DB stack and then build your application on top.

That's roughly the scenario if you're not a power user.

If you're not a power user, you could just use GeoSites for hosting, you know, GeoCities for hosting your website, right?

In the same way today, if you are not a power user in the sense that you need access to much more programmability than what a smart contract on Ethereum offers, you have to say, go take the Cosmos SDK and figure out how to customize it to whatever you want, but also you need to figure out your own staking economics, you have to figure out your own validator nodes, you have to figure out every single aspect of the service you have to figure out for yourself.

Instead, the world, crypto world that we envision is a world where, you know, it's very similar to 2023 web application development.

You have AWS, which is the cloud, on top of which there are a lot of SaaS services like OAuth for authorizations, Stripe for payment, MongoDB for database, and then you just concatenate, you know, which are applications, SaaS applications you want, and then you get your end user facing application.

Now SaaS, you know, the term SaaS looks very corporate-ish, but really what it is is open innovation.

It allows any 1 person who can be hyper-focused and specialized in creating a certain utility, rather than everybody needs to create a whole new world around themselves.

And I think this is the history of the modern world is we all become more specialized in what we create and more general in what we consume.

And this is, that is, so we're just trying to create a reflection of that in the crypto world.

And to us, you know, you can't run it on AWS if you want to call it a decent, you know, a crypto solution, because decentralized trust is at the heart of it.

So you run it on the wide validator network and the economics surrounding Ethereum.

Eigenlayer just makes it more programmable.

On top of which, now you suddenly have very interesting services that can then be built on top.

And 1 thing I wanna just comment here is people think of the modular landscape and they think, oh, maybe there is data availability, maybe there's execution, and something, 3 things.

If you look at the number of SaaS solutions that are needed to run something in the Web 2 stack, there are thousands of thriving SaaS solutions.

And any given application integrates 15 SaaS solutions.

And that's roughly what we envision to happen here in the crypto market as well.

There is trusted execution environments, there is secure multi-party computation, there is secret sharing, there is data storage, there is data availability, there is oracles, there is bridges, there is proof of decentralization that we are working on, there is guardian networks which can protect you against hacks, There is AI inference systems.

The number of things that are SaaS solutions that can share common trust is unlimited.

So that's roughly just to lay out the vision for what we are building.

Eigen layer, Eigen in German for your own, your own layer, you can dream up whatever you want and build on top of it.

And particularly, I love that analogy of, I almost imagine sort of a crude oil refining process where you have distillates that's a little bit upstream, right?

But actually you're sort of moving up 1 level in the value chain to something that's more raw, and that just enables so much more flexibility.

I think that's very sort of high level analogy.

I think to get a little bit more concrete, The other framework that I have for conceptualizing Eigen layer is this 2 sided marketplace and will eventually bring in liquid staking later.

But you talk about these liquid staking protocols as 2 sided marketplaces as well in between node operators and those who want to delegate their Ethereum.

I think the analogy to Eigen layer would be actually a very similar construction except on the supply side you have stakers and on the demand side you have these AVS is these actively validated services.

And I think it would be helpful for the remainder of this part of the discussion where we're getting into the nitty gritty of eigenlayer to sort of break up a discussion between the supply side of that equation and the demand side.

So Myles, I know you have a couple of different frameworks for how you sort of parse out the supply side.

And maybe I'll turn it over to you to kind of go through the operational model and then kind of the asset preferences and how you think about it.

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It struck me just reading the white paper, how flexible the supply side setup can be, right?

I think about this as in a couple of different dimensions of choices that you can make, right?

So there is, first of all, which assets are being restaked?

Or is it even, you know, LP positions, right?

And something that looks more like super fluid staking, which we see on osmosis.

And then who are the actors actually running this, running the hardware for the AVSs, running these eigen layer nodes?

Are they Ethereum validators that have chosen to also run some other node?

Or are they specialized operators, right?

That maybe are better suited for something like an Oracle protocol.

And then lastly, from the perspective of the staker, there are a bunch of different flavors, you can have a fully, you know, in sourced version where you are a self staker of 32 ETH, you then elect to run additional hardware and put that 32 ETH at stake, you could be a self staker at the L1 layer, but then decide to delegate your 32E to an operator, an eigenlayer operator, or you could do the fully outsourced model, which seems to be the largest capital pool, which is I have already delegated my stake to a liquid staking protocol.

And then I take my LSTs and, you know, I elect to go re-delegate that stake to an eigenlayer operator.

And is that how you think about the 3 major buckets, I guess, of sort of models and the decisions that the supply side will have to make?

I think you maybe put it even better than I could.

So you do, so that we think of the supply side as at least comprised of 2, you know, sub sides, right?

1 side is the staker and the other side is the operator.

And sometimes these 2 are the same people, sometimes they are not.

And that covers the third thing that you talked about, which is delegation.

So how do these 2 sides interact with each other?

And then downstream of this, there is a question whether after you've done all this, do you have a final liquid derivative on top of all of this or not?

So that's the kind of wrapper for, you know, this relationship and all the actions that are being done could then be represented by a downstream token.

So that is definitely the set of considerations on the supply side.

The number 1 being what type of tokens to be allowed.

Before I get into some of these things, I want to express the philosophy underneath this.

The philosophy is protocols should minimize subjective decisions.

And the framework, so if protocols are not expressing subjective decisions and there are definitely subjective decisions to be made, then who expresses these subjective decisions?

And in our case, you know, we want to be as close as possible to the Ethereum staking layer.

And in fact, our own like ideal end game would be to become part of the Ethereum staking layer itself, right?

Like, basically Eigen layer becomes the Ethereum staking layer eventually.

It's whether through a protocol upgrade or an EIP or something, We don't really care.

So if you want to start from that and then ask, how do you think about the subjective decisions that need to be made?

Our principle there is protocols, especially protocols as bare bone as the restaking protocol, need to minimize decisions at its end, but allow those decisions to be made by services building on top, by the consumers of the supply, right?

That's not going to be the question that we will be facing.

You know, it's an initial shepherding process to get the platform started.

We have, you know, whitelists and cautionary things, but eventually this is going to be a completely permissionless platform.

You can come and restake your ETH, you can restake your STETH, you can restake your STETH and STETH ETH LP token, you can restake your OP token, you can restake your StarCoin token.

That's not the key, that's not our decision.

So when a service creator comes, they can specify that, oh, I like CBE or I don't like CBE, I like Lido's teeth or I don't like Lido's teeth, I like the Curve LP token or I don't like the Curve LP token.

That's the granularity that is given to the AVSs.

So our platform minimizes its own subjectivity.

So we are not going to be playing this role of deciding, oh, is this good or not good?

It is up to the market to figure that out.

So this comes from this framework of open innovation.

Open innovation is best built on top of a credibly neutral layer.

This is why we like Ethereum and This is why we want ourselves to be as similar as possible to Ethereum, even at 1 point dissolve into Ethereum itself.

So if you look at that philosophy, which is that if we minimize these decisions, which of these are actually going to work and be used depends on the services understanding of the different risk profiles.

So and exposing these information to be as transparent and clear as possible is the role of the associated services around the protocol.

Protocol itself just gives the ability for people to express their visions and enter into contracts, right?

1 way you can think of, you know, Mike earlier like laid out the marketplace viewpoint of Eigen layer.

You can also flip it and say that, you know, Eigen layer is a coordination mechanism for stakers, node operators and innovators to come together and create a useful service.

And all of this is serving somebody else, which is outside the definition of the marketplace, which is the AVS consumer, like an Oracle consumer or a data availability consumer, or, you know, storage consumer, right?

You know, When you want multiple parties to coordinate, they're mutually distrusting.

So how do you enable multiple distrusting parties to come and coordinate?

Like that is really what the Eigen layer marketplaces.

And that's why, you know, we think a lot about this question.

But, you know, to reiterate the supply side, you know, initially we're starting with a small handful of tokens, but eventually this will be completely permissionless, not only including ETH and downstream superfluid tokens, but completely different tokens like the Optimism token or StarQuad or Polygon or whatever.

Because In some sense, there is the other view in the Cosmos world of mesh security, which I think Cosmos and Ethereum always have a good back and forth.

They originally had interchanged security.

I think Eigen layer inspired Mesh Security and now Mesh Security.

But if you look at Mesh Security, it's basically like I'm bringing the strength of many communities, many tokens together in order to give security.

It's not just economic pooling from different economic systems.

to each jurisdiction, you have to go to each chain and create a fraud proof or something to adjudicate whether you behave correctly or not in each of these systems.

It says we have a common adjudication, but multiple economic systems.

You can have the op, you can have the star quad, you can have the polygon, you can have the eat, all contributing economic security, but you have a common adjudication system.

You have a common understanding of risks and rewards.

You have a common place in which all of these get adjudicated.

It's just a much smoother experience when everything gets aggregated into that kind of a single point place.

And to us, Ethereum becomes the underwriting trust and adjudication layer.

And yeah, really, I like the approach on the supply side of just making the protocol as flexible as possible so that it's really the customers, the demand side that is going to shape what is used the most and what eventually becomes the go-to model essentially.

And yeah, I think I'm glad you brought up mesh security.

That's something that's near and dear to my heart with my seat working with osmosis.

I think 1 of the big differences that mesh security is going to be built into the chain, right?

And that is something similar to that is kind of the end game that you just described in terms of, you know, getting this restaking infra built into the L1 itself.

I just want to double click on that a little bit and something else you said where you said you wanted to get as close as possible to the L1 validators, right?

Technically, Eigen layer could exist without any interactions with stakers and validators of Ethereum.

It could be something more, I would say, further away from the middle of the protocol where you just have folks who have liquid ETH that are depositing into some contractual agreement.

It doesn't have to be pre-staked before that.

And so I would love to just kind of understand, maybe double click on that piece of getting as close as possible to the Ethereum validator level and really what eigenlayer would look like if this is restaking is built into the, and trying to the Ethereum L1.

1 way to explain this is to start with, we said we're building a marketplace for decentralized trust, right?

And decentralized, so a marketplace usually trades some kind of graded commodities.

So we want to think about, you know, what are the types of decentralized trust?

What are the elements of decentralized trust that Eigen layer is allowing to be traded?

And imagine building the first potato commodities exchange.

Like you have to figure out potatoes can be big or small, golden, or different colors, red potatoes.

You have to think about all of these things, you have to figure out for the first time, what is this object that you're dealing with?

And I think that's the rough situation we are in.

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The Intersection of Restaking and Liquid Staking | Sreeram Kannan