174 - EigenLayer Will Change Ethereum Forever

if you can remove trust frictions then it massively enhances our ability to cooperate with each other just like the internet is the information Super Highway crypto could be our coordination Super Highway 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 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 Sean 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 there's no going back there's no going back now we have the father of restaking sriram Cannon he's the the founder of

eigenlayer the concept behind restaking is pretty simple you stake your eth and then you stake it again and it sounds crazy 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 of about restaking what happens when each stakers become polyamorous

number four we talk about eigenlayer that is the protocol that sriram is building how 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 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 uh

the discovery of restaking uh many people myself included has compared to the discovery of Mev once upon a time we discovered that you could extract some value by rbean 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 to account for Mev people think that eigenlayer and restaking are similarly as big as that Discovery uh

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 my Skyrim mods metaphor uh if you I don't know if you've ever modded a game uh Ryan but you can you can download the base game the base Skyrim game and then you can go into these hobbyist enthusiasts list 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 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 and similarly how Mev also changed the nature of eth 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 three ROM so Ryan you're not gonna have to save that for the Deep oh my God yeah I really I've got some thoughts about how ether the asset is impacted by restaking and I know that this is a topic uh that I know Justin Drake and Dan grad and many others on the ethereum research team are also thinking deeply about uh and so I want to share all the thoughts in the Deep 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 gonna get right to the

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play and connect at immutable.com bankless Nation excited to introduce you to our next guests sriram Cannon is the founder and CEO of eigenlayer which is a new protocol that lets to stake your eth across multiple networks at once people call this re-staking that may have been the buzzword you've heard before sriram is also the director of blockchain Labs at the University of Washington where he and others research crypto economics sriram welcome to bankless how are you doing very good thank you so much Ryan and David looking forward to talking to

you both okay well we gotta start here I'm just gonna hit you with the big question everyone's wondering sriram did you just open up Pandora's box with this restaking thing it feels like that um and uh I think it's uh 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 that leads to so many consequences that are some predictable some are highly unpredictable yeah the metaphor that sriram is talking about is in an article I wrote on the bankless newsletter trying to explain uh reseaking to people which is and why so many people have uh been compelled to think and talk about this uh the to elaborate on the metaphor that sriram brought up like once upon a time uh we discovered this our bot 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 uh emerging with restaking it's like oh restaking uh and then the ball goes and goes and goes and goes and goes uh and so uh this might be the the very beginning of a very long part of a new

frontier in the world of crypto so as a content producer sriram uh thank you for opening that box because it gives us a lot of things to discuss and talk about I 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 well SRI Ram I think we want to get to uh restaking and actually Define that for folks because I I do think this will be maybe first in a series of content that that Dave and I put out on a bank list about restaking I think it's going to be that big as big as uh Mev was but but first I

I think I'd actually um love to hear more about you SRI Ramos so it's actually from my perspective you seem to sort of burst onto the scene uh in crypto uh at least and but but I know you've been actually teaching this at the University of Washington for a while uh 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 sriram tell us

uh thank you Ryan uh I uh my interest in peer-to-peer systems goes way back to my masters and PhD I did between 2006 and 11. 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 form like ad hoc connections and multi-hop just send information from one to the other to the other until you get to your destination

so that was my PhD thesis uh you know at that time and you know we Our Hope at that time was basically that we don't really need like a lot of infrastructure 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 a 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 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 and uh like around 2018 January uh my PhD advisor called me and he's like hey shiram you know there is this

peer-to-peer systems like that we studied for many many years uh 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 spirit-to-based 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 20 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 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 uh uh realizing how it fit with one of my uh core principles and this actually comes from you all 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 are intelligent it's not that we're anything else it's the fact that we cooperate flexibly in large numbers and the 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 our ability to cooperate with each other and you know just like the internet is the information Super Highway crypto could be our coordination Super Highway 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 so I got it so that's 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 so that's the research at the University

of Washington and how it led to eigenlayer is when 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 and I realized like you know my own naivet in in thinking that 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 uh 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 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 uh 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 eigen there so was there like a aha moment was there a Eureka moment for you when did eigenlayer as a concept pop into your brain yeah um so for many years I've been having this question which is you know how do we repurpose existing cross networks and uh you know we had uh many different variants of ideas how

do you uh do uh how do you use approval work trust to supply it to somebody else some other chains we wrote a bunch of papers on that uh 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 gonna kind of figure this thing out which is how do you supply Trust flexibly

and uh we called our project eigen even before we had a solution to the problem 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 um 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 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 and the major problem was if you're mining Bitcoin and mine and other like you know altcoin right using the same proof of work energy

if something if even if 100 of the miners uh 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 bitcoinish means they lose the value of the equipment that they have invested heavily in but if they go attack this altcoin nothing happens to anybody like their 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 is

easy come easy go right 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 and Bitcoin is 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 Aladdin 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 and that is such a powerful uh thing that you know one of my underlying you know when when you think about how to cooperate flexibly in large numbers is 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 pack 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 gained you gain separately whereas proof of stake had this very fine-grained Karma which is

that if you go to an attack you will lose your eat not anybody else so I think having this fine-grained system of like posture negative incentives is super powerful in actually creating uh these kinds of systems and okay you know can we do instead of merch mining merge staking and that's what later became risk-taking it's interesting to see that the argument for uh proof of stake for eigenlayer for restaking is similar to

uh it seems like a just a logical continuation of why proof of stake in the first place um a lot of the arguments that you're giving I remember vitalik saying like uh about just the uh Economic Security model between proof of work and proof of stake like what's more secure uh if you lie to the if you lie to the system that somebody comes takes all your money versus you lie to this 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 touring complete proof of stake uh platform 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 if people people understand ethereum staking there's no way they can listen to bank lists and not understand what ethereum staking is so starting from the or what what is restaking in its most simplest form yeah uh 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 you 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 on the protocol if I don't do it I'm going to lose my eth that's the Covenant that you're opting into when you're staking in ethereum if

you restart you use the same stake uh in eigen layer like uh you take you take the same state 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 uh chain correctly and if you don't obey these covenants you may lose your wreath just like you lose your read in the ethereum based layer and one way of visualizing this is you know you you all

talk a lot about like uh blockchains as a nation states kind of analogy right and if you think of like ethereum as a nation state you have these stakers or the validators who are the uh you know Army for this kind of nation this Army secures against certain kinds of uh 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 uh you know uh system you not only need this uh 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 can we repurpose the same

like valid asset 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 right

and out of your free will you can opt into that and say that hey I'm gonna go secure these five other things or 10 other things 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 tape 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 Two or data availability network is that well you get paid for that risk you get paid for the opportunity to validate other chains and so to everyone 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 is it some like software that like you run as a sidecar along with your ethereum node like where where actually is eigenlayer yes uh you the way I think

about eigenlayer is it you know just explaining functionally it is eigen Led as a series of smart contracts which interacts natively with sticking 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 I I can layer is functionally a system of smart contracts on ethereum and if you are a

Staker and you want to opt in to eigen layer you have to go to the uh so there are two forms of restaking that we allow one is called native restaking which is normally when you're stake in ethereum you 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 eigen layer you add one intermediate step in the withdrawal flow you go and set to the ethereum

um sticking you say that the withdrawal addresses in the eigenlayer contracts a specific region in the eigenlet contract Q control called an eigenpod and and in that eigen part you specify that the Pod owner is your Hardware wallet so essentially it's just adding one more step in your withdrawal flow so 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 eigen layer contracts and then you can now like potentially withdraw so then in the

normal mode if you did everything right according to the eigenous 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 a provable violation on according to the eigen layer contracts in one of the covenants that you opted into you might lose a portion of your read and only be able to withdraw the remainder of the eat because you got that portion slashed so in in and and when you're doing this you know this is the on-chain actions that a Staker is doing which is opting in into the system the off-chain action

is because you're opting into this new David's uh storage protocol or Ryan's in your chain you have to download the node software for those other things and then run it and we provide an interface for making 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 and you may be subject to the slashing conditions that you're opting into so eigen layer 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 at 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 uh cap 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 and then say flexibly transfer like attributes of the decent less trust that emerges from there to other services that may want to rent portions of this trust so for those who aren't familiar with ethereum's taking 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 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 the 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 uh 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 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 the thing that you have signed up to be a resaker 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 uh that's partly correct uh 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 eigen layer is you know first metal model is angular is restaking or a programmable staking protocol the second mental model is eigenlayer is a Marketplace for decentralized trust 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 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