Everything You Need To Know About EigenLayer with Sreeram Kannan
His research at UW focuses on distributed computing, information theory, queuing theory, networking, coding theory, and game theory of blockchain systems.
Eigen Layer is a proof of stake validation marketplace that reuses state capital and existing validation infrastructure. With Eigen Layer. Ethereum can enable permissionless and modular innovation across all blockchain layers.
Today, we dive into Sreeram’s background in academia, how the blockchain space piqued his interest, and the hype around Eigen Layer.
But first, Sreeram is going to tell us exactly what he’s up to at Eigen Layer and how he merges both a data availability layer and a restaking platform.
Listen to the interview in this week’s podcast episode here:
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Timestamps:
00:00 All Eyes to Mainnet
01:46 Background
03:48 Academics and Crypto Skepticism
13:36 What is EigenLayer?
16:09 Decentralized Trust
24:07 Data Availability + Restaking Platform
28:51 User Journey
36:57 Slashing and Liquidation
45:43 Governance Layer
50:22 Incentives Structure
51:58 Business Model
53:44 What’s Next
1:00:41 The Protocol v/s The Company
1:01:47 Why Decentralization
All Eyes On Mainnet
Our main focus at EigenLayer is to get the product to the mainnet. To achieve this, we are currently working on building the core smart contracts of the EigenLayer layer, which will enable stakers to participate.
Additionally, we are creating a data availability layer called EigenDA that will be built on top of EigenLayer. At the moment, most of our efforts are dedicated to development, and we are currently operating on a private testnet.
We plan to move to a public testnet and domain net in the upcoming quarters, specifically in Q2 and Q3. Our entire focus at EigenLayer is geared toward achieving this goal.
Background
As an academic, one of my motivations is to contribute to the innovation landscape. I have worked in various fields, including peer-to-peer wireless systems, computational genomics, AI, and, most recently, blockchains.
I became interested in crypto because it provides a way for anyone, regardless of trust or identity, to contribute to innovation. This is a paradigm shift that enables individuals to create and innovate without needing to be trusted.
The pseudonymous economy in crypto allows for an inclusive and equal playing field, where anyone can participate regardless of race, religion, gender, or other dimensions. Crypto provides an amazing world where everyone is equal, and discrimination is not possible.
Academics and Crypto Skepticism
I find it unusual that an area such as blockchain can generate so much polarized opinion, mostly in a negative direction. Despite this, I believe that blockchain technology will change the world in every way and cannot be ignored. Some initial negative associations with blockchain technology have colored people’s opinions of its potential, but its broader utility is significant.
I have observed that people who have successfully transitioned to one paradigm, such as the cloud, are often the most resistant to change to another paradigm, such as blockchain. In academia, the dominant opinion is still skeptical of blockchain’s value proposition, and even those who work on it for specific purposes may not be driven by its core value proposition. Without fundamental motivation aligned with blockchain’s value, people may drop it when it is no longer trendy.
Coming from an academic background, you have been super involved in the Ethereum community. What surprised you most about the Ethereum community so far?
These are the values that we are building for decentralized trust, permissionless innovation, credible neutrality.
I have been interacting with Ethereum researchers for over three or four years. Last year, I attended ETH Denver, my first community crypto conference, and I came back telling my friends that I am an Ethereum guy.
I am not a user of any DeFi apps, and I don’t hold ETH, but the values of decentralized trust, permissionless innovation, and credible neutrality are what make me an Ethereum guy. These values are ranked higher than any individual, and they are aligned with the principles of public goods funding. Finding the Ethereum community was like finding a home.
Academic projects and tokens haven’t gotten the best wrap in the crypto space. So what would you say to people that might call Eigen Layer an academic project?
The root of the problem is there are innovators who have technologies, but they’re not community builders.
It took me many years to realize that’s a slur, rather than a credit. I intend to solve the problem of why academic projects have to go a certain way and how to build better systems. Currently, the only way to do this is to start a new network, which requires community building, something academics are not good at. We realized this when we presented our Prism protocol to Bitcoin and Ethereum communities.
Decentralization makes it difficult to impact and change protocols, which led us to start EigenLayer, which empowers innovators with new ideas to build on top of a common trust network. The root of the problem is that innovators have technologies, but they’re not community builders, and there are existing communities and decentralized trust emerging out of these communities.
What is Eigen Layer?
Eigen Layer is a mechanism that allows other protocols or services to access the decentralized validation network of Ethereum. It is essentially a marketplace for decentralized trust, where individuals or organizations can access and purchase a portion of the trust provided by the Ethereum network to enhance the security of their own systems.
The concept of Eigen Layer is based on the idea of creating a commodity for decentralized trust. Ethereum was the first marketplace for decentralized trust, but it lacked flexibility. Eigen Layer seeks to offer more native access to flexible, decentralized trust by allowing users to tap into the set of nodes that run Ethereum and participate in a market where they can sell their trust to others.
Eigen Layer is a way to empower anyone to build their own layer on top of a common trust framework. This can be useful for services such as Oracle, data availability, bridge indexers, or any other service that requires a decentralized validation network. With Eigen Layer, users can access the trust and security of Ethereum, even if they are using a different blockchain or service.
Decentralized Trust
I think a lot of people get confused. They ask, “Why?” Why is it bad for me to trust someone? So maybe you could tell us more about that and why you care about it.
I became interested in blockchain when I realized that trust is a necessary component for innovation, especially in financial products. Traditionally, institutions on Wall Street have provided trust, but this limits innovation to a few trusted entities.
With blockchain, trust is not consolidated into a single entity, but rather is decentralized through the network, allowing anyone to enter and create new services without needing to be trusted individually. This maximizes the rate of innovation and prevents the centralization of power. I believe that human societies are built on trust, but borrowing trust from decentralized networks allows for more innovation and less control.
You’re trusting the blockchain to then execute these things correctly, and this is a huge leverage, it allows anybody to come and enter and create new services and maximizes the rate of innovation. And so this is the reason we are passionate about it is not that we don’t want to trust each other.
I believe that many of the top companies in terms of market cap in 2023 are digital platforms, such as Facebook and Uber, that act as meeting points for users. These platforms have root access and exert significant control over what can be built on top of them. In the tech space, there is a focus on censorship resistance, which not only means that any user can participate but also that any developer has equal access to build on the platform.
Many digital platforms do not provide open APIs for developers to build on top of. This lack of competition and breakdown of the market economy is a fundamental problem that we are trying to solve. The success of social networks is not because they provide more value than airlines but because airlines operate in a competitive economy, while social networks do not. We believe that blockchains, like airports, provide a neutral platform for services to compete and deliver value to users.
Data Availability + Restaking Platform
A lot of people think that it’s a little bit confusing for people to wrap their heads around EigenLayer being both the data availability layer and then also this restaking platform. Can you double-click into how those two connect?
EigenLayer is a restaking platform with two sides: stakers participate on one side, and new infrastructure services are built on the other.
Suppose we had this cool restaking platform, bootstrapped, and it has a lot of staking and it has a lot of trust that comes into it. How can we leverage it in providing some new innovative use cases that solve some core problems in the Ethereum ecosystem? So this ended up being the data availability project that we are building on top of EigenLayer.
To bootstrap the platform, the team built the first service on top of it, which is the data availability project called EigenDA. This project aims to solve the problem of limited bandwidth in the Ethereum ecosystem. By writing data into a common ledger, the team is trying to measure the cooperation bandwidth of the system. Ethereum’s current data bandwidth is 83 kilobytes per second, which is not enough to run the world economy on a common decentralized trust infrastructure.
EigenDA aims to offer a hyper-scale data service with a bandwidth of 10 megabytes per second, allowing each node to touch only a minimal amount of data while still ensuring redundancy and recovery. EigenDA is just the first use case built on the EigenLayer platform, which aims to maximize the scale of open innovation and let people build new and innovative ideas on top.
User Journey
Can you walk us through the user journey?
EigenLayer is a three-sided platform that includes stakers, node operators, and service builders.
Stakers can deposit their liquid staking derivatives or stake natively into the Ethereum protocol and commit it to additional services provided by EigenLayer. They will receive rewards for providing these services correctly but will lose their stake if they attempt to manipulate them maliciously. Stakers participate to get additional yield in their stake and support the growth of the Ethereum ecosystem.
Node operators provide a useful service to the stakers by running and maintaining node infrastructure and earn a cut of the fee in return.
Service builders can write a smart contract that specifies the conditions for registration, including who can register and the set of risks their service wants to take. EigenLayer contracts hold the ability to withdraw the stake in the normal happy path, and the staker can withdraw the money and rewards accrued through the EigenLayer restaking.
EigenLayer does not operate as a new layer one or a new blockchain, but it is a set of smart contracts on Ethereum.
Slashing and Liquidation
In a world where staked tokens can be restaked and then restaked again, is there a potential for slashing or liquidation cascades where misbehavior or bugs on one chain could result in slashing another chain?
EigenLayer is shared security. And shared security also brings shared risks. And I think that’s what we are talking about. We are all pulling together and sharing the zone of security, but if the security’s broken somewhere, it’s broken for everybody. That is really a problem. It’s a problem, and it is a strength.
The best outcome would be for all ETH stakers to opt into all the services, as this broadens the pool of security, leading to increased fee revenue, more staking, and an increase in ETH’s value.
The potential for cascade risks exists if all services have buggy or malicious smart contracts. To mitigate this, there should be a layer of governance to veto the slashing, and a period of time before each service goes from having a layer of human subjectivity to not requiring it. Individual risk is not high in validation as if one knows they are validating correctly, they will not get slashed.
Governance Layer
The governance layer has two modes, the first being the slashing veto mode, and the second being the mode where services do not need to be part of the slashing veto.
- In the slashing veto mode, a group of Ethereum community builders, including core builders, layer tool builders, and other ecosystem participants, participate in making objective judgments about the legitimacy of slashings. They check whether a slashing was triggered for genuine misbehavior on validators, whether the contract claims that they should be slashed for, whether the data was installed correctly, and whether there is a smart contract bug or not. This is a subjective judgment about the technical aspects of the protocol and not about whether a project is good or not.
- The second mode is where services do not need to be part of the slashing veto, and they can convince stakers that they are trusted enough to opt into them. This mode is for services that have been tested in the wild for enough time and have proven their trustworthiness. The committee is not comprised of token holders to avoid manipulation, and they vote on the slashing committee with a long delay. The balance of power between the economic interest in the protocol and immediate trust and safety cannot be compromised, even if someone owns a large fraction of the DAO.
Incentives Structure
The incentive structure revolves around the participation of different actors in a system, such as stakers, operators, and builders. Each participant is motivated by different sets of incentives: stakers seek additional yields, operators seek additional validation opportunities, and builders aim to bootstrap a new economy.
The trust model underlying the system is important, and the organizers are open to involving the broader community in discussing issues related to overleveraging, security risks, and degen behavior. The goal is to encourage participation and diversity of thought in understanding second-order, third-order effects, and to collectively work towards mitigating risks and maximizing the benefits of the system.
Business Model
The business model of EigenLayer is a marketplace where services pay stakers a fee, and stakers can earn a small fraction of the fee when the payment is made. Similar to Uniswap, EigenLayer has two sides: security providers and security consumers. The marketplace operates by incentivizing stakers to provide security and services to pay fees.
The question of whether to have a token is dependent on when governance structures will be decentralized. The team is currently thinking through the timeline for decentralization while balancing the need for agility during the project’s early stages.
What’s Next
Once EigenLayer is solidified, what does that change within the Ethereum ecosystem? What are you excited about?
I mentioned that academics and innovators need to create both technology and community by separating them and having a decentralized trust pool. This allows technical advancements to be integrated into the Ethereum ecosystem.
A great aspect of Ethereum is the composability of dApps, allowing them to combine and create emergent structures. Similarly, distributed systems can also be composed to create new outcomes and applications for users. So this is one side where we are very excited for the Ethereum ecosystem.
I’m thinking about this a little bit with a layer 2 as an example, that spins up on EigenLayer, and maybe they don’t want to have a token; they don’t want to build their community. How do they then incentivize that ecosystem?
The model involves directing a fraction of the fees to the stakers and the company’s wallet. This is similar to a software-as-a-service model where the stakers get a fraction of the fee when the software is triggered. This model potentially incentivizes decentralization and allows for valuing decentralized trust subjectively.
Each service on the EigenLayer can require certain decentralized nodes to participate, leading to more yield opportunities for those who take on more risk. This is important because decentralization is a crucial dimension of decentralized trust that people are willing to pay for.
Are there any other business models that you can imagine spinning up?
I believe that the most web2 and company native type of business model is the one I mentioned, but there will be many crypto-native business models like EigenLayer. These models involve creating a tokenized economy around a service, giving rewards for participating in the ecosystem, and using a dual quorum model where both Ethereum stakers and my own token stakers must agree for any input to be considered valid. There will be a variety of business models and a lot of innovation in the economics around them.
The Protocol v/s The Company
The idea is that we start off as this core nucleus that seeds this ecosystem, but then eventually this ecosystem grows off and lives off on its own… We are in the early phases of understanding the direction to decentralization that we want to take.
We want to build on EigenLayer with other builders, but there will also be decentralized governance to fund new public goods that may or may not be done by our company. We’re still in the early phases of understanding the direction to decentralization we want to take.
Why Decentralize
I think both the paradigm of decentralized validation and competitive intermediation are the two paradigms that work together to make it possible.
I believe that the core reason for wanting decentralized trust is due to the concept of competitive intermediation, which is not present in web2 where a single intermediary has full power and position. In crypto, there is competitive intermediation, where miners must compete with each other to provide services and only the most efficient remain in the market.
To enforce competitive intermediation, decentralized validation is necessary. Many services require a decentralized group of nodes to function properly, and the protection against collusion is built out of decentralization. Decentralization maintains a layer of credible neutrality, allowing people to compete to provide services efficiently. Both decentralized validation and competitive intermediation are the paradigms that work together to make decentralization possible.
Wrapping up + Community Questions
How can people get involved in the testnet and when will it go public?
If you’re interested in getting involved in the testnet for rollups, you can contact the EigenLayer Twitter handle to request access. This is a private testnet that allows users of EigenDA to be layered to rollups, which can write data at a lower fee than on Ethereum.
The next phase of the project will be a testnet that covers other aspects of the protocol, such as stakers, operators, and service builders. This testnet is expected to be more open to public participation, and hopefully, there may be exciting announcements about it in Q2 of this year.
Wen Discord and wen roadmap?
We are hoping to have an updated website and discourse to start within the next, by the end of this month basically, where we’ll have many more ways to participate. We are also looking at launching a Discord around the time of our public testnet where everybody can participate. As of now, there is an unofficial telegram group that some people have created, the community members have created, and there is some amount of interaction we have there.
Does EigenLayer degen mean that validators could get tempted by higher yields offered by new tokens? Could that then comprise the security instability of the network?
It could lead to degen behavior. For example, one potential behavior is that new services may provide fees in their own token instead of ETH when they bootstrap. This speculation alone may entice stakers to participate in these opportunities.
Some of these opportunities may be malicious, and that is why a uniform slashing is enforced. This committee is made up of prominent members of the Ethereum community who must approve any instances of slashing before it occurs.
We carefully onboard protocols to ensure that they have been audited before stakers opt-in. While we are doing our best to mitigate risks, ultimately, with great power comes great responsibility. If you choose to put your own stake at risk, you must conduct your own research, as this is part of the framework.
How are you defiant?
I started in the academic landscape where the core value on the one side is innovation, but also there is a lot of conservatism around “Hey, this is is this, edge of culture, and why are you participating in this thing?”
And actually, I find that the set of values and ethos that a large fraction of our community members have is actually much more aligned with the core values of academia itself, which are: how do you create public goods? how do you create more innovation? and how do you create more cooperation at a large scale?
I wouldn’t say I’m defiant, but there are other people who do say that I’m defiant and going in this direction.
