Behind the Scenes of Restaking | Brandon Curtis & Myles O'Neil

Transcript

there's kind of two types of capital out there that's touching the reaking market there's the mercenary farming Capital there's look not thinking about an an additional maybe three to 5% on my on my native staking yield it's the capital that's looking for basically points farming and air drops and then there's the capital that is the non-farming bags right the long-term Holdings that does genuinely find like some additional like eth denominated yield on their eth Holdings really interesting and something that they be willing to hold and you know deposit for for years right and so I think it's kind of uh unclear right now just how much of current tvl is in that long-term sort of or like long-term capital versus mercenary

Capital everybody's kind of gunning for that long-term capital because they know that you know the mercenary capital is kind of a vanity metric right now Hey Ron if you have been listening to Empire you know that Santi and I are fed up with unaffordable fees and frustrating transaction speed s that make the onchain experience basically unusable so the arbitrum team reached out and they showed us the platform they showed us what you can do on arbitrum whatever you're doing you can experience frictionless transactions at lightning speed on arbitrum so head over to portal. arbitrum doio and check it out this episode is brought to you by moned which has not only the highest performance evm L1 architecture ever built but also the wildest and craziest community in crypto mad's internal devet

is live in public test net comes out soon so make sure you join the monad community today at discord.gg monad m n a d manad hey everyone Santi and I have been talking about salana a lot recently and we're excited to have a salana sponsor of Empire marinade marinade is a staking protocol on salana and the only stake pool that delivers autore rebalancing me rewards and automatic downside protection with their new protected staking Rewards optimize your soulle stake with marinade by hitting the link in the show notes big thanks to marinade we'll talk more about them later in the show are you tired of high gas fees I'm excited to let you know about scale a

zero gas fee modular blockchain that's become a perfect fit for gaming and AI apps because of their instant finality and lack of me explore the scale ecosystem today at scale dospace ecosystem and stay up to date with the gasless blockchain on X at scale Network that's scale Network big thanks to scale for sponsoring Empire all right everyone been waiting for this app for a long time Santi and I have been talking about doing a raking pod for a while we needed to make sure we lined up the two best people in the world to talk about this so we got them and we even got you a third so uh Santi we've put him to rest for today we've

got a subon in in his place Ryan West otherwise known as Westy from the blockworks research team we have miles O'Neal from Ry you might have seen him on bell curve before we've got Brandon Curtis co-founder of Rio uh guys welcome to the show it's great to be here uh yeah I'm I'm betraying Mike by going over to the other side of the uh the block Works office here but um yeah really really happy to be here in aot big fan of Empire yeah big fan of Empire and excited to get into some of the Dynamics that we see it play here in uh reaking cool so Brandon I'm going to pick on you for this first question and um I'm not exaggerating when I say there's no one else in the world would rather uh get this answer from my question to you is there's all these

things that we're talking about there's shared security staking reaking avss lrts igen layer igen layer competitors supply side of the market demand side walk me through basically the workflow or the supply chain or whatever you want to call it the flow of how one eth moves through the system from basically just like spot eth all the way through this like reaking supply chain yeah sounds good um and I think this will get to some of the core issues that we want to talk about later so it's a great place to start uh so if you're a user uh and you're interested in getting additional yield on your eth uh reaking provides a mechanism to do that uh there's

different ways of conceptualizing it one of the ways that I like to use uh is this idea that normally when you have a a token that you can stake uh that token basically acts as the work token uh that you can use to validate just just one network uh and with reaking you're basically opening that up and allowing that single asset to serve as the work token to uh validate a whole bunch of different networks potentially so if you're a user and you have some e and you're interested in engaging in this uh on on igen layer uh the flow looks something like this uh so you'll go and you'll need to deposit into uh an operator you have to choose a particular operator uh and that operator

is actually uh opting into a set of these avss these these actively validated Services uh that that eth will be restake to that they'll be validating and so uh you'll have to go and and choose that operator uh that operator is actually choosing those abss and so you'll uh deposit it to them uh they'll go ahead and uh basically point that eth uh at these other services that are going to be validated uh and then you are a little bit along for the ride uh and so you don't have a choice necessarily which of these Services you're opting into that happens at the operator level and uh if you see that an operator is adding an AVS that you're not

interested in or you don't like the risk profile of it then the recourse you have is to unstake uh and go and restake with a different operator and so yeah a lot of a lot of users are not really familiar with the operator ecosystem uh if you're coming from like other delegated proof of stake networks like uh the cosmos ecosystem you might be more used to making these kinds of decisions we have to weigh and measure these different operators decide who you trust um but for ethereum uh normally you don't really engage with that uh and so that'll be definitely an increase in the complexity from the end user perspective what is the I'm going to focus on the definitions for a second

even though for a lot of the listeners they might be commonplace but for some folks not and I just want to hammer at home so that we it'll it'll tea up this conversation a little better what is um what is the difference between staking and raking so with staking uh you're you're basically depositing your assets uh into uh A system that allows for uh the the validation of some Network so the uh the operator of the node on that network is doing some work to validate and Order transactions and build blocks and there are a set of rules that the network uh will apply um that need to be followed in order for uh you to be rewarded uh

for that work that ends up being done and so in the case of reaking uh it's it's kind of it's a similar flow so when you opt into validating another ABS you're basically opting into another set of rules uh for the work that needs to be done and an ABS is not necessarily another blockchain many of these are services that are uh not blockchainbased they're just signing transactions and doing other things that are you know updating oracles and doing other sorts of things that are conditional uh on different inputs but they're not necessarily ordering transactions or building blocks uh and there's a set of rules that are applied instead of at the network level uh they're actually applied in a set of reaking smart contracts uh that specify the conditions

under which you'll be rewarded for the work that you're doing uh or penalized if you break those rules and we've seen the liquid reaking protocols so Igan lay basically obviously took the kind of industry by storm last year everyone's talking about it now you've seen the launch in the last couple of months of these liquid reaking protocols Rio being one of them others being swell puffer Renzo ether fi everyone has slightly different strategies um what like where do lrts insert themselves into this ecosystem and like why is the what is kind of the value prop of an LRT yeah so lrts actually insert themselves right at the beginning of this process

uh so instead of the end user with this e that they want to get additional yield on uh actually going and choosing the operator themselves they are depositing into an LRT that that takes over these other functions uh takes over these other responsibilities so a liquid reaking token protocol will have a set of operators that they're working with and they'll usually have some process for uh selecting operators if they think will do a good job validating these networks uh and then uh the liquid reaking Network as well uh will have some process for selecting the avss uh that will actually be validated by the reaking process so all the user does is they deposit uh their eth they'll receive a liquid token this liquid

reaking token which has a lot of analogies to uh just liquid staking tokens on ethereum so everyone's probably familiar with you know stake E from Lio um the only difference is that instead of just validating uh one network just ethereum uh that uh e is actually validating ethereum but then it's also being used to validate these these other networks and so the user doesn't have to make any decisions directly about what uh operators they want to engage with uh or what abss uh they want to participate and validating uh the LRT takes care of that for them and manages those risks so all of that you know basically kind of unfamiliar territory for most eth users um that you mentioned is maybe slightly more familiar for Cosmos users

right um that gets all abstracted away by the LRT and so the flow feels like you're depositing to Ste but actually it's abstracting way more complexity under the hood than you would you know I guess like just depositing to a normal liquid staking protocol right it's it's saying okay you don't have to worry about which operators your stake is touching you don't have to worry about the avss that it's restake to you know we're going to going to do a good job of picking avss where you know your your eth is not going to be slashed because of some crazy reason right uh we're not going to onboard operators that might you know go down right we're only onboarding high quality operators and so

from the users perspective that's a pretty good deal and I think that's why we see you know what is it like eight billion out of the 12.8 billion uh deposited you know into igen lir as you know coming through these lrts nice miles give us the cont almost like the State of the Union so we've got lrts we've got Igan and reaking we've got these abss like where are we at today we're recording this mid April like what is the size of the market and where we at today yeah sure so Brandon did a good job kind of setting the scene on on really the technical side and I can try to set the scene on we'll call it like the state of the marketplace right um and maybe going back to something Brandon said we call them work tokens right so these are base layer L1 assets

that you deposit and you earn additional you know yield from staking right there's always been a really strong desire in the market uh to earn additional yield on these major you know L1 work tokens without having to take on like financial leverage right or do things where your your assets could could disappear in just because of some some sort of Market event right um and I think we were talking about it before the podcast started this was actually kind of the early promise of the lightning Network right where you could take your Bitcoin and uh earn some yield on it um and without that forming you had things like Celsius pop up but there's still a strong desire to say if I could earn say 10% on my eth instead

of just 5% without having to actually you know take on a bunch of financial leverage risk then there's it's a very strong value prop uh and so you know 13 billion dollar of deposits um are are direct evidence to that I think that's even Beyond on what what anybody expected at this point um and so you have a and then and of course the you know uh the the primary or I guess the preferred way to to access you know this additional yield is through lrts as we've seen the majority of of float of funds kind of flow through them right so that's the supply side of the market is saying yes we love additional yield on our BAS layer asset that we already hold

without having to worry about getting liquidated in the turn in you know in a downturn or something like that okay um and then on the demand side of the market is also resonating very strongly I think um there are lots of reasons why you want your own layer one network or your own independent Network that's not built as a smart contract on ethereum or as a rollup right where you're kind of dealing with those constraints at the same time we've seen it's very difficult to bootstrap these you know external networks from scratch um and so you have to go out and you have to get a bunch of people to you know buy your token you have to get them to lock it up the price of the token's going to be super volatile so you're going to have to pay

them a lot of money in order to keep it locked up right to offset that sort of volatility risk and and the slashing risk of course um and so what does igen lay offer it offers you know this Pool of$ 13 billion dollar right that is looking for opportunities to restake to um and so okay great now I have access to all of this security right and by the way I need operators to operate my my network instead of me having to go out and like you know get all these infrastructure providers to to learn about my you know Network and then get them to buy some tokens to you know or maybe have to give them tokens to to incentivize them to come all the

operators are also sitting in one place right and so it's like a One-Stop shop where I come in I get security I need I get operators I need and by the way there's a lot of Mind share like that is focused on Igan layer right now and so if I choose to be let's say an AVS instead of some you know the next Standalone Cosmos chain not only am I getting like a shortcut to like actually standing up my network of operators and getting Capital bootstrap to it I'm now getting the eyeballs of you know this 12 million 12 billion dollars of deposits looking and and learning about my project and and maybe becoming you know interested in becoming a user or buying my token etc etc right so the three ways

I look at it are like the value prop is you know bootstrapping networks uh you know and and I'd say like even decentralizing like maybe I'm not a blockchain itself maybe I'm a shared service to rollups like this is an easy way to decentralize those right and then there's this kind of like binance launch pool almost like component of this where you're just you know you have a lot of capital here and you allow them give them away the signal interest like in your project right and and I think that like growth component is is not nothing here um and so we have you know 50 avss in development um and I think that's that's a lot right we have the cosmos

Hub only has two consumer chains we never had that many you know polka dot pair of chains 50 is already I think the the biggest sort of like shared security platform um to date at the same time uh 13 billion doar is an enormous like overs Supply I would say of deposits for how much 50 avss are cumulatively like realistically going to spend on security right and so you think about just like rounding off to say 10 billion even um to double the native staking yield to go from say 5% to 10% staking yield we're going to need these avss to spend $500

million you know cumulatively on security at the very least that assumes that every single dollar is reaking to every single AVS which which may not be the case likely not the case right and so despite you know I want to make it clear like this is the most successful like even so far you know um shared security platform uh we've seen to date it's still like a lot of deposits chasing after maybe not enough yield to go around to satisfy everybody's like expectations of of of the yield here right if you came into Iger and you found out you're only going to make like 50 bips of additional yield for the next year and we're in

this you know ripping bull market like you're probably going to take your assets somewhere else for yield um and so like that is the kind of the state of the marketplace where you have all of these you know all of the supply side going after I would say like you know what they view as the highest quality avss and trying to find ways to make sure that only they are getting that yield right so I don't think all $1 13 billion of deposits are going to get the same yield they're they're kind of like going after avss and trying to almost you know if possible block out right additional deposits from coming in because that dilutes their own yield um and this is all just like very very normal and expected things that happen

um so the pricing power is with like these early avss uh that you know everybody is kind of looking at and and trying to get a piece of that yield um now you know I think there early avss are getting sweetheart deals um we can talk about that a little bit you know later yeah let's go there let's get in so what I want to do here is like you guys are I want to do a little inside baseball basically um I want to give folks a little bit of a look behind the scenes of what's happening and a lot of this is happening offchain so maybe people aren't even aware that it's happening there are a couple interesting dynamics that have evolved at the reaking spaces evolved and one of them is this dynamic between the avss and the lrts what's happening I don't know if

this is a question for Brandon or for miles but what what is happening here yeah I I can set it up um and so I earlier I talked about why the value prop of lrts is so strong to depositors right depositors like come in they put their at give their assets to an LRT and then they don't have to worry right but AV uh lrts are actually very attractive as well to avss and what I mean by this is you know if I'm an AVS I'm coming into igen layer and right I want Capital uh I want high quality operators um and then I ideally don't really want to have to worry about it things like for a while right um and I have two choices I can either go one by one to you know get

operators to opt in and come up with you know spoke like onetoone sort of agreements with all of them right this takes a long time and then I'm going to have to like manage that set on an ongoing basis with say like 20 counterparties right it's kind of complicated um or especially if there's an option where I can say oh wow look at these huge operator blocks uh you know blocks of capitals and operators I'll just go to them and then I have you know maybe two or three counterparties instead of 20 to 25 right because they're actually managing the relationship with the operators on my behalf so I'm an

ABS again like I'm coming ion layer I'm launching um I say I want let's say $500 million of of you know security uh restake to my AVS I want 10 to 20 operators um well great I'll just go to two to three lrts right and say Hey you give me like 100 you know you give me 200 and you give me 200 and I'm going to pick five operators from you three from you and five from the other ones right um and then I'm done like that that is the easiest way to bootstrap an AVS right now um in this Marketplace and so that's what we're seeing we're seeing

the early AVS is looking at this thing and being like okay uh let's go talk to these lrts and come up with these agreements right um so maybe I'll pause there does that make sense as to like why we're seeing AVS LRT agreements yep okay great um and then maybe just to double click into like what these agreements actually are um and then I can turn it over to Brandon to maybe talk about like what are some issues we see with them um and how they will likely evolve over time so I think again what are like the fields of information on these agreement ments it is I want an amount committed to me no more no less right because if you commit way more

than the agreed upon amount that dilutes the yield for everybody else if I if you commit less then I don't get like the security that I want right um they want basically some minimum duration of hey if you bring in if you give me 500 million I don't want that 500 million to you know that's got to stay for at least six months right so I have to worry for at least six months or maybe it's a year right um they are interested in having control over which other avss that capital is allowed to be um restak to and so let's say I get you know my 500 million I know I have it locked in for

12 months but if I have no control over that let's say you know one of those or a couple operators opt into really risky you know poorly run avss uh uh and all of a sudden like 100 million of my 500 million is slashed it's gone and that's because you know the operator made made a bad choice and so like especially early on they're being a little bit weary to say okay before you opt into another AVS like we have final say um and and I think you know don't worry we'll be a good counterparty we'll let you opt in if assuming they're good avss but but that is something that is being talked about on these agreements right now um and then yeah I think on the other side

they'll commit to like a percent of total Supply that they're going to pay you with um so let's say that's you know like 1% of total Supply that we will you know compensate you guys with and there's lots of different forms it's could take maybe it's an airdrop you know to your depositors maybe it's you know just some lump sum right like paid at the end of this duration period that you can then figure out how you want to distribute it uh to your depositors or not um but those are generally like the fields that we're seeing um so maybe we can talk about like what makes sense in there what's here to stay what maybe doesn't make sense I'll I'll just add one more thing to the state of the

market uh that Miles went over and that's that uh at the moment at least uh in igen layer the slashing element of all of this so the penalties for operator misbehavior uh in validating these abss uh that's not live yet and so there's definitely an additional trust element at the moment that needs to exist between uh the abss and the set of operators that they're working with and so it makes it even more attractive to go to lrts that are that are managing these relationships with top operators so you don't have to worry about some Rogue operator going off and and Wrecking the uh quality of service of uh whatever your abs is providing uh because right now there's no uh there's no way to really penalize them

directly h so just to maybe like s sum this up for a second so there's so there's avss so there's these folks that are launching things and that they they usually need they want like a maybe a set of permission operators they want a bunch of capital best way to do that is to go to the lrts and um so the lrts easiest way to do that is to go to the the easiest way the easiest the fastest way I would say the fastest way to do that is to go to the lrts and so behind the scenes they're uh that's why I think you probably see a lot of at least from some of the lrts uh who are maybe being kind of like quick with it I'd say um they are like announcing a lot of Partnerships with avss and so there's a

bunch of money that is like offchain getting committed or I would say maybe it's like you see the the marketing announcement on Twitter right and what what does that actually mean it means that there is some you know uh Loosely enforceable like legal agreement or Loi of some kind that you know was negotiated uh you know offchain obviously between the AVS and lrts okay and it's the LRT is saying I will commit x amount maybe $500 million of security to your AVS and there's a spec so and then there's terms of the deal there might be duration uh duration

requirements there might be um amount of capital that they're talking about making this number up 100 million there might be what's the acceptable collateral there might be control over whether the ABS can uh the state can be pulled with others there's all these different there's terms right there's terms of the deal and that all happens in some offchain SLA yes and uh I think that's mainly like a just kind of a moment in time um I think the closest thing that you could look at for like parallels if you go to you know the cosmos Hub governance forum and you see you know basically what stride or Neutron you know proposed for terms um or if you go you know way back to the polka dot par chain days and you can go

look at okay what were like the terms of you know the the AA like like uh loan or something like that right um and those were early forms of this uh definitely had their a lot of issues um but at least like they were in kind of out in the open right and I think right now um it was you know part partially like a function of IG L just being like pre-launch right there is no sort of like uh Central place where you can go and see like what these Agreements are where capital is um but I think we will see that over time Brandon over to you to tell us I mean this sounds like good good deals right someone need something

someone else is providing that thing what is the problem uh that we're seeing with these early agreements as you see it yeah uh so there are a couple challenges here I think the first is that uh these commitments are on dollar terms uh and these lrts have deposits in the eth uh so there's no way to control the eth price there's no way to predict what it's going to be um and there's also really no mechanism uh if you have open deposits and withdrawals uh to constrain your net in and outflows so if you make a commitment to supply at least $500 million worth of shared security to an ABS uh and you have no real way to to to credibly constrain uh these flows so you can hit those numbers uh then it

really does turn into this kind of this off the soft chain handshake agreement uh and so you know another challenge with this is definitely the duration element of it if something happens with the market uh if there's you know another another Athena and the eth wants to go somewhere else uh or if you know another LRT comes out that looks more desirable for whatever reason uh and you do have net outflows uh and you've made these you made these commitments Without Really Consulting users in any way uh then there's really no saying that you're going to be able to hit these commitments and then there's some questions about uh what the ramifications of that will be uh for these lrts uh and avss that have entered into these types of

agreements what's the actual downside of that though so users commit money to an LRT LRT commits that money to an ABS uh then maybe users say uh and the duration let's say two years or whatever and 500 million then the users actually say hey actually LRT I want to go to this other LRT that looks more in or I want to go to somewhere else where there's better yield um money flows out of the LRT LRT can no longer commit that Capital to the AVS okay maybe what like what what's the problem here's the issue is in my opinion like the LRT is making a commitment to an AVS but the capital that the LRT is

committing is actually controlled by the users who did not make that commitment it'd be one thing if you know a user comes into an LRT protocol and says hey okay here's my eth I will be I'm happy to lock this up for two years right uh or I'm happy to lock it up for six months 12 months right and then the LRT looks at their balance sheet right of deposits or and and say okay so you know 20% of our tvl is locked up for two years another you know 30% is locked up for a year and then the rest set of users did did not want any locking right um they wanted the ability to withdraw

any time okay so that means I have basically you know 50% of my tvl I can make actual commitments to avss with because I know that the users have locked up that Capital right whereas today according to the user agreements everybody can withdraw at any point in time meaning like it there's nothing stopping you know the tvl of an LR from going to zero right if every single user decided to withdraw uh okay that that that's fine like that's the product that they're selling but now you know the commitment that the LRT made to the AVS is just you know kind of gone right or

it's would say it's it's broadly like there's no way to actually enforce the terms of these agreements if if that's one way to put it what about the um well there's okay there's this interesting component that's happening here where the LR how do you pick is what I'm getting uh how do who picks at an LRT like how does this actually work so you so AVS goes to like a bunch of lrts and the LRT is deciding that someone's legit or not legit based on I don't know something basically um and you're now saying that I am you're now basically uh allocating users capital on be you're now basically allocating uh capital on behalf of your users you're almost almost like a hedge fund manager

or a fiduciary now I imagine there's like a I imagine some users are going to get pissed but B there's actually some like weird regulatory ramifications probably here that's maybe like a difference from like how Cosmos exists where like well yeah yeah how do you how do you think about this yeah we can talk about it later I mean I I definitely think that lrts like should be rebranded uh because they actually look more like you know yield Vault strategies in a lot of ways than they do what you like what an LST does under the hood um but yeah no I think I think the where something's got to give here is that you know if the capital that you're committing to avss needs to also have some commitments

around it right um or you can say hey yeah we are in LRT we can't offer duration you know guarantees because we didn't build the protocol that way um and we don't want to because users don't really want to opt into these things so that may may be one way this all shakes out is like this duration stuff just kind of goes away because because it's not you know realistic or or the market doesn't want it another way it does shake out is again like the opin has to come somewhere right and the opt in from the user side should come before the commitments because I actually don't see a problem if I commit for two years and I am depositing into this LRT Vault

because I want yield right I want additional yield and I'm happy to Outsource like the management of that to to experts right that's all fine and good um I just yeah that's that's kind of the main issue we see with it is that it's not the users that are F the users haven't opted in before the LRT opts in on their behalf yeah and and tun uh Gauntlet and others have commented on the sort of the unexpected nature of some of these duration elements in these agreements uh because you I do kind of agree with Miles uh that there was this this rush to Brand uh lrts uh with just to make the analogy with lsts uh because the belief was that a lot of the

Dynamics would be pretty similar um lsts have a little bit of duration risk it does take some time to get eth in and out of the the beacon chain for instance um but not to the tune of like multiple weeks or months uh of lockup and uh so I think that when a lot of these things were initially getting set up uh the thought was that uh things might play out more like they did with the the yield vaults uh in defi where those vaults uh didn't go after things that really had a duration element uh they went after things that had liquid incentives that they could liquidly you know get capital in and out of uh and it looks like it potentially that things will shake out a little bit

differently uh in the LRT space and so you know it's also possible that over time the market does restructure and we do move to just purely liquid incentives and no duration element and and open operator sets uh I think that'll be a lot more palatable on the AVS side of things once slashing is actually implemented because they'll have uh this additional degree of enforcement uh that the operators that do come in will actually do the work that they signed up to do uh but it'll probably take some time for that to play out uh and many of these agreements that are being signed now between lrts and abss are happening before uh these these s are even live uh so in some cases these lrts are opting in and they haven't even uh seen exactly

what it is that they're committing to running uh let alone you know talked with operators and verified that they're uh okay with actually running this stuff yeah what is the better model here Brandon or model yeah I think there are definitely some some changes that you could make here um to at least make these agreements uh a little bit more sensible uh the first is probably moving away from this dollar-based commitment structure um there's just no way to guarantee that that any amount of eth is going to be worth any amount of dollars in the future um so just moving to eth based commitments uh or commitments that consider uh maybe a fraction of the capital that's committed uh to the LRT

uh would at least be uh a little bit more enforcable and uh I think there's some some questions as well in the longer term uh if you know potentially ABS is moved to a a model uh of of getting this additional restake security that maybe looks more like a lease uh where they're maybe putting up some of their own token uh as collateral and then basically paying back uh that lease over time uh and if you know if they stop paying and they're unable to pay then then potentially the LRT gets the those tokens that were put up as collateral uh there there are a couple different ideas that are uh being worked on now uh about this Market might look like as it

becomes more mature uh and and as mil said if there is going to be a duration element and that does end up being an important uh consideration for some ABS designs then if users have some way uh that they can opt in uh to these durations then then the LRT will be able to take a look at uh the capital that it has and reason more about the duration of agreements that they can enter into yeah right and there there might be a um it might work out very well where I think avss could and and should be willing to pay more to restake Capital that has locked up the assets for the duration of like the agreement right versus what

they pay to Capital that can leave any time right and on the depositor side there may be you know this might find product Market fit because maybe there is depositors that are fine locking up their eth for two years they're going to hold it for two years anyways and by actually locking it up they get directed a higher amount of of of yield compared to the users that want to go take their LRT and use it in defi right and so maybe like their each LRT has has two types of users you know the ones that lock up the capital in the protocol and can't go use the asset in D5 for any reason or something like that and then users that that want something that

looks a little bit more like an LST with like a little bit more extra yield but the Lion Share of like rewards would go to the ones that lock up their capital for for a long time right um and that would be a good outcome it's just you know what we're missing today is sort of like that you know alignment of those commitments um I would say another thing just even zooming out like not even speaking to like the details of the the agreements themselves but you know what we've been thinking about at at Rio um where uh Revy we worked very closely with the Rio team we've been thinking about a governance process um and what this looks like from the LRT side right

and so even just like the details of the agreements being out in the open and the details of the evaluation of the avss um being out in the open and having token holders of the LRT opt into these things similar to the way that like Lio when they add operators or when they add a new staking module um you like the DVT module right everybody was able to vote on first approving that module and then a vote on proving how much of overall deposits are routed there um and so first step would be just like getting this stuff out into the open so that we can all like see what the Agreements are and where capital is committed to and um

you know a couple dashboards around that would be nice too for like the rest of the uh the general public um and then we can think about okay like what is here to stay and then how do we design mechanisms that kind of enforce these commitments or whatever we're actually agreeing to um then I'll be happy yeah there's there's a legibility problem here that as a user you want to come in and you want to believe that uh some of this risk is is being managed uh and so when you have all these commitments flying uh and there's not a lot of transparency into what is really being agreed um and these things aren't even live yet um the perspective from some is that because slashing is off that we should

just play all the capital into everything and that there's not really a a quality aspect um that can be evaluated on on the risk side basically uh there's no additional risk from opting into additional avss and so why not kind of opt into all of them uh that's that's going to be a short-term thing I I think slashing is going to be here sooner rather than later uh and there'll be another element here that needs to be managed if lrts are going to be uh managing risk in a way that actually helps users uh to get the best uh risk adjusted rewards from engagement reaking and just is like kind of riffing off of that it will be interesting if you know everybody opts into every

single AVS free slashing and then slashing comes and people realize oh [ __ ] these are like this is pretty these slashing conditions are scary I actually hey can we go look at that like agreement uh and and maybe tweak some things and so I will be interested to see you know if pre-s slashing you know everybody delegates to everybody or everybody you know opts into every AVS how how many people start opting out of av's post slashing and how does that impact the downstream sort of like agreements and commitments that lrts made to avss yeah one thing I'm curious about is who has the leverage in the situation it seems like especially with no slashing

the avss have like a huge amount of Leverage here and I wonder if that plays into maybe there being some bad deals for the LRT side of things I know when you look at sort of Cosmos and neutron people are sort of realizing for The Operators over there that maybe it wasn't a good deal for them given those terms so is that something you're seeing where maybe lrts are getting the bad end of the stick so at least um at least in reaking uh there is the ability to opt out so with um some of the earlier models of shared security that we've seen in places like the cosmos ecosystem uh they they sign this agreement and they're locked in um so now at least as the the risk profile uh and sort of the risk reward ratio for these things

changes over time uh because you know eventually we'll we'll get to see what usage looks like for these things like what kind of users and what kind of fees they have uh what the token's worth what they're actually willing to pay uh and the market will will probably self-correct there um but at least that's a you know a step up over a situation where your whole validator set is just opted in uh and just has to kind of deal with it yeah um I think I would also look like make a distinction between uh stakers and operators of like who's getting actually the the Raw Deal here um and I and I won't speak for Brandon but I I do feel like the constraints of operators are not being

uh thought through like they're they're probably getting the worst deal right now um a lot of these avss are thinking about you know they want to airdrop basically the portion of Supply as payment right to the lrts and they're you know there's very realistic possibility that they just um send those rewards directly or make them claimable to the addresses of the depositors basically to bypass the actual operators right um and I think as we saw the you know you know Cosmos Hub and IC um the difference between really like what a Staker is willing to opt into is very different than what an operator is willing to opt into who's

maybe double or tripling their fixed costs right their operating costs while only getting like a portion of that you know what the yield would be from let's say a normal Sovereign L1 um and so yeah I think I think more consideration to like the constraints The Operators will will start to um I think probably self-correct over time as well yeah I would agree with that I think that the um the operator constraints are going to end up being you know in in many cases more constraining than the uh than the perspective of the capital uh in terms of what services you want to run because the capital may be happy getting a few

basis points of uplift uh to opt into something uh because it's you know it's the same Capital they're not being asked to go out and get another token and um be exposed to the price you know volatility of these new tokens they're just they just have their eth in there and any additional yield is additional yield but from the perspective of The Operators uh the fact that the capital is is being reused is perhaps less of a a a consideration for them uh because from their perspective they're they're adding new infrastructure that they have to set up that they have to monitor that they have to maintain uh and they need to hit certain targets when when they evaluate networks um just for Revenue uh on the operator side and so I think

there's still a lot of open questions about what operator Revenue will look like uh in some of these networks and a lot of these early agreements don't really take that into consideration um but but I agree with Miles that that it'll probably work itself out over time as it becomes clear uh who's actually willing to pay all right I mentioned them in the pre-roll now I'm going to bring them up again it's arbitrum Santi and I are really fed up with these high fees and we're really excited to have teamed up with arbitrum for the next couple of months on Empire as the leading ethereum scaling solution arbitrum now Powers hundreds of decentralized apps across defi hers nfts gaming and a whole lot more the team has showed us everything

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that's at scale Network big thanks again to scale for sponsoring Empire guys as we round out the AVS conversation because I do want to get into the kind of next part of this convo how do you um if you are an AVS if you're a Founder building something how do you decide if you should leverage security from one of these lrts or for Megan lir or whatever you want to call it versus just doing it on your own what's the decision making rationale that goes in there so I'd say um you mean if I'm I want a chain and the decision around should I launch this through igen layer or should I launch just my own Sovereign basically yeah I think that's that's um

so I would say it is like you're gonna spend a lower portion of your overall Supply on security if it's being if you're being secured by you know resters who are not having to go out and buy your token and lock it up right they already have eth locked up they already own eth and so you know the opportunity cost of capital is really really low um in one way just to Benchmark this like I think osmosis it's they've cut it down quite a bit but osmosis originally was supposed to spend about 20% of its total Supply on uh basically compensating stakers and

operators right uh the numbers were being seen thrown around here are like in the single low single digits of Supply right and and it's getting a lot of people topped in um I will say the second piece of this is this really hazy handwavy turn like a term of alignment um you know I think the only way to really tap into the ethereum user base and liquidity um previous igen layer was to become a rollup or just launch as a smart contract application right or like you are completely on your own right you're out you're building a completely new brand and really having to basically

start from scratch of like building a user base and you know attracting mind share getting brand awareness out there right there is this component this Dynamic here of like okay if I launch as an IG layer you know uh AVS instead of a sovereign L1 not only do I get those cost savings I also basically get you know something that's closer to this level of you know alignment of like a rollup or you know a regular smart contract dab right I'm going to airdrop a bunch of users you know my token from ethereum and they're gonna look at me differently as like an AVS than they do as you know a standalone L1 um and so yeah I think there is definitely a

growth hack like component here where you can kind of break that tradeoff of getting not having the constraints of a rollup getting like what everything you want as an L1 while not at the same time just kind of being left to your own you know means in terms of building brand awareness and attracting you know users and liquidity right um I don't know Brandon anything you want to add there yeah uh three things actually uh so the first is just around decentralization uh if you launch a new network you raise from investors you do some airdrops um you're still going to end up with a pretty uh a pretty poor distribution of tokens and you can see this like on a lot of new Cosmos chains

where the top couple validators are you know usually investors and maybe they're 20% of the network each um whereas if you go and you're tapping into the the E Supply uh it's already so distributed at this point uh that even if you're onboarding just a subset of the the total operators that are involved in reaking you can start out in a much more decentralized place than you can uh if you're just working with the tokens uh that you've that you've done natively uh for a native chain uh the the second thing is uh you might not actually have to make uh the choice in a really binary fashion uh in the future so there's this concept of dual staking uh which is where you are tapped into the shared security um of you know restake eth uh

but then you might have another set of operators that are staking uh or at least are delegated your native token and so uh you can kind of get the best of both worlds there potentially where you have this Capital that you can bring in this potentially a lot cheaper and more distributed uh but then also involve your uh your native token as well um and then you have to have basically both sets of those validators sign off on things uh in order for them to go through uh in your abs uh and then the third thing is just around uh this concept of attributable security which is something that Folks at igen layer have talked about quite a bit uh so there are certain sorts of avss uh that you might build that might uh really benefit from the ability to reason uh

about the amount of restake security they have relative to the economic flows within the AVS so uh probably the simplest example of this would be something like a bridge where you're bridging let's say eth and BTC and and USD uh to different chains uh the ability to actually lock in uh at least the amount of uh capital on the restake side as you have sort of actively flowing through your system uh you might be able to to to re more readily about the security uh that you actually have on the AVS side and these are all things that are really really hard to do if not impossible if you just launch your own chain and secure uh it only with your native token nice all right let's get

into the next part of this conversation which is lrts versus lsts I I've seen a lot of people on Twitter and just in podcasts kind of comparing lrts to lsts because the name is similar and I think Miles when we've spoken I you know my understanding is Brandon we haven't talked about this yet but um Miles when we've spoken uh it's clear that your your view of how this Market develops is going to be very different than how the LST Market developed so I'd love to um yeah I'd love to get your high level thoughts here and then we can dive into the details yeah sure I think it starts by just like looking at the lsts and lrts of like what they are and what they do and then from there you can draw some like implications around you know what

endstate Market structure looks like or and specifically you know does endstate Market structure of lsts which we already know is basically winner take most winner take all does that actually map over to to lrts um and so maybe I can just run through like the differences first and then give you the high you know high level conclusions I think um well first of all like lsts are extremely homogeneous in what they do right you basically deposit tokens and they all are different ways of doing the same job which is validating one network right um two I think they don't really compete on yield right um if they did

compete on yield then Lio would not have this you know dominant market share lead right it's not like Lio is winning because it's double or triple the yield of the other lsts uh they're really competing I think basically to achieve parody with eth in terms of you know internet moneyness whatever we want to call that right um and so they compete uh in terms of you know liquidity Integrations and they're basically you know the goal of steth like the stated goal of steth is it to be as ubiquitous as eth itself right and I do think that you know as um more activity goes up the stack to l2s and now native eth you know on l2s is not

it it is a derivative itself it's a bridged you know derivative token right um I think the I'd say like the relative value prop of lsts is even stronger because it's like you're not you know if it's bridged anyways why don't you earn some staking yield on it right um and so I do think like lsts in general are basically trying to I would say like replace eth but compete with eth directly uh now lrts I think a better way to describe them as like restak index tokens uh rather than lsts because they are so different than lsts and what they do right it's not just you're depositing in to secure ethereum it's

basically you're giving them uh you're depositing in assets and then telling them to go manage you know yield strategies for you it's more like it's more like a Strate like a strategy Vault token um or it's more like a mutual fund right and the reason I think that um you know these things are going to look very different is because there are so many different ways to design an LRT um in terms of you know how much risks do you take on with the avss that you select uh what do you do with the rewards right if these are all Native token rewards are you just holding all of those on your balance sheet so that this thing is actually not just like eth anymore and

over time becomes less and less eth and more and more of a right now that starts to look more like like an index or like a hedge fund right um and then you know I think even on the user preference side people are going to have very different uh preferences in terms of yield uh let's think if like duration becomes a thing right maybe you now have like long-term lrts right and I think that the more and more that like an LRT tries to uh appeal to everybody like tries to take as many types of collateral as possible lsts as possible native eth as POS and Native eth right um tries to come up with one strategy that satisfies basically all types of users like it kind of falls into no

man's land and they end up not being really good at at either one um and so I think over time what we'll see with the lrts is you'll have you know uh maybe winners at the entity level uh but they'll have families of of LRT products underneath that um no we haven't even started talking about like you know USD reaking right um or all the other sorts of or BTC right or salana right so there's I could see winners kind of like Fidelity and black rock are winners you know at the entity level of you know the mutual fund industry but they have a family of funds um that sort of do a

better job of appealing to the different sort of preferences of their own demand side and really the preferences of what you know the avss they're depositing into right because there may be some avss that don't really care about the duration stuff and that's great okay so now they can we can tap into those from this LRT family um and so yeah I just I think over time we we'll start to see that like it's going to be very challenging to create you know Under the Umbrella of one LRT token a product that appeals to everybody um and so I think you know getting ahead of that could be the smarter thing to do it's kind of like lrts are um lrts are like mutual funds in a sense where you can pick your

kind of pick your poison pick your strategy and then um uh you could oh this might be extending the analogy too far but you could say that um lsts like steth is trying is basically just um like a US Treasury Market fund which is basically a US dollar um like US dollar with a little bit yield on top lrts are more like mutual funds is that it's like um I forget what I was trying to think it was like basically you know like corporate or sovereign debt that's you know collateralized with treasuries and you get the yield on both right like that's what it kind of starts to look like um but yeah there's no I I I think these like analogies are are

somewhat helpful but you have to recognize like there's actually no Perfect Analogy here um you know default thing on like debt is very different than a slashing event um and so you have to you have to view those differently right um and maybe you can be a little bit more you know risk on with something like an LRT than you could as you know a fixed income fund at Fidelity or something like that because the worst case scenario you don't lose all of that like all of that money you just maybe lose a portion of it but um yeah Brandon you and I have been thinking about kind of like the future of of the lrts and and different products to make and and we see a lot of you know whether it's duration or multiple types of you know

reaking assets like these are all kind of like coming and curious to hear if you push back on any of that yeah I mean you hit a lot of the differences and just the the ways these things can be assembled just what sorts of things you opt into what your general risk tolerance is um this even this you know the strategy capacity of different avss not every AVS is going to need billions of dollars in security um other considerations like lrts of of other assets uh which we could we could totally see in the future here um the reward management strategies duration um so a lot of these things are why we set Rio up uh to be a protocol that can issue potentially uh a number of lrts I

think it's a bit early I don't think we know quite enough about the market structure yet um to say which of these categories will be the most interesting um but my expectation is that there will be a broader range of lrts that are still interesting to users and still have a place in the market than in lsts where it has been win or take most uh because we could see a number of lrts that that stay relatively small and go after um some of these opportunities that maybe need less capital or have more constraints on participation uh there's this concept that uh Ian layer has talked about uh quite extensively of uh these these attributes these validator attributes uh where you're basically trying to take

into account um other aspects of The Operators that are engaged in your protocol that go beyond just how much Capital they have um and maybe that you know looks at things like geographical decentralization things like that uh and so there could be abss that are constructed uh that have more constraints on on what kind of involvement they want uh from operators uh and and that could also just lead to a number of lrts that that engage with those strategies um that the the larger lrts may choose to forgo wesy uh I think your piece when did you wrote I think you wrote this igen lay piece on reaking back in like fall of

2022 um on blockworks Research like what are your thoughts on just having seen the on how the LRT Market will develop um in like in comparison to how the LST Market developed I don't know if you have any thoughts on that yeah yeah wasin super early in running about Ian l i remember when it first came across my desk it was like this academic project almost and there like a lot of the things they were talking about at the time were more like cryptographic Solutions versus what we're seeing now where like we're talking about where you can actually restake and have like a sovereign Lan uh under that control so it's really cool to see how it's developed over time but yeah I really

don't have much to add to what said I agree completely that the way this is playing out is much different than the LST Market where we sort of saw like you said lsts are more homogeneous so over time it sort of converged to where the most liquidity was so we're seeing Lio and steth capture significant market share versus other players and what's been interesting to see because lrts like you said are more fragmented or will become more fragmented we started to see a lot of the longer tale lsts actually start to to Pivot and focus towards lrts swell being one an example of that U but yeah over time I think it's going to be super interesting to watch the different strategies play out

and I wonder like as we talked about earlier these agreements between avss and lrts if we start to see cartelization between those two um so if like big uh lrts partner with big abss and that sort of like uh on Center and maybe there's a bunch of these and so you might see market dynamics where it's topheavy maybe there's not one winner but there's three maybe winners of these cartels over time but it's definitely going to be more fragmented and I'm interested to see going forward how we sort of categorize the riskiness of the different lrts if maybe we start to like see maybe like tranches of products

almost like cdos in traditional Finance that package together like different risks along the Spectrum um so yeah I think there's a lot of cool things that can play out but that's sort of how I'm thinking about it Brandon how do you think about this at Rio I mean there's like maybe we can double click on the varying degrees of riskiness that wesy was saying so the most extreme version of an LRT is one that accepts a bunch of correct me if I get this wrong is one that accepts a bunch of lsts I think as collateral probably and then maybe like a safer version would be if you only accept like eth as the collateral or something like that and then there's everything in between um so a correct me

if that's wrong but B like the if you if you're riskier you're actually gonna probably do better in this market but you're a lot of those folks are going to end up blowing up in the bare Market um and when some of that stuff starts to unwind so like yeah how do you think about this as it relates to the the Rio strategy yeah um so at Rio we we took a look at sort of lsts versus native eth uh there's a bunch of factors that play into that there is this risk profile uh if you have your own operators uh doing the native staking versus uh having whatever operators that is running the lsts uh do that portion of it um obviously an LRT that's doing native staking has access to those uh Native staking rewards flows as well um whereas

if you have an LST it might be more difficult to to try to take an additional fee on those flows because the LST rors are already doing that um and then you know just from a risk management perspective I I think we saw this really play out uh in the yield aggregator world uh in in the last couple years in defi where there were some yield aggregators that kept things pretty pretty simple pretty straightforward um and only really went after these Blue Chip opportunities uh some of those yield aggregators are still around uh we saw others that tried to differentiate themselves by just going way out on the risk curve and going after stranger assets and stranger places uh and a a lot of those ended up

blowing themselves up and I think that the the the fact that there's an infrastructure element uh to opting into an ABS as well uh potentially puts additional constraints on this because you know every time you add an additional ABS at the LRT level you're committed to running and maintaining and managing this additional infrastructure um whereas you know if you have a a multi strategy D5 Vault uh the only infrastructure that you have uh involved is is just the onchain transactions you need to do to carry out that strategy so um we're definitely going to take a more a more Blue Chip uh approach to things with this initial product uh with re e uh and we'll sort of see how the market plays out over

time and if there are other opportunities that are interesting whether those involve additional assets or going further out on the risk curve uh but I think the place to be right now is sticking more Blue Chip yeah what do you guys think of I don't know this is a Brandon I'm sure you don't want to talk negatively about any competitors so maybe it's more of a question for miles or I don't know who it's a question for but like you know ether F has come out of the gates swinging they have three and a half billion tvl depending on how you want to obviously count tvl but like if you're just going off D Lama like three and a half billion ether Renzo's just ped three billion puffer is over a billion kelp is at 750 swell is at 350 and there's a you know longer list of

like sub hundred million what do you think are the so obviously that's impressive um what is the kind of downside of maybe what some of these other folks uh the strategy that some of them have taken I'm not sure if it's like a a downside to call out necessarily yet um I also don't think we there's not enough information on the differences between these lrts that that really matter I think yet in terms of their design and and maybe like what they're committing to and you know I'll say like when you go under the hood there's a lot of different ways to like set up an LRT um there's not to get like too technical

but you could have you know a separate igen pod for every single set of 32 eth and then end up with tens of tens of thousands of igen PODS or you could you know basically direct all of your eth towards one igen pod and the benefits of the former is that you can provision out Capital very flexibly the downside of the former when you have pods thousands and thousands of PODS is that it's a huge amount of gas cost basically just to run your operations right whereas but if you put everything into one pod then you can't actually provision out Capital very flexibly um so those are things under the hood that will take a while for us to see actually what were the right design decisions what were the bad

design decisions um and then I think yeah to to a lot of earlier points it's I'm seeing a problem where if you like design a protocol to try to cater you know as much as possible to the supply side where you accept all these different types of collateral you say you can withdraw any time right it's very hard to then satisfy like the AVS side which might say we only want this kind of collateral we want basically duration requirements right um and so I do think it's it's it's kind of impossible to set up one design that satisfies you know both sets of the market um now if you could cut this up in another way you might have you know

one product that's longer duration and that satisfies like the avss that want that and then you know different sorts of of you know cuts and variations underneath that but um yeah I think until slashing comes out and until payments come out and you know we also start to see like what the um I guess the operational burden is of of some of the just the general sort of you know under the hood stuff that Igan layer does whether that's just reward sweeping or you know proofs of the generating these proofs of your beacon State uh Beacon chain State and improving it to the igen layer contracts that's like it's pretty expensive um yeah I think a lot of like Ian layer's um challenges

are around the fact that it is built directly on eth L1 um and and a lot of you know gas actually does eat into yield quite a bit and so it may be the you know we may see that like simple design choices of of operations also could end up with like single or double digit yield differences right um just because of the Dragon costs and so yeah there's a lot more to a lot more to come but until slashing is even out there then I think you can don't take these things like like I think they're reversible and you know um there it's a lot of marketing but yeah that's okay yeah I'll just I'll just say that our our philosophy at Rio I mean you can see how emergent the market is right now

you can see how many open questions there still are uh about the unit economics of all these abss about how operators are going to get paid about what it's going to cost to run all this infrastructure and you know even how operators are going to be compensated um these duration requirements uh you know even the things about ABS quality um and so we have have just made this decision to take our time uh and let this Market develop a little bit before before rushing in uh and what that means is that we don't have billions of dollars worth of capital that we have that we forced uh to go deploy into whatever opportunities present themselves uh and so I think that this approach will will

pay off as we're able to collect more information about what the market will look like over the medium term uh and and act accordingly yeah and the last thing I'll say is I think there's kind of two types of capital out there that's touching the reaking market there's the mercenary farming Capital there's look not thinking about you know an an additional maybe three to five percent on my on my native staking yield it's the capital that's looking for you know basically points farming and air drops and then once they get it they're going to migrate to the next you know highest yield generating opportunity and then there's the capital that is you know the non-farming bags right the long-term

holding things that does genuinely find like you know um some some additional like eth denominated yield on their eth Holdings really interesting and something that they'd be willing to hold and you know deposit for for years right and so I think it's kind of a unclear right now just you know how much of current tvl is in that long-term sort of or like long-term capital versus mercenary capital and I think that you know everybody's kind of gunning for that long-term capital because they know that you know the mercenary capital is kind of a vanity metric right now and and will likely run to you know KAC or whatever the next sort of um big airdrop could

be maybe the last Dynamic that we could unpack here is uh Native staking versus external staking so so far it's all been external staking right and I'm curious as as this Market develops um we'll probably start to see more like native restak come into the market and um yeah I'd be curious how you guys think that this will happen or yeah I mean maybe we could unpack yeah it's probably worth I guess defining what those two things are because this is something Brandon introduced to me a while ago and and I don't think it's really kind of gotten out into the the sphere of conscious quite yet um but uh I'll I'll give it a shot and then

Brandon you can come in and and tear me apart and correct me and do it the right way but what the the entire reaking market right now the all avss you consider these like external reaking use cases or the category of external reaking meaning you have an external network um completely separate from ethereum right that is secured by ethereum operators um and security so you're exporting ethereum security and operators to secure new networks right uh now there's another category of reaking that I doesn't really get talked about it that much which is well what if you could basically M have uh pay ethereum

proposers to make additional commitments around the way that the the blocks that they build the blocks that they propose right um in you know at at the risk of of re of slashing if they don't uphold those commitments so maybe this is a builder paying you know a proposer to to say hey next time you propose a block you like are committing now to taking the block that I give you right I'm gonna pay you this much now and you can if you don't do that then we're gonna slash you out of protocol like we're gonna same way You' get slashed on regular uh igen layer right or maybe it's it's an L2 ecosystem saying hey

we'll pay you guys to for the guarantee that you'll include our pre-ms right so that we get like faster sort of finality um and the way I see the the big like so what about this is well first of all these sort of block um you know building commitments are only really useful once you have a significant portion of the proposer Set uh that is opted in right like if I'm an L2 and I want my you know guarantees on my pre-ms getting included it doesn't really help me if only like one out of 10 proposers right are are actually going to do that um and so these things get really useful once you

have a large percentage of the proposer set opted in um but that means there's probably only going to be a few use cases where this thing is you know this is such a no-brainer that the entire the majority of the validator set is gonna opt in um and think about like meev boost right that was a no-brainer for everybody um now builders get to make more money right because there's actually a way like an auction sort of function around here right and proposers get paid in the form of Revenue share um and I think that's what this ends up looking like longer term where you know it's it's a much more unconstrained Market um than external reaking because it's not cost on one

side going to be you know Revenue to proposers it's like things there you are now making someone's making more money than they did beforehand because proposers are committing to whatever you know the use case is and you're sharing some of that Revenue with the proposer itself um and so you know these this will only be kind of feasible once you know you have a large percentage of the proposers set opted in there might only be like you know five things that proposers that are no-brainer enough that we actually might see this at some point um but I think the point here is that it's it's a lot easier to reason about right it's not like you're just going to do this every single block

probably uh you're not going to have to evaluate you know the slashing risks uh like across thousands of different avss you're just gonna say okay yeah I'm G I'm everybody's kind of agreed to do this this is just another sort of check on the Block I built um and so yeah I think we won't see this for for quite a while until like there's a significant portion of you know uh closers that have opted into any sort of reaking um but when we do I think it could be a very large category and so I'll stop there and then Brandon uh please correct me yeah I I think the easiest way to think about these two categories is that there are some avss that are that are just using this reate Capital uh as just just

cheap Capital to secure whatever it is that they're doing uh they're not uniquely facilitated by uh reaking really because they're not really making use of access to ethereum state or ethereum consensus uh in in any major way uh and so those sorts of things might have uh potentially less demand for Capital you know I mentioned um this sort of AVS um strategy capacity consideration when we were talking a little earlier about how you might construct different lrts um where where's this other uh this native category that Miles was talking about uh does actually make use of the fact that

there are ethereum block proposers that are participating in this sort of thing and so uh yeah they could make additional commitments uh and that could potentially give you access uh to some pretty huge revenue streams that already exist like me um like longer term leases on block space um those sorts of things and and could potentially allow you to do experiments uh that involve more fundamental changes uh to how ethereum functions um so you know one that I've heard bouncing around is uh an exploration of reaking uh to do single slot finality on ethereum uh there's some architectural decisions that were you know made a made

a long time ago in ethereum uh that make it really hard to get uh to any sort of single slot finality solution um but without radically uh changing how um the network works uh but if you were able to get a significant portion of um uh proposers opted into some sort of AVS uh you might be able to get there uh without making changes directly to ethereum so I think these things are a ways off um I think these things do come potentially with um some enhanced risk uh to the host network uh that will need to be thought through but these are potentially interesting because they are plugged into such large Revenue flows uh

and they would have essentially unlimited capacity uh from the perspective of uh an LRT looking to deploy Capital because they work better as more Capital comes in and it's not that they're just trying to hit some security amount uh that they're willing to pay for uh like some of these non-native applications yeah and I think that you touched on like the most interesting part of this to me um which is I think let's imagine there's something that's not built into ethereum but 100% of proposers have agreed to follow these this additional set of rules at that point it's kind of effectively the same you're getting the same thing as

enshrining you know whatever this is into ethereum itself uh if the PE you know every single actor that's building blocks for ethereum is now following this additional set of rules and in addition to you know the the base ethereum set of rules right and so it's almost a way for um you know if we if you could get this much of the poser set to opt in almost fix things out of protocol right instead of having to make some really scary base layer changes that you know as we know are happen extremely slowly and and very rarely and you know especially the when they come with significant trade-offs right um but that is you know very different way of

looking at this thing and and I think if you remember when ail first started coming out I think you know the ethereum core devs and the you know the EF looked at this thing as potentially really scary right don't overload ethereum consensus but what if there's another angle here where it's actually oh this is actually a way for us to maybe like improve ethereum without having to make some some base layer changes that that come with trade-offs we don't really like or maybe it's just a canary network of sorts right we can try things out you know with reaking before making that decision to to build build it into the protocol anything else on the liquid staking versus uh excuse me with Native

staking versus external staking miles that you want to cover here I have some other questions but I don't know if there's anything else that we should cover no that that's really it I think it's yeah go for it Brandon yeah I would just say that it's not you know breaking out these two categories isn't isn't a value judgment against these external applications either um because there's you know I think all the existing abss fit in this category um and there's still some you know really exciting examples of you know like ethos taking a whole bunch of restak eth and then reselling that security across the cosmos ecosystem I think you can build applications that still require uh huge amounts of of of restak assets uh and they could still tap into some pretty significant Revenue flows um but I'm

just uh thinking about some of these more uh Native sort of consensus link things because I just I have a feeling that this is going to come up uh in reaking at some point in the future guys there's a couple other things as we think about wrapping this up that I just want to get your take on one is um I'd love to just get your take on the the other Igan layer competitors that are are launching and are about to launch so I think the first big one that launched was kak or Carrick or however you pronounce it um and obviously they you saw some like pretty public Igan layer kind of push back that obviously you know was the banter on Twitter and um you know I think there's the the stealth project that's now

become pretty public um but that hasn't launched yet so I'm not sure if I should say something but um yeah there's a couple other like igen layer competitors coming to Market built by some really really really strong teams um and there's you know the new one coming to Market is built by the strong team from the liquid staking uh space as well so just be curious um what what you guys think of these competitors coming to Market yeah I'll I'll just say to start things off that this was inevitable um anytime you see something get as much hype um and drive as much development as I layer has there's of course going to be competitors uh and and some of those will just be across other networks so you know there's some folks working on reaking the salana ecosystem and there's

a number of Cosmos projects now that are slightly rebranding to add reaking elements uh but then you know we'll also see uh reaking competitors on ethereum and I I think that's totally expected and I think it's probably a good thing as well um just as there's a lot of different ways to implement an LRT I suspect that uh there are probably a number of ways to implement uh just a reaking protocol and so it'll be interesting to see um as these other teams uh take a look at the design space and and some of the trade-offs uh that you have to make and just some of the jobs to be done um from the perspective of avss and lrts and operators um what they come up with uh and I think any

innovation in that area will just help us uh peel out the whole design space uh and figure out what we can do better uh in order to make reaking work really well yeah I would Echo everything Brandon said um again and highlight the distinction between uh igen layer competitors on ethereum and then this idea that you know every big L1 will have its own you know native reaking provider or probably multiple right if they're successful then you'll have more comp addition we see this with Babylon you know coming going after Bitcoin right um and as Brandon mentioned we're seeing you know already projects on salana we'll probably see them on

Celestia and there's something to be said for okay if you are you know the native sort of you know um uh reaking protocol on on a new on that L1 then you probably know the use cases that are going to be you know have the most Demand on on that L1 and are going to know the L1 well enough to kind of design the protocol in the best way possible for say like reaking on Solana or reaking on bitcoin and you'll probably be able to do that better than you know let's say even an ien layer right that's pulling in bridged assets from somewhere else and and trying to consolidate them in one place um so I think a question is you know is there a kind of like a winner per L1 or like a

winner per Network or is there going to be one provider that's able to aggregate you know multiple L1 Bas layer assets into one place and still do it really well um I think I lean probably towards their being specialized winners you know across different l1s then it's a question of okay how much bigger is the eth you know reaking Market than say Celestia versus salana versus Bitcoin um and yeah I think on the demand side then there's a question of is there a world where it makes sense to get security from multiple you know providers at the same time or from multiple l1s right it's like if you if we because we kind

of saw like getting operators in stake you can do that anywhere right um there is like this sort of growth and Alignment angle right to to why these projects are choosing to to launch on igen layer um do you sort of dilute that as you add you know more l1s right and say like well I'm align with Bitcoin salana Celestia and eth well are you really aligned with anybody then or are you really actually getting the most bang for your buck like from that growth standpoint my guess is probably not um and so that's kind of where I shake out I think there will probably be like uh one or more winners you know per major L1 kind of ecosystem and then I don't

really see a world where a lot of Protocols are say you know drawing security from four different l1s and they're like this Omni crypto sort of you know Omni chain sort of ABS that that just I don't know it feels complicated and dilutive to the growth aspect of it yeah I I'll just add that I think that one of Ian layer's strengths uh in how they've designed the reaking protocols that it's very unopinionated uh we talked about some of the questions that an AVS or an LRT needs to answer uh in order to get to Market so things about like you know how much security you need what operators you need um H what uh other avss you're willing to have um sharing some of the same

Capital that's securing your thing um IG layer as a protocol doesn't really have an opinion on any of these things or or on who gets to make those decisions uh and so I think the market will will sort through that uh if there are other protocols that come to Market that take a more opinionated approach that might work uh better or worse for certain applications certain sorts of abss uh and so yeah I think it's a big design space and it'll be interesting to see uh how it all gets mapped out yep totally agree cool uh there was an Anatoli tweet the other day said uh Ian layer but instead of stake it's reputation based uh reputation is one of those things that anyone can build regardless of how much wealth they

started with I'd love to see someone formalize it and build it on salana because there's a deep bench of small Salon of validator so there these like other ideas emerge there's like um Stak things other things like reputation there's also this idea that I've been thinking about like can you stake for other things like can you stake to get access maybe stake for three months to get access to a white list or something like so there's these other like you know V2s and variations of staking that I'd just be curious to get um your guys's take I don't know if you've been thinking about them much but would love to open it up to ideas reputation's a tricky one um we've seen you know a lot of discussions over years of things that we're going to use

reputation to significantly reduce costs um and it's hard I think there will definitely be innovation in the direction of you know like more quantitative metrics for gaining access to things um that's the kind of reputation that I could probably get behind and see working um so you know we see some experiments with this in the lsts on salana where you have a lot of lsts instead of you know going through the list of thousands of of participants and trying to figure out who you trust uh you just measure and and then manage your set accordingly um and I could definitely see that here as uh you know some of these abs launches are starting out quite permissioned and and maybe that's how they start to open things up

uh once operators actually have a track record uh validating these things you could start to incorporate that track record uh in deciding who to let in uh but in terms of a system that uh doesn't involve any Capital at all and is just reputation based um well I don't know we've seen a lot of proof of authority systems gonna say that already exists I think yeah and so if you want to build a a wormhole or something like that then then you absolutely can um but I don't know if that's really comparable to what we're trying to do with reaking right right like I would just say like I think reputation staking of reputation is like let's look at even Lio right the operators in Lio they

don't have any c Capital staked right it's it's purely the user's Capital that is being staked through Lio and so if an operator does something wrong like what do they actually what's at risk like their reputation right they get okay booted out of the Lio set Lio makes a big deal out of saying we don't deal with these like subpar operators and now everybody looks at this operator as you know subpar or like with a big black mark and that's going to actually decrease you know their future cash flows because it's going to decrease their ability to win new business um now I'll need to look at exactly like what anat is talking about here um but I think what the other thing you mentioned

is just like reaking to things that have no slashing right for you know one reason or the other um I again think that's already happening a little bit with Igan layer today like Ian layer pre-s slashing is basically access to like you know the airdrop white lists right um and when there is slashing I think there will be protocols that still launch on igen layer with no slashing or like more explicitly you know kind of like binance launch pool like hey put your assets here uh as a indication of you know interest and we will reward you uh when we launch or something like that and so yeah totally I I I could absolutely see like really the growth

aspect of why people will launch on igen layer being stretched to the extreme through something like that I I think you could argue that there are a lot of like delegated proof of stake systems that are already walking this line so if you look across all the cosmos chains uh of course they do have slashing um many you know many or most don't have any slashing for liveness and so the you know the penalty is you get jailed you get kicked out you lose some rewards uh and there's a mark on your permanent record and and I think that you if you look at if you look at slashing and you look at sort of validator operator management across many different chains um it's often more about the reputation uh of whoever it is

that's running uh these services and less about this Capital at risk and I think there's a lot of reasons for that um if you you know you slash too aggressively for things that don't um hurt the quality of your service too much you're just going to drive up your Capital costs because users will you know rightfully see that there's way more fund you know there's way more risk um in engaging in uh staking uh and so you know I wouldn't be surprised as well if we see uh a relatively slow roll out um of slashing in in some of these avss um and that we do see you know this reputational element kind of live on at the operator level in particular because as Miles said like these operators that it's that they don't have to have any of

their own capital in any of these uh systems they validate makes sense all right guys good good chat good uh introduction to reaking on Empire any any last I guess closing thoughts from Brandon or miles or wesy no just that uh remind people like just how early we are in this whole game um and that there's a lot of there's a lot of noise in the market and that's all totally okay and natural and um you know I think there's it could be looking the landscape could look very very different in just say like six to 12 months from now um but you know or kind of along for the ride here and yeah

excited to see how it develops cool yeah I'll just say that there's um there's a lot going on in reaking I mean we talk for an hour and a half and I think only got to really a portion of it uh and there are still a lot of unanswered questions um this is you know we're also just talking about IG layer V1 uh things will change as as the protocol is upgraded in response to demand um from the AVS side and uh yeah it'll be interesting to see how it all how it all shapes up but we're only at the very start of what's going to take probably a couple years to sort out nice all right guys great pod Brandon miles

appreciate the time thanks for having us guys appreciate it everyone Jason here thank you so much for watching today's episode wanted to take a quick second to thank today's title sponsor arbitrum we know you are tired of onchain experiences that have unaffordable fees and frustrating transaction speeds and that's why we partnered with arbitrum you can experience frictionless trades lightning speed and LaGree transactions all for pennies per transaction explore arbitrum expanding ecosystem at portal. arbitrum doio that's portal. arbitrum doio see you for the next episode [Music]