How EigenLayer Unlocks Infrastructure Innovation | Sreeram Kannan, Calvin Liu

Transcript

like you take the Ethereum validator's set, the Ethereum state capital base, and like there's a future in which you could kind of see Ethereum is like one application on top of that layer. There's actually many, many other applications. So, the biggest sort of dream or vision of EigenLayer is that there's so much economic activity, crypto-economic activity on top of it that's is as big as Ethereum. All right, everyone. Welcome back to another episode of Empire. You got Santi and me hosting this one. Really excited about this one. This is We've done a lot of big like narrative building conversations recently, predictions for

2023, these like big holistic frameworks. Today's going to be a little different. Giving you guys a little alpha on I think what is going to be one of the hottest projects of 2023, something that's going to be in the narrative in what I think maybe is three or six or nine months from now, which is EigenLayer. I'm We're joined by Calvin, who's the chief strategy officer at EigenLayer, and then also Sriram, who's the founder and CEO. So, guys, welcome to the show. All right, guys. I'm going You're going to have to excuse me as I ask some like five-year-old questions here as as we get into things.

So, here's my I've got my second screen up. Here's my definition of EigenLayer. I spent like several hours prepping for this podcast. I'm still having trouble wrapping my head around it. So, I want to start kind of high-level, right? EigenLayer, to my understanding, is a protocol that modifies ETH to allow validators to kind of re-hypothecate the ETH and like share to let people share and like apps share security and leverage ETH's security by what you guys call, I think, restaking. So, I don't understand what that means. Sriram, I would love for you to explain what is EigenLayer.

Absolutely. Pleasure to be here. So, one way to think about it is let's just dial the clock back to 2011, right? Like you look at the scenario at that time in the blockchain space. You have Bitcoin. And the idea of Bitcoin is it is the first application specific blockchain out here, right? You have this one application you know, transmit Bitcoins, you know, send it to your friends, whatever you want to do. But it is very limited. It is specifically built for that particular purpose.

And at that time when people wanted to do some other thing, like let's say I want to build a domain name system and I want to build a blockchain for it. Now I have to build a whole new like proof of work system, like Namecoin at that time, which just does that one thing, right? Like every new innovation needs a new network, right? This was the scenario back in 2011, 2012. And you know, around 2013, 2014, we had this idea that, "Hey, why do we need a new trust network for every new application? Why not create this idea of a general purpose smart contract platform Ethereum?

The idea being that, "Hey, I have a common trust network. By making it more programmable, now anybody can come and create any new application you they want on top of this common substrate, on a common platform." And this started growing massively because as you get more and more applications, there is positive same-side network effects. More applications, other applications can compose with it, and then you start getting this massive flywheel. But there are still limitations in the open innovation landscape that Ethereum permitted.

For example, I want to change the Ethereum consensus protocol. Okay, who has access to change the Ethereum consensus protocol? It's, you know, it has to be agreed upon on a you know, out of societal consensus that this is the new Ethereum version. Uh there is massive frictions in it. You cannot have three kinds of consensus protocols running at the same time. So, when you want to innovate at any layer of the blockchain stack deeper than smart contracts or application layer, you you cannot do it inside the Ethereum system because Ethereum gives you programmability at the level of applications, but not at the level of the consensus protocol, the scaling

layer, and all these underlying infrastructure things. So, every new innovation beyond, you know, which is deeper than the uh application layer, needs to go build their own L1. That's the era of the Solana, the Avalanche, the Polkadots, the Cosmos. So, you have this idea that basically if you want to uh Ethereum was this common substrate for open innovation, but only at the level of smart contracts and applications. But if you want to do anything deeper, go build your own thing, right? And I entered the space around 2018 as a professor. I was working on computational genomics at that time.

And I shifted from that to work on blockchain because I I I saw that this is an upgrade of our fundamental cooperation infrastructure. Our ability to interact with each other is mediated through trust. And to the extent that we can build, you know, an infrastructure through which, you know, the trust frictions can be minimized, it's a it's a big win. So, as I was shifting into this area, of course, you know, as an academic researching on things, some of the most underlying fundamental things are like the uh the infrastructure, like consensus protocols, how do scalability works, how do you get the game theory right on, you know, designing several of these things.

And as we were doing research into this, we, you know, like everybody else, come up with new ideas for, "Hey, I want to build this this variant of the consensus protocol. I want that. And the only way we could actualize any of this is go and start a whole new layer one. It seemed like an insane task because it's not, you know, creating a decentralized trust network is not a normal job, right? Like it is not the job of like an of an innovator or a programmer or a distributed system builder. It's a whole other thing and decentralized trust is like a unicorn. It rarely rarely exists.

And so this kind of like bothered the heck out of me. If we're saying that the core value proposition of crypto or at least one of the major value proposition of crypto is permissionless innovation. But there is no permissionless innovation or no easy or low barrier permissionless innovation at the level of infrastructure, we're going to bottleneck ourselves into the, you know, very few experiments that can be conducted at the infrastructure layer. So this is kind of like the laying out the landscape as we saw it, like let's say 2018, 2019.

And the question that, you know, uh I've been kind of pondering from that time on is, hey, but these decentralized trust networks exist, right? Like there is Bitcoin, there is Ethereum, there are these trust networks. Can I somehow borrow it to do whatever other infrastructure things I want? I want to build a new article. I don't want to go and start a whole new validator network and decentralize it and all of it. I just borrow it. So the question is, can we borrow trust, decentralized trust, from these existing networks and then supply it flexibly to anybody who wants to consume it? Mhm, right? Phrasing it another way, you know, in in an economic form,

if you like ask what is the core value proposition of blockchains, it is decentralized trust, right? It is the essential ingredient. If you remove decentralized trust and take any application that exists and just remove as decentralized trust from it, then it's not like, you know, a blockchain thing anymore. It might as well run on AWS. And so, if decentralized trust is the core value of blockchain, how do we create marketplaces for decentralized trust where trust can be bought, sold, you know, rented easily? And EigenLayer was conceived as a solution to this phrasing of the problem, which is how do I build as from from the innovator viewpoint, how do I

go and build new innovations at infrastructure layer without requiring to go and build new trust networks? On the other side, from an economic viewpoint, how do I take and create efficient marketplaces for buying and selling decentralized trust? EigenLayer is is like a is like a solution for these two. So, that's just a context what I'm going to Of course, I can dive in and explain what it is and how we actually achieve these goals that we set up. Yeah. Maybe as I'm listening here, and perhaps the question that comes to mind is, so you're essentially allowing Ethereum today, you know, there's these validators are providing security for the entire chain. Now, you're sort of allowing like security as a service by like maybe there's

And and by creating that layer, you're kind of rehypothecating security in some capacity. So, the question is, you know, what are the security implications of that and how do you get the trust guarantees that this actually works and it's not going to collapse all of a sudden? Um awesome question. So, maybe just for the listeners, I'll first get into the mechanism of what EigenLayer is or how we achieve these goals, and then explain like how we solve these issues with potential risks and risk cascades that one might end up building if you build this kind of a system without proper attention.

Um the the Okay, so how do we take this goal, which is I want to share decentralized trust as Santiago phrased it. I want to share decentralized trust from Ethereum to anybody who wants it. How do we achieve it? First, why Ethereum right? So the the core thing is, you know, of course, the two biggest decentralized trust networks are Bitcoin and Ethereum. And uh the the two essential ingredients we found that are very useful in actually creating flexible uh programming semantics on top of a common decentralized trust network is number one, proof of stake.

And number two, full programmability. And Bitcoin doesn't have these two things. And I'll explain why these two are important. Why is proof of stake important? Why is, you know, full programmability important? Um Proof of stake has this unique ability to not only create positive incentives for people to actually opt in, but also negative incentives for misbehavior. So, you're constraining So, we're we're constructing this like completely decentralized pseudonymous world with inbuilt uh enforcement, right? But to get like tight enforcement that validators or whichever nodes are running the system, they behave correctly,

you need to have both positive and negative incentives. And in proof of work the the design space, the game theory of the design space is very, very constrained. Action space is constrained because you can only give positive incentives in terms of things like mining rewards, but there are no negative incentives. Like if something goes bad, you know, the protocol cannot go and burn up a mining rig, right? That is not an action space that is possible in in a proof of work system. But in proof of stake, you have that additional degree of freedom, which is that you can build negative incentives into the protocol.

And because stake itself is entirely digital, right? Like it's just a digital representation of an asset, then therefore the protocol can exert negative incentives over it, which is the idea of slashing, which is hey, if you behave in a way which is probably malicious, then I can actually go and burn up that stake, right? So, proof of stake gives this superpower. And now that you have the superpower that actually nodes are staking and stake can potentially be slashed. So, this is slashing, this idea of slashing is basically that I can burn a validator stake,

a digital asset that have been locked up if they misbehave in a provable manner. Now that there is slashing, you can think of programmable slashing. Programmable slashing is actually I'm opting in not only to getting penalized for one type of misbehavior that the Ethereum protocol defines, I'm opting in to like slashing or negative incentives or penalties for all these other types of misbehaviors that I'm I might do because when I'm sharing, you know, as a validator opting in to a new system through EigenLayer, right?

Just give you the context of the name. Eigen comes from uh the German word uh meaning your own. EigenLayer uh basically means kind of your own layer. So, we want people to build anything they want on top of this common trust network. So, Eigen also connotes like, you know, one of our like uh uh nerdish interest, which is, you know, in EigenLayers, eigenvectors, you know, which which form like some of the basis for understanding matrices which drive a lot of our uh modern representations. But, uh Eigen uh EigenLayer is a mechanism by which stakers or validators in the Ethereum network can opt in, say, "Hey,

I'm actually participating in this new network." Uh, let's say Jason built a new network, which is, "Hey, you know, come and participate in this uh, data storage network." You know, you if you are a node in this data storage network, you're going to download and store the data for some amount of time and serve it upon request. And he says, "Okay, I want Ethereum stakers to opt in to this particular protocol." And um, Eigen layer allows these uh, Ethereum stakers to opt in.

And Eigen layer itself is actually not a new network or a new like L1 or anything like that. Eigen layer is a series of smart contracts on Ethereum. It's just a set of smart contracts on Ethereum, which allows stakers to express their intent in participating in specific additional services. You know, I'm a staker, I'm looking at Jason's like data storage protocol, and there is some economics around it. Basically, it says like if you store 1 GB, I'm going to get one ETH, you know, in rewards. I look at it and I say, "Is it worth it or not?" And if it's worth it, like my operational expense and any additional risk that I'm taking as a staker, I'm going to express my interest to opt in

to like Jason's protocol, right? So, that's how I communicate my interest to participate in some additional service. And when I commit to participating in Jason's protocol, Jason may tell me, "Actually, hey, you have to download this particular node software, which actually does like the downloading and storing of data because it's a data storage protocol, which has nothing to do with EVM or Ethereum or anything. It could be like a completely new like C++ code that I'm actually downloading and running in my computer or my cloud or wherever I'm running my validation software."

So, in EigenLayer, you think of like stakers as one side of the market, you know, stakers who are in Ethereum express their particular opt-in. They're saying, "Hey, I like this, you know, protocol because it has favorable economics, so I'm going to opt-in." And there are services uh service builders on the other side like Jason come and say, "Hey, you know, here's my data storage protocol. I'm going to throw it on top of the EigenLayer network and let the stakers download and run this uh uh new data storage network."

But, of course, Jason wants to make sure that I'm doing the thing that I'm supposed to be doing, which is downloading and storing data. So, he may create some kind of like a slashing protocol on top of EigenLayer. So, one of the things that EigenLayer does is to somehow take custody of my stake that I've already deposited in the Ethereum staking protocol. Okay, how we do it, let's get it separately, but the core idea is the contract the EigenLayer contract is taking custody of, you know, the stakers uh ETH, the 32 ETH that you have to deposit to be uh you know, Ethereum validator.

It is taking uh custody of it in some way. And essentially, what it is doing is saying that if you misbehave on Jason's protocol, and it is provable through an Ethereum smart contract that Jason wrote. Like, this is the Jason store, right? Like, that's the storage protocol. And I'm explicitly opting in as a staker to punishment conditions specified in the Jason store slashing protocol, which is expressed as an Ethereum smart contract. So, that smart contract in the case of data storage could be something very simple, which is whenever, you know, randomly that contract will ask me to reveal portions of data that I'm storing, and I have to go and show it on the Ethereum network. And if I show it

on the Ethereum network, I won't get slashed, I won't lose my money, But if I don't show it, you know, after enough time passes, I'm going to lose my money. So, this is the core structure of EigenLayer. It's a two-sided market. One side is stakers, you know, who are already participating in the Ethereum protocol, commit their stake to additional services that they're opting in to serve, which could be, you know, for example, this JSON store. And what they are particularly committing to is a certain economic return that is incumbent upon their participation in the protocol for the risk, which is that, "Hey, if I misbehave in this provable way, then I'm going to lose my Mhm.

then I'm going to lose my stake. Okay. So, this is the core structure of this two-sided marketplace that EigenLayer is. I just wanted two quick follow-up questions on that. So, just to follow that thought, if if you don't if you get slashed at the sort of the smart contract layer for this particular JSON storage uh protocol, does that like introduce latency into the validation of the layer one of Ethereum? Like Okay. So, this gets into the mechanics of like how we actually take custody.

And let me let me explain that. So, you know, the first question is, "Hey, who are you to take like to slash an ETH which has been like staked in the Ethereum contracts? How do we get ex- press permission to slash somebody's ETH, which has actually fundamentally been like set to uh to be uh staked in the Ethereum contracts? Okay. So, we have really on EigenLayer, we have two distinct types of re-staking, right? So, fundamentally, you have to put the same collateral at risk for running this additional protocol. And how do we get that to work? I'll separate it into two two ways. And the

first one is simpler, so I'll explain that first and then I'll go to the second one. The first way of re-staking on EigenLayer is what we call liquid re-staking. What is liquid re-staking? You take a liquid staking derivative, which, you know, you get from, you know, you have a Coinbase ETH or you have a Lido staked ETH or you have a Stakewise ETH or you have a Rocket Pool ETH. Basically, liquid staking derivatives which represent staking positions and trust on certain operator sets. You take that ETH. It's just like, you know, any other token.

Take those tokens and then lock these tokens in the EigenLayer smart contracts right? Lock these tokens in the EigenLayer smart contracts and commit to doing these other services, right? Which is, you know, the JSON storage protocol, for example. And when you commit to doing these services, you could say, "Hey, I'll do these services myself." Which means whenever, you know, storage happens, it'll happen from my node, my public key, right? I could specify that. Or I could say, "Yeah, I don't want to bother with any of these things. I'm going to delegate it to like Coinbase Cloud or Figment or Chorus One or you know, some uh Stake Fish or SwissBorg or some major operator to basically run this, right?

So, anyway, so you can have uh uh the way you participate in EigenLayer is you take your token, liquid staking token, just lock it in EigenLayer, right? And when you lock your liquid staking token on EigenLayer, essentially, you're giving kind of uh explicit permission for the EigenLayer contract to slash it or basically take it and redirect it, burn it, whatever it wants to do if you misbehave according to uh some Ethereum contracts that you've opted into, which could be the JSON store uh smart contract.

So, Okay, so that's the uh way that liquid re-staking works, right? So, this is this has This is simple. There's really nothing to do with the Ethereum core staking protocol because the liquid staking is giving us a layer of abstraction on top of which we can just cascade this. Let me go to the second type of re-staking, which is native re-staking, which is a much more native, more powerful way of re-staking. The idea is when I re- So, the the way this works is I'm a solo staker or a home staker. I'm not participating any in any of the liquid staking protocols. I want to control my

destiny. I don't want to trust any operator set. I want to provide decentralization. This is the kind of like ethos which powers decentralized trust. So, you have these operators and we want them to participate in the EigenLayer protocol. How are we going to be able to do that? Because there is no liquid staking derivative for these home stakers. So, the way we do it is when they stake in the Ethereum protocol, they can specify something called a withdrawal credential.

The withdrawal credential basically specifies who has the power to withdraw withdraw the staking position. Nominally, what they would do if you're a home staker, of course, you would set it to your own like public key for which you may have a private key in archival storage or whatever so that when you want, you can actually go and say, "Hey, withdraw my stake from the Ethereum contract." Whenever that is. That functionality is live. Okay, so that's what you would do nominally. But, if you wanted to participate in EigenLayer, what we ask that stakers should do, they set the withdrawal powers to the EigenLayer smart contracts.

They set the withdrawal powers to the EigenLayer smart contracts. Okay, so what does that do? What that does is give power to the EigenLayer smart contracts to withdraw the stake on your behalf, right? And what you In the normal mode, if you've opted into EigenLayer and just provided service and you want to withdraw it, the smart contract recognizes that yes, you're, you know, perfectly solvent and you can withdraw your stake and you just go and trigger the withdrawal and the smart contract will initiate withdrawal on your behalf and then you are able to then uh receive the stake back.

But, if you had performed some, you know, something on EigenLayer that is a slashable event, then the EigenLayer smart contracts can trigger the withdrawal from Ethereum, right? Because the contract has the withdrawal powers. Once that functionality is enabled, this is called smart contract triggered withdrawals. Once the functionality is enabled on Ethereum, you can go and just the smart contract will trigger the withdrawal instantly from the Ethereum protocol. So, instead of you triggering the withdrawal, the smart contract will trigger the withdrawal. And once the smart contract triggers the withdrawal, Ethereum knows like this guy is not like allowed to stake anymore and he plays non-execute or whatever the process is.

And that's that's really what happens to the the core architecture of the system. Calvin, can I throw it over to you here? Um you were at Compound for 4 years, right? You I think you joined Compound in January 2018, which is earlier than probably 99.9% of people knew about even DeFi, not only not only Compound, right? Um I'm just curious why you left Compound and why you left this uh yeah, great team and I know you're doing some investing on your on your own. Uh like why'd you join EigenLayer? Why why Eigen out of every other company you could have joined in crypto?

Yeah, so um I left Compound a little over a year ago after four really amazing years there. I have It was uh an incredible ride and like privileged to work there and with that team. Um And I spent a little bit of time um uh not well formally working for a company, but I knew that I wanted to dive back in to uh into into operating at a at an early stage startup because Compound was such a great ride. So, I spent a lot of time looking at different spaces. I think at at this time um about uh 6 to 12 months ago, the spaces I was looking at were like NFT infrastructure, which was very hot about 6 to 12 months

ago. Um Dow tooling also very hot 6 to 12 months ago. And then there was a lot of uh sort of um uh there was a little bit of a of a a swell of interest in the modular stack, which has since like exploded over the past year or so. I think at that time there was like Celestia really kind of introduced the concept concept to the space by uh separating out like data availability um from from what like a normal sort of monolithic blockchain. And so, these were the spaces I was really looking at um and I was looking for like a sense of uh of a team and a project that had some DNA with

that I thought was shared with Compound cuz it was such a great ride. And I I talked to a lot of different companies um and a lot of different projects and explored a lot of different areas. And ultimately, I was lucky to meet Sriram. And what uh what really compelled me and that I I think I was looking for and it's even more obvious in hindsight is number one, the opportunity to make like a big positive impact in crypto. Um I think when I showed up and and met the team at uh at EigenLayer, I asked uh I individually asked different members of the team like, "Well, what's so exciting about EigenLayer to you?" And there were all these various answers, but all of them sort of drilled down

towards the same concept, which is open innovation, and many of them used this same word. Um Sriram described like uh at a very deep level sort of what protocol is. Um but at a very high level, what it is is you take like uh a huge validator set and a huge stake capital uh base. And you say, "What else can you build with this?" It's like a huge amount of resources. What can you build on top of it? And it turns out that this is a very powerful concept, cuz there's tons of really interesting things you can build on top of it. So, really as kind of a multiplier uh on the innovation that can happen in and around Ethereum,

uh EigenLayer is a super powerful concept. And like having the opportunity to work for a company that's like can increase uh notably the level of innovation in crypto and on Ethereum is really exciting to me. Um related to that is I think we'll probably talk about more in this podcast, like some of the actual ideas that can be built on top of EigenLayer. They're big ideas in big spaces, MEV, uh like the roll-up stack. Um it's just like there's many, many different areas of crypto and basically like blockchains that EigenLayer could potentially affect. So, there's enough like intellectual material here to be

really excited every day for years. And then the last thing is just like obviously like uh a really really um sort of visionary leader with a very strong vision and a super talented development team. Um those three things are are I think pretty unique uh and make for like really great ingredients for a uh for a for a great company and protocol. So I so I get everything through well, not everything through I'm almost saying, but I get the gist of what you're almost saying, which is uh the there's this problem in the industry, which is if you want to go build a new app historic like this new innovative app um or a kind of build anything innovative in crypto, you have to go recreate a trust layer. And these

and building a decentralized trust layer is like one of the hardest things to do. It's really really tough to do. Bitcoin did it, ETH did it, but like you can't have thousands of decentralized trust layers. It's not it's not really realistic. So what EigenLayer does is this thing called restaking, which leverages the existing trust network of ETH to secure other infrastructure and other other middleware layers. I think I think I get that and I get that concept. I'd be curious Calvin to hear you talk about like you mentioned MEV, you mentioned rollups, like maybe get into the like so what, which is where I'm having trouble making the connection like what is what are the use cases?

What what is the like impact actually on crypto? Yeah. Um well, I think as you're kind of mentioning, the heart of the issue is Okay, there's maybe two ways to answer this question. The first one is like the the heart of the issue is if you want to innovate at a layer below the application layer, which Sriram mentioned, you and you want to design like different consensus protocol or different sort of like uh infrastructure that's maybe like enshrined into a protocol, you have to build your own validator set. So like you hear a lot about like the Solana validator set, what are the different hardware requirements that they need to have or like does it even

make sense? Uh whatever like the different consensus or like requirements that are imposed on operators. And not only that, but if you want to start a new network, you need to somehow tell a story of like why Uh, generally what you do is you launch your own asset and then you kind of have to tell a story that starts from this asset being worthless. That's like, this asset should be worth something because it can be staked uh in my network and service security for the economic activity that's on top. You have to bootstrap from zero uh like the economic security and the ability to have slashable collateral in your in your protocol. So, simply like this concept that you wouldn't have to

do that. That if your core uh competency is actually like developing infrastructure, uh really interesting infrastructure on top of blockchains, and not building a validator set, which is like uh entirely different exercise. You have to go talk to every validator uh and then you have to launch a token, uh you know, which has a whole bunch of different implications. And then you need to go out to the market and like inform the market that you stake this token so that my network can even work. That's a ton of pre-work that you have to do to do what you actually want to do, which is like launch an oracle or a bridge or MEV MEV mitigation solution on top of uh on top of like an existing

blockchain. So, from a developer perspective, that's a lot of uh value that you can get from something like EigenLayer. The second um like a second frame on that question is essentially like uh it's like related but but I think they're a little bit differently. So, you have Ethereum, it has uh by far the most decentralized validator set of any blockchain. I think it's like um I don't know exactly how many validators it is, but you know, thousands and thousands and thousands. I think maybe hundreds of thousands. Uh and then you have today like 20 billion dollars of staked

capital. Actually, with the rise in the price of ETH, and like the number of ETH being staked is growing every day. It's probably like 25, 30 billion dollars or something today. Um so, the question is like what can you do with those resources? And there's really two sort of fundamentally uh if you really wanted to simplify, there's two like really fundamentally interesting attributes. One is that you can get a huge amount of stake security quickly by renting it from Ethereum. And the second is that you can have uh a really decentralized validator set quickly. Uh so, you see like um

I think like if you look at the validator sets of other proof of stake networks, they have like 100 validators. Uh I think like Cosmos is like 100 or 150 or something like that. And Ethereum has magnitude an order of magnitude more, orders of magnitude more. And so, those two sort of fundamental attributes, either having a ton of cryptoeconomic security on demand or having a really decentralized validator set are sort of at the core of all the different use cases um that you could think of to build on top of EigenLayer. And uh yeah, it doesn't I I guess like draw from that all the way to kind of answer

your question about like the biggest, most interesting sort of powerful vision of EigenLayer. Uh you draw from that and I don't I don't know. I I don't know if I've ever said this like sort of publicly, but I almost think about it as like you take the Ethereum validator set, the Ethereum stake capital base, and like there's a future in which you could kind of see Ethereum is like one application on top of that layer. There's actually many, many other applications. So, So, biggest sort of, um, uh, dream or vision of EigenLayer is that there's so much economic activity, crypto-economic activity on top of it that's

is as big as Ethereum, but, uh, or or more. Um, it's like even more base kind of L0 or L1 on that you can build on top of. And, Sriram, do you it it so so from what Calvin's saying, it sounds like the things that will I don't even know if this is the right word, but like get built on top of EigenLayer or like leverage EigenLayer's security network or like it's not the front-end like live apps necessarily, but it's more maybe one or two steps lower in the stack. It's like the the I don't know what we call it, the infrastructure, the middleware, the bottomware, like the oracles, the bridges, the roll-up sequencers, the RPC nodes um uh, I I guess this is where it gets into

like Eigen EigenDA, I think is what it's called, which is the first thing that's getting built. So, Sriram, I'd love for you to maybe go one step deeper from what Calvin said and like what are the what are the what are what are the use cases when you think about it? Um, what are the really obvious low-hanging fruits here? Absolutely. So, you know, uh, Calvin mentioned this thing that when he joined our team, he asked different people and the one word or the one phrase that kept coming up is open innovation. And what do we really mean by that? And, you know, building upon Calvin's answer about like there are these two superpowers of Ethereum, like massive amount of staked capital and massive decentralization.

And when you take that and unlock open innovation, what is going to happen? So, why do we say it's open innovation? Because just like you can be a nobody and create a dapp, right? That's why we had the rise of pseudonymous, you know, founders, you know, spinning new billion-dollar DeFi dapps. And that is possible because, you know, you don't need to know who the founder is, what they what they're doing. You just look at the app, you look at the smart contract. If you like it, you can opt in and use it. And because you don't need to trust that person, you are only trusting the Ethereum network. And that person's borrowing that trust. You know, this is what Ethereum really did to the app layer.

And I think this is the underlying source of why we have a pseudonymous economy. The ability for somebody who doesn't need to be trusted, who doesn't need to have a legal backing or a reputational in order to come and launch very powerful services. And and that has unlocked a huge amount of open innovation. Now, when we take that that philosophy that anybody can come and create something uh uh an application, but unlock it at the level of the infrastructure. Anybody can come and upgrade the infrastructure. You see a really powerful underlying force that can transform the kind of landscape of crypto.

I want to give an example to kind of make this concrete. Like if you dial back like 2 3 years to the Ethereum roadmap, the core idea was, you know, Ethereum was going to do sharding. Sharding was this idea that like I'm going to split the validator set into small groups, and you know, each group will execute a different like subset of the program, and you know, we share all this common things. You know, and then it migrated into a roll-up centric roadmap, which basically said, "Hey, you know, we are not going to do sharding. We're just going to let anybody come and create these execution layers and proofs, and let them all compete on a free market."

And this has unlocked a massive tsunami of innovation, right? Because it is not one team coming up with one idea, and we have to deploy that, and I have to plan for the next 4 years, be very conservative, and then launch it, right? That would have been the Ethereum sharding roadmap. And if we had gone down that road, the set of ideas that could have been explored is very minimal. I mean, one idea that, you know, it's obviously a very powerful team, they can come up with a good idea, but that is still orders of magnitude off what we have gotten today, which is that there are many, many roll-up teams, each of them competing with each other on trying to get the best innovation in the execution layer, in the proof size,

in the compression, in the cost, in the developer experience, that simply, you know is going to open up a lot of possibilities. Okay so that is like comparing what you call like a governance-based, you know, bottlenecked one-idea innovation, and Ethereum took this like very clear stance, which could have been like it is actually a major decision for a protocol to say, "Hey, I'm not going to do like the things. I'm going to let the free market actually come in and compete fairly on a common substrate, you know.

I'm going to push it all out to layer twos." It was a very aggressive position to take. And Ethereum did it because there is a massive wisdom in the idea that permissionless innovation is going to unlock the most amount of like value. Okay, so now we take that and say, "Okay, but the problem is uh so the So we're just taking this idea that of the roll-up-centric roadmap that Ethereum laid out and turbocharging it to like one level deeper." Okay, what what you could not do with the roll-up-centric roadmap, what you can do with EigenLayer, I'll point out like the transition. And essentially it's taking this like idea of like permissionless

competitive innovation and then pushing it all the way down to like you can do anything. What you cannot do on a roll-up is you cannot go and say, "Hey, I'm changing the Ethereum consensus protocol. Ethereum consensus finality time is 12 minutes. Okay, I have a great idea how to run a consensus protocol among millions of nodes and I can actually get you consensus in half a second because that is the internet latency. And, you know, let's say, you know, you look at L1s that are basically doing something like this, you know, a Sui or an Aptos is saying, "Hey, we have this new set of innovations. I'm going to come in and like change the structure of the consensus protocol."

And what EigenLayer says is "Hey, you you have such great ideas. Come here and compete where there is already, you know, the largest trust network where there is the maximum network effect. And you just take this existing huge amount of trust network and channel it for anybody to come and fairly and squarely compete on improving crypto infrastructure. And if you ask me, like how much like potential like upside or like improvements are possible in crypto infrastructure?

Uh I would say there is at least six orders of magnitude. Six orders of magnitude, okay, improvement in infrastructure that is possible. It's a big number, sure. It's a huge number and I and I'm saying this with full awareness of the insanity of the claim. And, you know, I'll in order to tether this, I'll particularly take one dimension of like the six orders of magnitude and I and explain why I think it's true. And one way to view these blockchains, one way to view Ethereum's performance is as like a place where people are writing data and all this data is being published into a common ledger. Forget the computational part, forget all the other part of Ethereum, let's just focus

on one particular thing that Ethereum's doing. In fact, this is the only thing that Ethereum needs to be doing uh or the dominant thing that Ethereum needs to be doing in order to support rollups because, you know, as a layer two system, what you do is you offload all the execution. You take You're basically saying, "Hey, here is the transactions that I that I got." You publish the transactions publicly on Ethereum. And then you're saying, "Hey, but I executed all these transactions and I'm giving you a proof that if you execute these transactions, this is what will happen."

So, you publish the transactions on Ethereum and then you just say that like if you execute it, this is the thing that's going to happen and then you submit a short proof so that you don't have to re-execute those transactions. So, this is the kind of fundamental paradigm of rollups. But, in the paradigm of rollups, you're still dependent on Ethereum to be the place where you publish the data, right? So, then you can ask, "What is the data bandwidth of Ethereum?" Okay, simple question to ask, right? I'm writing data to this like system. And what is the data bandwidth? What is the rate at which I can write data? Suppose Ethereum's not used for anything else, no computation, no Uniswap, nothing's going on in Ethereum other than people writing data. What is the limits? What is the throughput that you can achieve?

You can do a calculation, you know, there's gas limit and whatever cost bytes per gas, whatever. And then you can you can find out it's 83 kilobytes per second. Okay, this is the data bandwidth of Ethereum. 83 kilobytes per second. So, that's the rate at which you can just write data to Ethereum. And you can ask the question like um okay, Ethereum's doing 83 kilobytes per second. What is the scope to improve it? Like, can you improve it 100x? Can you improve it 1,000x? Can you improve it a million x? And it turns out that if So, when you want to tether this number, right? Like, you know, you have 83 kilobytes per second. And what is the kind of like scale that is actually uh

normalizing or like setting this value? You know, if you want to run an Ethereum validator node, you need to have a certain bandwidth requirement. You know, right now I would say that's like 2 or 3 megabytes per second. So, each validator node has like 2 or 3 megabytes per second. And but the Ethereum system because you know, it has all these coordination penalties like consensus and you have to send data on the peer-to-peer network and all of these things, it's able to achieve 83 kilobytes per second. So, there is 2 megabytes per second per node, but actually the system is achieving 80 80 kilobytes per second.

So, there is 2 megabytes per second per node, but there are like Calvin said, tens of thousands of nodes on Ethereum. So, the total bandwidth available in the system is actually insane. It is, you know, 2 megabytes per second times 10,000. Which is basically like absolutely insane numbers. And that's the total bandwidth available in the system, but the Ethereum system is able to deliver a data rate of 83 kilobytes per second. And it turns out by some absolutely insane like uh distributed systems architectures which Ethereum pioneered.

The idea that you can take data and split it into small chunks and every node only gets like one small chunk. And you can do it in such a way that even if a lot of nodes go away, you can still reconstruct the entire data without losing any one bit. And because there are schemes like this and you know, this is a combination of erasure codes and you know, something called KZG polynomial cryptography. But if you do all these things, essentially what we know is theoretical limit is we can basically get, you know, to that number, which is, you know, n times 10,000 times like, you know, 2 megabytes per second. So, that is the theoretical bandwidth availability on Ethereum and the practical l- usage today is at 80

kilobytes per second. So, that's a clear example of a six orders of magnitude. And I'm, you know, when I talk about bandwidth, it's something that's kind of very personal to me because, you know, I did my PhD back in like 2006 to 11 in wireless systems. You know, peer-to-peer wireless systems. And you know, if you're building a wireless system, and if you can increase the bandwidth efficiency by like 5%, you would be the king of 5G. Okay? If you can improve the bandwidth efficiency of 5G by 5, 10, 20%, you're the absolute king of 5G. Here, we're talking about a system which has six orders of magnitude potential improvement.

Okay? So, how much can competitive permissionless innovation unleash that? As opposed to, hey, one team, one, you know, the only person who can upgrade the data bandwidth of Ethereum today is the Ethereum Foundation. And they have to take a necessarily conservative approach. Right? No, they're driving this like massive like ocean liner. They cannot just like take abrupt moments and, you know, collapse the ship. Whereas on a permissionless innovation on top of EigenLayer, people will come and absolutely compete for the absolute highest bandwidth performance that one can hit.

This is an example of what EigenLayer unlocks. Is essentially take any feature of Ethereum. The same thing about like, you know, finality time. Why should it be 12 minutes? The theoretical limit is half a second. Why aren't we getting a finality time of half a second? Where are the people who are fighting to push the finality time of Ethereum to half a second? Of course, there are people inside Ethereum trying to do it, but again, Ethereum is an ocean liner. You cannot make abrupt movements. It's not a startup. You can't do disruptive things. There is nobody in Ethereum who's going to get a 10,000X if they make Ethereum go from 12 seconds, like 12 minutes to 12 seconds, or half a second. There is a startup out there.

There is somebody out there who will not sleep for years on end in making that possible. That's what permissionless innovation is. That's what EigenLayer unlocks. In a scenario where a lot of validators, you know, are using and interacting with EigenLayer, um does that make Ethereum riskier? If there is an issue, there's a smart contract bug, some of the services, the apps that are interacting in your protocol, like cuz anytime you theoretically, yeah, I understand everything you're saying, but the question in my mind is is this going to break Ethereum at some point?

I'd say it's it's a great question and something we definitely consider and take seriously. Um So, let's understand. So, now that I've explained the potential of what we can do on EigenLayer. I gave two examples, you know, data scaling. I gave another example of uh short finality times. I can give like I'll just like throw high-level, you know, another two, three examples like MEV management can be done on EigenLayer for Ethereum L1. You know, you can make commitments, you know, to say that hey, I'm going to order transactions in a certain way. I'm going to participate in a certain auction. And if I don't do it, I'll get slashed on Ethereum.

So, there are ways in which you can uh on EigenLayer, right? Uh slashed on EigenLayer. And you can constrain the set of behaviors of nodes because they're opting into these slashing conditions. And so, you can create like very powerful MEV markets. For example, you could say that hey, whenever there is a liquidation on Compound, I will actually take the liquidation out instantly. And so, this can reduce the time to liquidation. When you reduce the time to liquidation, you can reduce the over collateralization ratio. You can increase market efficiencies. This is just a kind of infrastructure is at the root node. And once you improve it, downstream, everything consistently can improve.

Okay. So, that's MEV. Then you can build bridges and all of these things. And I I can go on about all of them. But, let me take San- Santiago's question and explain what the opposite side of the story is. How do we ensure that we do considerate careful risk management? Okay. Uh I'm going to separate this into like two different things, two types of risks that can happen on EigenLayer. One type of risk is what if there was a smart contract bug on EigenLayer?

Right? Like suppose, you know, we have this JSON storage contract, which is theoretically supposed to only slash people if they do not produce the data on demand, right? Because they have stored it and they don't produce it, they're going to get slashed. But actually there was a programming bug that then slashes everybody. For either it is the pro It is a programming bug or it's some kind of like an implanted code that JSON has put in that into the JSON store contract. This is a huge risk, right? Because all the ETH stakers, they said, "Hey, I'm getting like, you know, 1% additionally if I opt into JSON storage contract."

And they all joined in and like now they all lost their ETH. And this is not only like a risk to those particular stakers in JSON service, this is a risk to the entire ecosystem. So, it when we do shared security, there is also risk cascading. Risk at any one point can flow through the system. So, we need to kind of buffer that out. And the way we do it is we have this And and and the problem is even though theoretically this risk should not exist because I everybody who opts in to JSON's contract knows what they're opting into.

But smart contract audits and formal verification is not at a stage where we can just say that it's going to do exactly what it says it's going to do. You know, there may be problems. And so, what we need is a layer of human subjectivity to deal with scenarios like this. So, the way we deal with it is you know, the Eigen Dow or like, you know, us initially, we will appoint basically a reputed Ethereum community members to man this slashing veto. What is the slashing veto? Whenever a slashing is triggered, right, from, for example, the JSON storage contract, right? Now, I don't like go and immediately slash everybody's funds

because it is possible that the slashing is illegitimate. And we need to have a time time lapse. And what happens during the time time lapse is this like slashing veto can activate the veto. What it means is they looked at it and they look at the scenario and they say, "Yeah, you know, actually it's a storage contract supposed to slash people only if they didn't store it, but this contract is triggering slashing due to either an error or like Jason did something malicious. So, I'm going to buffer this and veto the slashing." So, the slashing veto is a human layer of subjectivity that acts as a buffer. So, slashing only occurs if it's triggered by the contract and approved by the

veto. Right? So, there's a two-layer. The The committee itself cannot go and actuate slashing. You know, the committee has no power to actuate slashing. We only have a power to veto slashing. So, it's like a two-layer system. You need both the smart contract to trigger the slashing and the veto committee to approve it. So, this creates a layer of buffering on the slashing uh cascades, risk cascades. Okay, number one. Uh on that point, um whose is this Dow? Can this Dow be corrupted bought? And cuz anytime you introduce a human element, it just it's just messy, right?

Uh it's absolutely messy. And the way we deal with this is the initially there is a Dow, and unless essentially trust is there is one layer of trust that you're are having on the doubt that they will veto slashing correctly. Stakers opt opt into the system only if they trust this doubt. And services opt into this opt into this Eigen layer only if they trust that this doubt will only veto illegitimate slashing. So, if it vetoes legitimate slashing, then the service does not get security. Okay.

Now, so this is the initial condition. And then if after that what happens is any updates to this uh to this like reputed committee is basically done This is not a token committee, right? Like this is not like you can go and buy 50% of tokens and then you can basically slash whatever. So, the way it works is the the Eigen doubt which could be initially just us like the company Layer Labs which has basically says this is the committee. Next time we change the committee, there is a lag of like 1 month say, before that committee gets actuated.

If you as a staker don't trust this new committee, you're welcome to leave. If you as a service don't trust this committee, you're welcome to leave. And what this does is the economic incentive for us as Layer Labs or like eventually if there is a doubt is to basically make sure nobody leaves. And the the right economic response for the doubt is to basically appoint only committee that can be trusted and will be trusted by even more people. That's how they grow the market share of the Eigen layer. And if they appoint a bad committee, all that happens is people just leave and the Eigen whatever you know, system goes to zero.

And so there is no So, essentially, but of course, people can only opt in if they trust this slashing committee. That is a condition. And there are like we have other services. For example, we have this model where eventually So, today if you look at Layer 2s, they have a layer of governance, a layer of human subjectivity. And eventually they will not have or at least they're claiming that they will not have a layer of subjectivity. And I understand it because eventually what during the layer of innovation, you want the subjectivity. And once the innovation is done and you can ossify it, you don't want subjectivity.

And the same thing will happen on EigenLayer. Yeah, I understand that transition. When you're talking about very specialized smart contracts, you could have storage, could have oracles, sequencers. As you said, you know, it's sort of endless possibilities. It requires a lot of, I would assume, technical sophistication of this DAO. And if you're have a I don't know how big this DAO is going to be, 6, 7, 12 people, then how do we make sure that who are these delegates? And and how do we make sure that they actually have the technical know-how to understand and make an assessment, a proper assessment, whether or not to exercise this veto is sort of what I'm thinking cuz cuz that

seems to me like it's a huge bottleneck that you're placing trust on a small committee that is that is required to have all of a sudden all this specialization across a vast number of use cases, which seems That's right. So, the committee is appointed for expertise. That's why it's not a token committee. It is appointed for expertise. What does it mean? What does it look like? It is basically people like the Ethereum core developers who will be on this committee. It will be people who are building layer twos who will be on this committee. It'll be people like Flashbots who will be building MEV solutions who will be on this committee. So, essentially this is a committee of like deep distributed system builders.

And that's what it has to be to actually exert the correct judgment. But one thing I want to clarify is these are not very subjective judgments, right? This is not like asking, you know, how much is this token worth? That's not the question. The question is a storage contract has to slash somebody for like not storing the data. Did it slash it for that or for some other like arbitrary purpose because there is a clear obvious smart contract bug? Or clearly Jason wrote this piece of code which is like a kind of an attack vector that has just gone and exposed. So, I think it is not the same level of subjectivity as deciding and saying, "Hey, this token going to go up." Or any

of these things. This is a very deep distributed systems knowledge that is needed to look at the code and say, "This is clearly a bug." This is clearly a kind of implanted attack vector versus it is not. That is all that is needed. So, we need people who are absolutely experts and world-class experts at doing this. That's what the stars going to be. I wanted to add also one quick kind of perspective which is this world we're talking about right now is a little bit at a level of more scale than we expect to be at for some time.

So, obviously it's like very complex to sort of look forward and think about like many many different middle layers on top of EigenLayer and lots and lots of different slashing conditions that need to be considered in a single doubt that gets to manage all of that. And I think right now it's our idea of what a working system could look like with EigenLayer at scale. But practically and kind of pragmatically I imagine that over time there'll be innings or like chapters to this story before we really get to that end vision.

It's going to be really complicated to orient a community of really multiple stakeholders around EigenLayer and what I mean by that is stakers, validators, and middleware developers. They're all going to have different preferences that they want to express around how the system should work and how like uh conditions should be implemented sort of vetoed, executed. Um so, I think like along the way to this kind of vision at scale of what we're describing, it's going to hopefully be like lots of sort of iterative improvements and product updates and protocol updates and like new experiments that are launched

in more in safer ways where we're able to get the feedback of the community and ultimately arrive at something that probably won't look exactly like what we're describing today, but hopefully satisfies all those different stakeholders' preferences. Kelvin, on the um you guys talk about this like you're building a I think I think the word that Sriram uses like decentralized marketplace for decentralized trust or I think was the word. Um when you look at marketplace businesses, you're basically just building supply and demand and the stakeholders that you just mentioned, I think you just said validator, stakers, and middleware.

Who is the like when you build marketplace businesses, usually there's like there's the key one that you have to get. So, like if I was sitting in your shoes, maybe I'm thinking about this like, all right, how can I convince the liquid stake the liquid staking providers to push like their validators to come onto EigenLayer or something, but like what what is the what is the first thing that you have to Yeah. It's a really interesting question and it's one I and we spend a lot of time thinking about. And the more we we kind of dig into it, um the more at least I have learned that there's sort of nuance to each of these stakeholders. So, for example, we talk about stakers, operators, and middleware developers. Like the the sort of easy

answer to your question is like no is the flywheel is you get a lot of stake and that attracts developers to build on top of EigenLayer, which generates fees that go back to uh stakers, uh which attracts more stake and that's kind of the general flywheel. And so, what you need to do is probably start by getting a bunch of stake and then try to line up developers that are willing on top of it as soon as possible. Now, like practically in terms of kind of go-to-market and approaching this market, what you learn is like stakers it's a huge set of people with many different preferences. So, for example, you mentioned like the liquid stake derivative markets, Lido uh

being like the most dominant one, but there's lots and lots of upstarts uh now that's like uh and then and then you think about like our implementation of restaking which EigenLayer has described. One is like native restaking when once withdrawals are enabled and withdrawal credentials can be set. And the second one is basically liquid stake derivatives or like taking in tokens into the EigenLayer contract. Like that's already kind of you have to separate the the staking market between like liquid stake derivatives and then native restakers. And they have very different sets of preferences and like sort of different risk profiles and preferences. Uh but like fundamentally, people stake because they want to earn more yield on

their ETH. So, there's a a value proposition there that's going to make sense to a bunch of them. Um like the the operators, what I think I've learned is again they all function like very differently um and have different sort of like risk profiles and preferences and uh but their whole business is built on top of earning as much yield as possible. So, like they're very willing to to listen here and like sort of collaborate and partner up and figure out how to participate in a safe way uh because it's their entire business model. So, both of those parties, it's like a yield value proposition. Um and then developers is uh is obviously like what is innovation that I can build on top of EigenLayer that I couldn't do before.

And and uh yeah, like I I think like I've heard sort of asked uh in our conversation today like what are the use cases that can be built on top of EigenLayer and like maybe what are the most um, imminent ones or the ones that have what type of developer would find the most value immediately in in building on top of EigenLayer? And it's almost a a hard question to answer and part of what's exciting about being part of this project because the world of possibilities is so so large. And so for like developers, we sort of have a vertical by vertical effort. I think the most kind of pressing verticals that we're focused on are MEV mitigation

uh, and sort of MEV management. And then decentralized sequencers for rollups. Um, and there's there's a couple more, but I expect that those two are sort of the most prominent ones. So, we're going out to those developer bases and really a lot of them are coming to us. Uh, and so those are the three kind of pieces of the puzzle that we have to put together thinking about it with What is the Calvin, what do you think of as the business model of EigenLayer? If you were explaining the business model of EigenLayer to someone not really in crypto or maybe like crypto-adjacent, how would you explain it in like simple terms?

Yeah, yeah, it's a great question because it can get very complicated and it's something that we we talk about a lot. At at we're at a stage where the the the protocol and product hasn't launched. We have to balance all these different incentives of stakeholders. I think and and so I I can't give an answer that's like concrete or a guarantee of what the business model is going to be, but I think personally what's likely is Well, first of all, I think we want to reserve the right to like innovate on on business models over the coming years, but I think what's most likely is something that's Lido S. Um, you know, basically as a marketplace between um, developers and stakers Uh,

people stake their assets into EigenLayer that are used by developers and we sort of sits in the middle of this kind of flow of funds and so it makes sense if if these different market participants are benefiting benefiting from EigenLayer for the EigenLayer protocol to keep some of those fees for itself for for whatever use for insurance for backstop for reserves for treasury. Cool. That makes sense. Um, I mean Lido's proven that that's a good model. I think last question here is um, sometimes Santi and I have explored the uh, the app chain thesis in Cosmos with folks like Zaki and other people in that that space. Calvin I've seen you tweet

out a little bit about just like exploring Cosmos back in the day maybe a year ago or something. I'm curious just how you think about like similarities and differences between EigenLayer and then like the Cosmos interchain security. I don't know if that's a question for Calvin or Sri um, but I can start. The I want to before I answer this I just want to complete my answer to Santiago's question on risks. Right? I was saying there are really two types of risks that we consider. One is the risk due to improper slashing and that's what I was explaining with the slashing veto and so on.

And there is another risk which is due to like the fundamental cryptoeconomic imbalance which is what the leverage risk that you guys were alluding to from the beginning. So I I just want to take a minute to address it before I switch to interchain security which is Um, Okay so Here is a interesting cryptoeconomic puzzle even for Ethereum before we understand EigenLayer. And in fact many people believe that Ethereum has no chance of working for the same reason that we are saying you know, we we see today people worried about EigenLayer.

And the idea is Okay, if you take the Ethereum platform, right? Every new application built on the Ethereum platform is increasing the benefits of doing an attack, right? Because, hey, new application, I have new news when I do an attack on Ethereum, I can benefit from this additional thing, too. So, every new application on Ethereum increases the over-leveraging of Ethereum. Okay. And every new application on Ethereum basically increases the leverage of the over-leverage of Ethereum. And so, you know, one could say using first-order reasoning that this is basically an

unstable system. Like, you can't have many applications because as you increase applications, each application increases the profit from an attack, but not the cost of an attack. But, this is first-order, but not second-order reasoning. The second-order reasoning is Ethereum was worth like $100 million like 4 years back, and it supported like a, you know, $100 million ecosystem. Or a few hundred million dollar ecosystem. Today, there is a $300 billion plus, whatever, like ecosystem on top of Ethereum.

And Ethereum, the ETH token itself has grown to like several hundred billion. And this is what happens is as you increase basically the ability, so each new dApp doesn't instantly increase the amount of security, but each new dApp eventually increases the amount of fee paid back to ETH stakers, which increases the ETH value, which increases the staking returns, which increases the security. Right? So, this is how Ethereum system has grown from like a $100 million system. And And, you know, one could ask that day that, "Hey, how are you going to run like a $300 applications on a $100 million like, you know, staking ecosystem? It doesn't make sense. But,

staking expands ETH itself grows to accommodate that. It's the same and and what did Ethereum really do? Ethereum really did is make make it flexible for people to build apps. What we are we are saying is what level of programmability a dapp has is just much more flexible. I can specify each node what the heck to do rather than just program at the level of the EVM. So, essentially by like expanding the programmability of what a dapp is, dapp is not just writing an EVM contract, dapp is specifying what each node in the Ethereum ecosystem does. And that level of programmability increases

absolutely massively the total value that is going to ride on Ethereum, but that is going to increase the value of the ETH the asset itself. That's maybe a third order effect. The second order effect immediately is that it's going to increase the total amount of stake on Ethereum because, you know, if there's $20 billion staked today because there is a 5% return, if EigenLayer comes in and because of all these services, maybe there is another like same amount of reward that is available, so staking will double. That's the like immediate response. And then the eventual response is that since staking has doubled and like there is so much of yield opportunity on Ethereum, ETH itself grows eventually to accommodate that.

So, if you look at like the the view of where this is, uh the really fun thing for us is you know, we are able to do we are able to just take Ethereum and expand the flexibility without actually having to go and build a new system, which is what Vitalik and the Ethereum ecosystem had to do. In fact, first all they tried very hard to expand the programmability of the Bitcoin ecosystem. And inside the constraints of that system, there was no permissionless way to do it. And whereas where we sit at today, we can take Ethereum and actually do this permissionlessly, you know, there's no governance upgrade, nothing required, and then we just expand the footprint of the flexibility of programming so that the total value that can write on top of Ethereum is high. I'll also explain a

little bit how actually EigenLayer built correctly massively decreases systemic risk. Okay, it decreases systemic risk, counterintuitive. Why is it? Like, if you look at applications writing today, what is the cost of attacking these applications? It's basically, you know, applications depend on the Ethereum consensus, but they also depend on other kind of auxiliary services, like they depend on Chainlink, they depend on like a bridging service, they depend on a new data availability service. Applications depend on all of these. And the cost of attacking the application is cost of attacking the minimum of all these things. You can take the entire DeFi ecosystem down if you attack the Oracle ecosystem. You can take the

entire like, you know, roll-up ecosystem down if you can attack the data availability system. So, there are these massive choke points that are being created by each new middleware. You can attack the entire like cross-chain bridging ecosystem if you attack the dominant bridge. So, the cost of attacking the entire ecosystem is not the $20 that is staked on Ethereum, it is the minimum of all these middleware services that are built on top of Ethereum. Imagine in an EigenLayer world, all these services are built on top of Ethereum security. Which means to attack any one service, you have to attack this $20. It's the most overleveraged, right? Like, all the stake is doing all these services. In fact, we think this is not overleveraged, this is

pooled security. This is not overleveraged, this is flexible pooled security. That's what it is, and that's what our aspiration is, that every staker participate in every service. And this is only possible if services are lightweight, and so we have like this huge bias to ourselves building lightweight services that a lot of stakers can download and run. We don't want each service to be like running a Solana node so that very few nodes can participate. We want each service to be like, you know, leveraging whatever resources they have in a kind of horizontally scaled manner. Anyway, so that's an answer to this idea of why there is, you know, why while it appears that it is like overleveraging, actually all you're doing is essentially

expanding the programmability of the Ethereum ecosystem. And the proof-of-stake system itself has a natural overleverage, and it only corrects itself in the long term by increasing staking, by increasing the value of the underlying asset. And that's the same dynamic that we actually expect. So, let me just clarify in this pool security model, it is still easier far easier to attack, you know, than what it would be to attack Ethereum layer one. By definition but it is easier to attack. So, the in the even in the pool security model, it is true because you're adding like, you By definition it's true, right?

By definition it's true, but it is harder to attack the dapp in the pool security model than it is. And that's what matters because you're not attacking Nobody wants to attack Ethereum. They want to attack a dapp and profit off of it like because there is money on Uniswap. There is Those are the kind of honey pots. And if you look at where the trust bottleneck is, it's not on Ethereum. It is not It is on all these auxiliary services. By bringing the auxiliary services at par security to Ethereum, of course the Ethereum security is being shared with these other things, but Ethereum staking itself increases, right? Because if 20 billion was staked today, now that you have, you know, the Chainlink Oracle additional thing, the bridge thing, the MEV thing, and all these things, it's not 20 billion. It's

40 billion that's staked. So, it's not that purely it's dilutive to the Ethereum interest. It's It's basically like, you know, it's like an empire formation. Like you You these small like countries, and, you know, you want to form an empire by aggregating the security of all of them, right? The total amount stake is actually the sum of the stake on all these different applications and you're just aggregating them all into a common pool and it's just better for everybody. So the the the idea I've heard you say programmable security, you know, it sounds really sexy. You know, we have programmable money with DeFi. Yeah, but I think like unlike unlike DeFi like security is tricky because you inherently need to make an assumption of the level of security that's required at stake.

But if you make the wrong assumption, you get wrecked. And so you really have to trust the smart contracts that you guys are developing, the DAO that can veto to make that assessment for you. So unlike bandwidth or shared resources that could cause like load issues, security you typically don't want to mess with security. Um and just as you said, just have maybe there's a lot of inefficiency in Ethereum right now because it's over levered. But in the state that we're in now, do you really want do you feel that we we have the know-how and you can program a set of assumptions that knowing what the

perhaps a more precise less over levered security assumptions resources you should be allocating. That's the I hope this comes across as I'm just sort of skeptical. Um and I don't know what you would say to that. Am I being totally unreasonable here? You're you're largely trusting you guys and the DAO to then Yeah, I I I would say that's super over levered. You know what I mean? Like I'd rather it be so over levered. Like I'd rather live in the US than live in Somalia because hey, maybe like you just live in Somalia and have a bunker, fine. But it's still largely like risky. I'd rather live in the US which is the safest country in the world or whatever To make an analogy.

Uh it's not clear that you're living safely today depending on all these like tertiary and all that. Sure yeah. That's what's actually That's what I'm saying. You move to the US. Don't live in Somalia. You're living in Somalia because you're trusting the weakest middle where that you're trusting today. Move to the US. Ethereum is the most secure. Pool security is the most secure. That's where you need to move. Back to the So, not to use an analogy, but like the the programmability of security, is it fair to say that you guys are making certain assumptions?

And then introducing this doubt to to somehow make a determination of the the level of security that's required, which is less than Ethereum. And so, you could get that wrong. Do I'm trying to understand where you could get it really wrong where this falls apart. Yeah, yeah. I I can explain like kind of like uh how this can fall apart and what we're doing to minimize those chances, right? So, how it can fall apart is you take the Ethereum uh security and then you're supplying it um to something extremely So, somebody builds this like massively lucrative application on top of EigenLayer, which has to be bigger than By the way, when when you say like

Ethereum is uh already very secure. If you just do a leverage calculation, Ethereum's over leveraged by 20x. Like there's $400 billion worth of like market cap living on top of a $20 billion security. So, first we have to come to an understanding of why it's acceptable to have this over leverage. Number one. Number two, we go we have to ask this other question. By basically building all these middle where that on top of EigenLayer, are we going to increase this market cap from $400 billion to like uh hundreds of trillions that this is going to over leverage by like 100x? Or is it going to increase It's going to take the $400 billion that exists today and depends on rickety middle wares and

move them to the Ethereum security because then actually it just makes the system more secure. Okay so and there are different possibilities. The nightmare scenario is oh, somebody comes up with like some Actually, the the best way to illustrate this is you take staking from a much smaller ecosystem, like imagine like a small proof of stake ecosystem, you build EigenLayer on top of it, and then it goes and supports like all the middle ware on Ethereum, right? So, I have this new like small token ecosystem and you know, proof of stake system, and people participate in EigenLayer and they're supplying security to like huge high-profit Ethereum dapps. Then suddenly what's happening is the underlying leverage of that system, like that's you know, L1 system was basically

like, you know, there was no application or very few applications living on top, and suddenly you're just pumping up the leverage of that system because you have now this like massive $400 billion dapp ecosystem that's dependent on that service to work correctly. That is an example of that, you know, this intuition that like this is massively going to over leverage systems is true, but that's not the case with Ethereum. Ethereum's already like has a huge amount of, you know, uh profit that you can extract if you attack the Ethereum ecosystem. And if we can get to pool security, so I think that's another if, okay? The if is what if like I'm running an application and

people don't want to opt in to this, and only like $1 million or $2 million worth of stake offsets. Then what happens? Then we have this very nuanced over leverage analysis in those scenarios. But in the simplest scenario, which which is also the extreme scenario for over leverage, which is everybody in Ethereum participates in every application, I think it's actually the safest because it pools all the trust assumptions into the one group, and then like say that hey, you know, this one group can execute all of these things. So, the way we think about it is like you have this nation state called Ethereum and you have all these like borders, right? Like right now, the Ethereum staker community is only securing one border, block production.

It's not securing the article border, it's not securing the bridge border, it's not securing the you know, data availability border, it is not securing these many, many other borders that exist. And so, there are all these other attack vectors. I'm saying what we are saying is just use the pool security to share through the entire system, then it's actually just better. Mhm. Guys, I think this is a good place to wrap for I have I have a I have a feeling and a suspicion that Sriram and Calvin, you guys will be back on Empire at some point in the near future. So, Sriram, this is great. Calvin, this is great. Thank you guys so much for coming on Empire.

Thank you. Yeah, love Empire. Thanks for having us. Thank you guys. And I guess as an exciting young project you are, like if for people that are interested in learning more about it, are you hiring? What's the best place to read the documentation and keep tabs on on your development? Yeah, we are definitely hiring, especially engineering and developer relations actually. We will have you know, we've the the team has been building for a little over a year, but this is the year where things are going to start to roll out to testnets and mainnets. So, we definitely want people to keep an eye out for that. We don't have a Discord or discourse yet, but

we're actually planning to launch a discourse, sort of a forum for ideation, collaboration in probably in the the next couple of weeks and hopefully make public our our white paper at that time also. So, uh So, so, that'll be exciting I think, and and a great place. Right now, the best place to keep tabs is the EigenLayer Twitter handle. Cool. Uh, e i g e n l a y e r. That's the Twitter handle. Perfect. I'll throw the link in the show notes.

Awesome. Cool, guys. Sriram, Calvin, be well. It's great. Talk to you all soon. Thanks so much for coming on. This was super fun. Thank you so much for, uh, bringing us on board. Look forward to future chats.