Restaking's Renaissance: The Next Generation of Blockchain Security | S8 E1

Transcript

so the capital efficiency part is people that are already you know Diamond hand eth stakers they don't have they can just opt into additional incremental yield and so that's the capital efficiency part when you're exporting security but then expanding the role of the operators and providing different sub quorums of like this larger operator set and using that to test what reaking could be as a way to you know push some of these changes um and almost treat them as like tests or kind of a concept with Canary networks and before you make this huge sweeping protocol change hey everyone this episode is brought to you by Kinto the safety first L2 which is accelerating the transition to the onchain financial system they've got

some very cool features like user owned kyc and Native account abstraction which solves a bunch of the onboarding and bottom back problems that many l2s suffer from so you're going to be hearing all about them later in the program but if you want to learn more and better if you want to join their launch program engine you can click the link at the bottom of this episode go check them out tell them I sent you if you're building anything in web 3 you likely need oracles and verifiable Randomness that's why belur is partnering up with Supra which offers the fastest oracles and D vrf free for listeners of BCR for 12 months and you can get that at sub.com blockworks the link there is in the show notes or stick around we're going to be talking about them later in the program all right everyone welcome back to

another episode of bell curve before we jump in quick disclaimer the views expressed by my co-host today are their personal views and they do not represent the views of any organization with which the co-hosts are associated with uh nothing in the episode is construed or relied upon as Financial technical tax legal or other advice you know the deal now let's jump into the episode all right everyone welcome back to another episode of bell curve this is a very special episode because this is the kickoff episode of the new season so I'm joined by my uh trusty co-host miles O'Neal and we are going to be talking about reaking this season so Miles welcome buddy it's great to be back um

yeah it feels like doing reaking themed podcast is like a second job so might as well just lean into it and do a full season at this point um yeah but yeah I'm really excited I think there's feel like I didn't give that enough Pizzazz on the Ral reaking jazz hands yeah yeah exactly exactly but no it's a great time to do it because I think um we're finally you know kind of past this whole like uh people understand the broad Concepts the rubbers hitting the road in terms of these things actually going live um and more you know competitors or or ecosystem specific you know providers are popping up on on outside of ien layer um so yeah no it's a great time to

do it and we have some awesome guests lined up yeah so I'm just I just want to give folks a little bit of a rehash of how these Seasons work if you haven't tuned in in the past and then talk like say a little bit more about why we're doing this now so uh this is Miles and I are going to go deep we're going to do uh nine total episodes on reaking where we explore big themes questions Etc we're going to lay out some of our ideas in the beginning of the season and hopefully those change as we move through so season's got nine episodes there's a kickoff and a wrap-up so you're going to listen to the kickoff now where we're going to outline some of the themes that we're interested in this season there're going to be seven interview episodes and then we're going

to end with a conclusion where we discuss do a little bit of a retrospective on what we learned what was confirmed what was disconfirmed Etc so that's what yall can um look forward to this season hopefully miles and I have done a couple of seasons in the past we actually did a we did an app chain season a little while ago and we did a liquid staking season which that's going to be interesting uh if if you want to go back I would just recommend it's I think pretty strong content but also some of the themes that we discussed in the liquid staking season are going to feed into what's happening in the reaking season season we did a great episode with Shri RAM on that intersection back there that I would highly recommend going back yeah it's coming up on like a year ago now um I

know and yeah it's been super interesting to see like what you know the things we were thinking about back then what has played out and what hasn't um and yeah I think I think overall not a bad job yeah yeah I think we I think we did it justice um so in terms of why why we're doing reaking now I think there's uh a couple of upcoming catalyst that are going to make like this particular moment in time very interesting one obviously igen lay within ethereum I think is sucking up an enormous amount of not only Capital but also attention Igan lay in general has always been one of the most ambitious interesting projects uh probably in all of crypto history but certainly over the course of the last couple years although as we're going to discuss this is not

the first iteration of shared security and there's actually a long history of alternative projects uh that aan layers had the benefit of learning from so we're going to get into that but also because I think think there's going to be people are going there's a way that people conceptualize of re reaking today which I think is only a very small sliver of how people are going to think of reaking and shared security going into the future and those Dynamics are just starting to become clear but hopefully you and I are going to spend some time fleshing those out also uh you know we've just caught riffs even in the last couple of weeks um there have been Rumblings about this for a long time but we I think going to move from igen lay being the only game in town to multiple different reaking platforms some of

which might not be successful but some of which are probably going to grab some market share so I think the whole uh ecosystem is just becoming much more dynamic in the next couple months I don't know if you have any anything to add there no I I totally agree um and I think we can dig into I think basically what use cases for reaking um make the most sense across these different ecosystems and I think that's still one of like the the most emerging open questions um but yeah lost the D to cool so I'm going to give a little bit of an overview of these uh topics that we're going to be discussing this season and then we can just dive in one by one and go for as long as feels fun so uh just some of the stuff that Miles and I are

interested in digging in in terms of themes is one the shared security history and the value proposition so as I said just a couple moments ago Ian layer is the latest iteration on shared security but it is not the first there have been a number of number of iterations in the past including polka dot um multiple different iterations over in Cosmos land interchange security and mesh security and now we've got igen layer so we want to do a little bit of a retrospective on what worked what didn't work in past iterations of shared security and what we can maybe learn uh learn from that and what igen layer can improve on um we also want to discuss the value proposition of shared security so what is shared security and what are the different components that are attractive um for both the uh shared

security provider uh but also on kind of more the deand the demand side of that ation um we're going to spend a lot of time talking about the market structure so you have a really great framework or way of describing this kind of like uh a shared security marketplace where there's a supply side of stakers that want additional yield but then there's also a demand side of abss or protocols that want to be essentially purchasers of sh security so we're going to spend a lot of time getting into both the supply side dynamics of the market and then also the demand side as well um we're also going to talk a little bit about liquid reaking economics um so these are these are essentially economic agreements that um ABS is or purchasers of shared security are entering with um

providers of that shared security and the devil really comes down to the details and when we get into the retrospective of what worked and most importantly what didn't work in past iterations a lot of it actually comes down to some of the economic assumptions that went into um early iterations like poodot and uh yeah it's if you mess that up it it could be um pretty challenging I think the other interesting uh Dynamic that's emerging there is around this idea of dual reaking so having multiple different tokens uh most recently igen is positioning itself as an inner subjective work token the phrase that has already launched a thousand podcasts but we're gonna try to get into just doing a quick rehash of what that is but also explaining some of the trying to maybe speculate a little bit about how

the demand side of the marketplace is going to you know differentially want you know igen uh restake security versus eth or other asset denominated restake security you know um so and then finally we're going to talk a little bit about um what we're calling we gotta come up with a definitive brand for this but like internal versus external reaking use cases so everyone today primarily thinks about the exporting eth uh use Cas or exporting security to other maybe Cosmos chains but there's also a very important uh use case for eth which is actually more endogenous looking Inward and using reaking to improve parts of uh ethereum or Salon or whatever the

underlying base layer protocol is and there's an analogy to me boost there uh we're going to talk about the impact of reaking on the eth validator set um and one of the underlying um you know something that's happening alongside this whole reaking discussion is this argument around or discussion debate around minimum viable issuance or some sort of uh stake rate targeting something like that so we're going to discuss how that intersects with everything that we're talking about and then finally we're going to talk about reaking platform positioning so when Igan lay is not the only game in town anymore how are these new uh these new entrance going to compete with the incumbent that is as long as I can possibly monologue that is that is all the stuff that we're gonna be discussing so miles can you uh I was gonna take

this I'm gonna turn take yeah Jesus that's a lot of my own voice could you just describe let's start with that first uh that first bucket which is the shared security history and value proposition can you just start with a quick uh definition of shared security and then we can get into some of the past iterations yep absolutely so shared security what's a decent definition this is basically you're hoping to increase the capital efficiency of standing up new networks um by reusing a set of operators and capital stake to those operators um that is the the kind of oneliner but I think there's a lot to dig into there um I think in general there are um services that

have offchain components to them and if those offchain components are completely centralized then they can you know any customer that uses that service is kind of undermining its own trust minimized you know value prop right um so a great way to you know a great use case for reaking is to okay we want to provide the service we need to do something that's offchain right let's grab we grab a set of operators um from from igen right and grab some Capital that's already stake to ethereum therefore you know these apps on ethereum that are using this service aren't actually you know increasing the amount of counterparties they have that they're that you know they're trusting

to fulfill the service right they're already trusting the eth validator set for for Block building and they are you know um probably more willing to trust the validator set for some service there's also this idea of you know app chains historically have been very difficult to to bootstrap um going out and finding you know validators that will take interest in your protocol um you know enough interest to stand up new machines and buy you know get a bunch of token stake to them um has kind of limited I guess the the market for um for app chains so far and so yeah those are the two I think external use cases um we can those are really what we're seeing in the market right now um you

know combination of of State full avss uh so these are chains that that maintain State like we've seen you know basically as many app chains built on igen layers we have frankly you know launching on their own in Cosmos in the past year um and then we have you know these stat less sort of uh Services right that's just an operator set with some um consensus around you know to to make check each other on the job they're doing with with slashing right so that's things like I can da um and something like an oracle service um so that's what we're seeing right now and then okay so moving on to kind of the quick quick overview of the history of

shared security or or reaking um as you mentioned I don't think Ian layer is necessarily the uh the the creator of this concept but they are a c a category Creator in the sense that they are the first ones to to Really specialize in reaking meaning like they are a specialized provider of reaking and specifically on ethereum which is the biggest you know set of proof of stake capital and and operators right so they're bringing like a specialized version of this to really the largest market um but you know this is not a New Concept we've seen this um starting with going all the way back to

polka dot right their entire architecture kind of centered around shared security um and I don't know if they they didn't call it reaking but but there are a lot of similarities right um Cosmos Hub created IC and that is definitely a form of reaking that is um I would argue even like getting even closer to what igen layer is today right there's governments involved um validators all opt into running a new chain um and I think with those two in particular the difference between I think the positioning of Ian lay and the design of Igan layer to polka dot and Cosmos IC is that I think IG recognizes that there are times where you don't you

know you want a more flexible and lightweight way to go spin up you know an offchain Network full of operators and and get you know a portion of of capital restake to it where versus I think polka dot and Cosmos IC are much more permanent sort of long-term decisions and you know a little bit more rigid in their structures um it doesn't have you know inspiration of AWS that igon layer has where you can come in and right just spin up basically Security on demand or buy it in you know sort of like fixed durations and amounts um similar to spot versus fixed pricing for for AWS right um so I'll pause there

maybe I'll mention the last one is is mesh security which is uh something that's you know I've been working on with uh with osmosis for over a year now which is just the redelegation of economic stake to another chain um and so you're not actually you retain your own validator set but you're able to supplement the economic stake you know securing your network with with from other chains and and do it in a bilateral manner um so if you look at the combination of like what you know um what mesh gives you and what IC gives you I think Ian layer has you know components of both and you're able to use it in a little bit more of a flex man so pause there yeah that was a great

explanation I want to just double down on that word that you used right at the end there which is flexibility and this concept of pay as you go or on demand pricing which is extremely critical and I think if you go back to the first example that you mentioned polka dot which is I think the first instantiation of shared Security in in even the modern sense they were grappling with a lot of the challenges that igen lir but even frankly like blockchain AR Ure that you and I have talked about quite a bit um over the years now uh they were grappling with some of these challenges really early on so the design of polka dot was you had this relay chain which provided you know homogeneous security to pair chains and that was the early iteration at how can these applications have some amount of sovereignty with uh

shared resources underneath that supports that now the the goom Market model that they chose is they initially launched with pair of chains as opposed to pair of threads which is more sort of pay as you go but in parir Chains if you remember they actually held these auctions where the Assumption was that there was going to be so much demand for these pair chains and the block space that was being produced that you had to lock up capital for something like two years and they only had an extremely limited number of slots so that's why you hear a lot of like Igan Lair talk about things like permissionless Innovation because I think they realize that the extremely limited number of slots uh from the the early par chain auctions it just did not work um it just

it wasn't you weren't meeting customers where they were at and another interesting example of this by the way which is being changed right now is actually the design of avalanche so the Avalanche design looks something like this as well you know the equivalent of pair chains are subnets they have three different chains uh but the pchain is their interop solution and they're actually retooling all of their economics right now where initially they thought that it was it was very costly to if you had a subnet you also have to validate the pchain now there that has a certain amount of cost to it you also had to lock up a certain amount of avalanche as as or avac as stake and now they're they're walking some of that back so that you don't have to validate the pchain and you can you know use other forms of collateral um and I think

that's what the like that go to market uh Miss um that was a huge part of the reason not the only reason there's a million reasons but that was one of the reasons why polka dot didn't take off as much as people thought I agree yeah and I think um it it also just goes maybe it started in ecosystems that were really focused on horizontal scaling so how do you basically give everybody their own chain dedicated block space that's customized for their use case um and this was you know pre- rollups as well um so I think reaking in the context of ethereum is now bringing you know a way to actually horizontally scale you eth security um in a way that you know I

guess not everything is is is perfect for you know as as a rollup basically there are things that are just better you know if you were to be able to do it completely off of ethereum um and now we're saying okay you actually can do that but you can you borrow a portion of ethereum security to to I guess secure that Network right yeah and the other thing too is you you know back then and probably still now there are polka dot Maxis and just like there are people who love their ethereum they don't want to surrender that ethereum either right so that Capital efficiency point that you mentioned at the top of the episode is really critical because in the PA chain auctions remember you and I I'm pretty sure we aped into a A callar or something like that I have no idea what

happened to that but it wasn't like you know one of the other improvements is this Capital efficiency idea where you still have the eth you know maybe it's a liquid staking token or something like that but you you you're still holding on to your eth and you're opting into incremental yield where I don't even I'm again I can't really remember the mechanism here but you actually had to send your polka dot and get the promise of you know a callar whatever the the token was so I think that was another challenge with the design it did it did introduce this concept of duration uh probably not in the best way right like you shouldn't start with duration requirements you should start with you know a completely fluid system and then you know I guess build tools that enable

like you know to you to provide commitments around duration if projects are willing to pay more for it right so they did it a little backwards in terms of the amount of block space they thought was needed and in terms of um I guess the structure that they were that they LED with um in the economic relationship so it's okay these are second second mover advantages that um you know I think I can layer just looking out as well totally yeah and I hope uh you know fans of polka dot out there if you polka dot was a Pioneer right in this and they deserve an enormous amount of credit for essentially being the first one to attempt this extremely ambitious category at scale um and then the the other thing I just think is important to highlight because it's going to come up during the season is maybe if we talk

about interchain security a little bit so two consumer chains right now over in Cosmos land there's Neutron and stride in addition to the sort of economic uh security there was also a um some protocol owned liquidity and almost like a loan right where for something like stride you know creating liquidity between atom and staked atom was uh an additional component um and value proposition of that of that deal right yeah I think there's a a softer value prop of shared security or like uh of alignment um and I think what that what that means is that you know as an external network you're kind of hoping to capture mind share which leads to users and and liquidity from the you

know consumer chain that you're renting security from and I think in Cosmos we've seen that much more explicitly done right with with liquidity loans um and that makes sense because I think the C bu governance you know I I could see maybe I can layer lrts looking into that at some point but ethereum itself right doesn't have the ability to provide like liquidity um so but it is it is interesting where you go from that soft sort of you know uh fuzzy concept of of alignment to something much more tangible um and yeah I could totally see that playing out on on ethereum as well same and maybe just to close this I

think one thing that you and I should be poking out a little bit this season is there's sort of the explicit stated reason for why an ABS or protocol might want to you know purchase Economic Security but then there's also this more narrative alignment or even explicitly growth argument for why you would want to be an ABS um and an analogy would be just like everyone wanted to be an eth rollup you know six months ago because you were sort of buying into a narrative and attention and all that stuff there's there definitely is an element of of that going on in the in reaking land as well right right right maybe the last thing I'll say is like we can totally

see um let say borrowing security right uh lowers The Upfront costs uh of of bootstrapping security and I think over time it doesn't mean you always have to be a consumer of security right you can just lower those upfront costs pay them over time and then graduate to you know addition more and more ownership of of your network um and that actually hasn't really played out yet in Cosmos but um you know I think with all these flexible token models we'll we'll we'll start to see you know if that's actually a reality or not hi everyone this episode is brought to you by Kinto the safety

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believe in this onchain financial system join Kino's launch program and thank me later cheers guys and the link bottom of this episode click it now hey everyone this episode is brought to you by Supra delivering the freshest Oracle price feeds across 50 plus blockchains when it comes to crypto speed and security are both critical and luckily for yall super has you covered on both of those things be that for liquidation triggers critical price levels whatever it is supra's got your back the other great thing about Supra they love listeners of bell curve so they're going to hook you guys up with 12 months of free Oracle services and verifiable Randomness they call it dvf decentralized verifiable Randomness so 12 months free you just got to go to supra.com blockworks two more cool things about sura they're really secure easy to

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an episode on the liquid reaking portion of the market a little while ago on B curve and you did an excellent episode on Empire with h Jason wesy one of our analysts and Brandon Curtis of Rio so I would highly recommend uh as as a precursor to the season going and listening to those two episodes and we can link them in the show notes uh but miles want to just give us like a quick overview of the market structure and some of the questions that we're interested in asking absolutely so uh quick overview of the market structure the supply side of of igen Lair and all sort of these uh these shared security providers are is toold it is uh the actual operators right so it's the validators of a base chain or or could even be specialized operators but you

have operators uh and then you have Capital providers so the depositors right that are deciding to I know don't it's not actually rehypothecation but they're deciding basically to take on additional slashing risk with their existing stake to secure new new networks um and then you have the demand side and I think the demand side is is twofold as well um the clear demand side are the actual the direct purchasers of security so the avss um but I think it's important to think about the demand side of those avss as well and categorize this whole you know um both of them into this broader like demand side of these

marketplaces um because you want to design your Marketplace in a way that's going to help those avss be successful with their own demand side right um or else there's not you know whatever value is flowing back to those operators is not going to be around for very long um so I think it's important to consider both of those completely agree and we're going to spend a bunch of time this season tackling the way we've structured our first couple of episodes uh maybe to give listeners a little bit of a a hint uh so we're kicking off with shiram spoiler and then we're going to spend the next two episodes going diving deep into the supply and demand sides of the marketplace and in particular some of the most helpful content for me thus far around all of this has been listening to

prospective abss describe the valley proposition and again actually to shout out an episode you and I did with Sham and Zaki um Zaki manian of sellier and he described from his seat on sellia why it was so valuable uh to be uh an ABS and the benefit from his perspective of restake security and I would highly recommend going back and listening to that but hearing from the demand side of the marketplace about why this makes a lot of sense and is useful in their protocol design is some of the stuff that I'm looking forward to the most out of this entire season I would say me too me too um and specifically you know uh hearing from different types of AVS you

know users um both those that are doing it for Pure Capital efficiency cost reasons you know versus having their own app chain and I think there's more nuanced or like less obvious sort of demand sides that are more internal facing as we kind of are trying to tease out here yeah one thing that I would say I'm also interested in is as much detail as we can possibly get on some of these agreements in between lrts and abss so you and I have talked a little bit about the duration component of this which is going to be ex challenging but I want to give a shout out by the way to uh Jim pillo of figment cap um for initially pointing out to to you and me this

comparison between polka dot and igen lay so very shrewd observation from from Jim there also effort cap on our team who gave me a great overview of this as well but one of the the differences between the par chain auctions and Igan a lot of these agreements that are happening between lrts and abss is that actually polka dot to give them credit all this was happening on chain and all of the agreements that are happening now between lrts and the abss are offchain which makes them not very transparent and it also makes them kind of unenforceable in a sense um which makes just the duration managing management extremely tricky also we still haven't gotten uh I know igen lir is working on this and it's a huge

priority but we still haven't gotten things like you know attributable Securities there are weird games that avss are playing where they're trying to you know preclude other avss from the same same pool of restake security and stuff like that so the the actual nitty-gritty of the agreements um I think as much obviously some of this this commercially sensitive stuff so we probably can't you know get every uh TNC but getting some understanding of what both sides of the marketplace want I think is going to be critical yeah totally um you know even with the early like uh Neutron and stride agreements I think nobody is now looking at those in hindsight like oh yeah we nailed it um it's typically these things start just and and I think par chains are probably

the same way right you start throwing things at the wall um and you start to see where the the market shakes out what's working what's what's not working and and uh what infrastructure is needed to basically facilitate what people actually do want which um you know I think right now is there's a lot of trust in sort of offchain components involved but it's just a function of the the earliness of um you know I layer and the all the infrastructure in the ecosystem right yeah so one one thing as well maybe to tease a little bit about um the introduction of multiple different reaking platforms is I think the offchain component of this is going to be important because while this isn't

you know strictly by the letter of the law rehypothecation there are certainly some similarities between uh rehypothecation what's happening in reaking and having these components be these agreements be offchain makes it very difficult to understand the amount of risk that you're introducing to this system so one of the Hallmarks of Defi and why it's been I think as successful as it has been to date um and you can even see examples like Al and compound performing extremely well and all the centralized lenders getting carded out last cycle when teruna and FTX and everything was blowing up was everything was on chain and it was transparent and even though that's not perfect it's a hell of a lot better than a centralized black box and when it comes to you know what's happening in reaking land

very not an enormous amount of this is onchain and it's not transparent and there are tons of risks because especially with some of these newer platforms that are emerging that are maybe willing to take a little bit more risk then this was always bound to happen right like Ian lay is probably the most conservative of the platforms that exist today and there are a couple Blue Chip lrts uh some slightly less Blue Chip and you're already seeing like crazy looping that's going on and you can deposit your restak eth in other reaking platform forms and then go into lrts and I saw someone on Twitter just saying you know I've looped this basically five times I have no idea where my eth is and that's going to be a challenge if things ever unwind funny yeah no just say broadly like um whether

you're talking about a system like Lio you're talking about igen layer um especially a new system like igen layer they I put like three buckets of of ways that things can be done it's either completely programmable autonomous and usually you know governance minimized right so this would be something like a system that purely matches the intents of avss with operators run some sort of auction system right um does all the slashing completely programmatically then there's um you know I would say like a middle category where governance needs to get involved and there's lots of things here where we're already seeing with different types of security where it's just

impossible to not have some sort of you know human component right and then I would say there's that third category of just doing things completely offchain and opaque right there is a Nuance between something being offchain and private versus off you know coordination through governance right in in public forums and things like that and there's a difference between that and you know actually enforcing these thing uh uh these agreements in um in you know programmatic smart contracts so we're kind of in that most kicking most things and that third or second bucket right now and slowly figuring out you know where we can make the system much more efficient um because you don't want

to make everything sort of programmatic and autonomous from day one before you even know what the market really wants right and then you have no ability to kind of it makes it harder to to shift totally examples are of this are the training wheels that existed in Lio you know with they still Whit listed uh operator set but they're diversifying that over time with the um my got the staking router and then same thing with l2s right there's still upgradeable contracts that are governed by multisig but eventually the idea is that we're U moving off those training wheels and yeah so I think that principle applies here as well totally totally don't want to don't want to go off too early but

you also don't want to you know uh you want to have a healthy sort of motivation and urgency to to figure these things out and remove those you know points of trust or or the opacity yeah let's talk a little bit about this um a big theme that I think is going to recur a lot during this season which is this idea of external versus endogenous reaking and multiple words for this I think when you talked about it with um Jason and Brandon on Empire we use the words native reaking whatever we can just agree on but I I think it's this this is a really critical theme that I just want to underline again and again and again this season because I think when people think about reaking they expit itly referring to this category of external restak

where there are chains that exist outside of ethereum uh maybe Cosmos chains or middleware whatever it is um and there's this idea of taking the eth uh that's already been staked on the platform and using it to secure these other chains and exchange getting yield that is one big category of resing but people view that as the whole there's this there's something else um as well which is I think going to be a large and emerging category and it has kind of soft soft um implications as well for the acceptance of ethereum sort of the ethereum uh yeah um like EF and client teams and stuff like that but also it's a huge category in its own right which is actually using reaking as a way of

making improvements to eth the base layer um and eventually other chains that Implement reaking like SL or Celestia whatever um do you want to I mean I can give like a no I think that's I think that's I think it's a good good like um overview I view the uh I guess the the categories of uh reaking of the reaking demand side and um so yeah two high level buckets one is you know exporting security to S you know offchain networks um and within that I have I kind of mentioned this at the top you have you know State full so uh actual blockchains right that without this concept just would be app chains um

and then you have stateless sort of operator sets which without reaking would just be offchain trusted committees right so how do you how do you improve the you know basically the um trust minimized Properties or the security properties of what would be just offchain committees and then how do you basically have a more efficient cost efficient way of bootstrapping app chains those are the two subcategories of the external reaking side and then what would call like the the internal reaking side we definitely need a better name for it at Native reaking I I look at that as two categories as well um the first being uh basically allowing proposers to make additional commitments around you know what they include in the

blocks that they propose um and to make them you know uphold those commitments with the risk of slashing right so this is something that we're again you know first kind of seeing in Cosmos uh skip has done done a great job it's um in in basically creating what is uh mempool lanes for for projects like osmosis and this is validators you know that are running sidecars that handle a different sort of process like pulling data feeds and coming to consensus on prices uh running a topa block auction right and they will get slashed if they don't actually do that additional job so they will they'll get slashed if they don't

place the Oracle updates at the top of the block and then if they don't place the auction winner right below that right so that's outside of just the um outof thebox you know tender slashing policies we're adding new jobs for them to do um and on ethereum you can basically replicate this concept uh unlike Cosmos you know there is no governance where you can make basically you know government governance tells every validator that they have to opt in to do this right um it's like man mandatory in Cosmos uh whereas on ethereum that's just not feasible so it's going to be optim and there are things like you I think you mentioned meev boost earlier in the podcast as a super like uh maybe imperfect example of

this it's it's saying okay I'm going to run meev boost and if I don't run it like I said I was going to run it I will I will get slashed right um and where we can start seeing this come in already is in L2 pre-ms right so hey I am going to include a pre-com from your L2 every time I propose a block and if I don't you know that's going to be an issue for the L2 right who's paying for me to do that um then I will you know be subject to slashing and so you know it's this broader concept of like um additional proposer commitments made outside of the protocol um you know we had this concept of Pepsi that was um introduced I think

sometime last year where it was talking about enshrining some of these additional commitments this is almost a step towards that right but you're you're seeing like what actually might make sense to in Shrine by first doing it out of protocol and seeing you know where we have large amounts of participation and how it's working and I think that will actually surface a lot of learnings around whether or not you know ethereum should make some some big roadmap decisions around um pulling these things directly into the protocol and okay so that's the proposer commitment side of this native or internal reaking category and then the others you know maybe subcategory is that there are I'd say like single

points of failure today um black boxes that you know we are okay with because we haven't figured out a better way to do it um so this is something you know I was talking to Toano from from jeto this is something like their Auctioneer role right um this is something you could maybe think about Rel layers this way right we we're just kind of trusting you know um some good actors to run these things and we don't really have a great way to decentralize it and reaking actually presents an option there um so just improving you know the the the security properties of a lot of these you know the basically things that directly touch

the value chain of of the base chains consensus right so that's like the if the Reas this whole category is directly touching ethereum consensus or directly touching salana consensus and the the value chain right um versus exporting security to to bootstrap new chains completely agree with all that and I think that's the right way to lay it out and maybe just to underline that or say some of like maybe provide a couple of analogies uh to just make this very real and live and breathe for people is you know if you just think about what these actually let's go back to the definition that you talked about at the top of this podcast which is increasing the you know the capital efficiency of already stake eth on

widely adopted or assets on widely adopted networks but then also expanding the role of the operators on those networks and so maybe the capital efficiency part uh applies a little bit more to the external or exporting security like to hear to maybe paraphrase a little bit of zaki's description of why it was so necessary is I think one of the misunderstandings of setting up your own CH is that it's actually not hard to go find validators um or people that are willing to stake what's hard is to get them to stay there over the course of the bare market right because yeah initially the token's going up yeah of course I want to stake here but then when all the tokens are going down uh you know suddenly you're like why am I staking this random weird chain when I could be staking an eth so the

capital efficiency part is people that are already you know Diamond hand eth stakers they don't have they can just opt into additional incremental yield and so that's the capital efficiency part when you're exporting security but then expanding the role of the operators and providing different sub quorums of like this larger operator set and using that to test upgrades to the ethereum network that feels super valuable to me and maybe an an example of this would be like me boost is probably the best one because that was basically an outof band Bas many years ago we decided on this design philosophy in ethereum of PBS uh prot Builder separation we are still debating what the right spec is to

actually enshrine in the protocol but many many years ago we've had essentially an early version of that where which is an outof band solution which worked really well and an example of this actually could be even like if you look at something like the United States where we have federal law and then States laws and usually what ends up happening is before something moves up to federal law and you make some kind of big change at the ultimate uh level which takes an enormous amount of political will and capital and all that type of stuff you you do like multiple different states Law changes and so what reaking could be is a way to you know push some of these changes um and almost treat them as like tests or kind of a concept of canary networks and before you make this huge sweeping protocol

change which is really difficult to do and really difficult to undo if you get it wrong so yeah exactly exactly it's like you can you can try to you know potentially solve some of um the Bas layers problems like out of protocol um and then make a determination of whether or not you know you should actually pull this into the protocol because you can already see sort of the Ripple effects of how this actually changes the market structure of of maybe you know the staking um ecosystem before you actually enshrine it right then there are other things like you know we saw the doj you know is clearly looking at me now um and maybe there are roles where you know like they start going going after relay

and it's it's there are jobs that you nobody wants to be like the centralized provider of anymore right so how do we actually decentralize that without you know making people buy the flash Bots token and like stake it to you know maybe there's a better way right um that's where that's where reaking can come in as well um yeah so I'm actually very interested in this other side of reaking that is we we're just starting to see now with some of the pre-m stuff but um right because pre-com is another one how do you solve like you know L L2 interop or L2 finality problems you you could provide bre comps at the Bas layer right um yes that so much more to get into there but um and you made this

point earlier in the podcast but this is why I think sentiment has shifted a little bit on igen lay in general which what it used to be hey don't overload ethereum's consensus to now that folks have realized this endogenous internal Improvement potential that IG layer can unlock now we can maybe you know find a solution for a single slot finale faster maybe we can solve this fragmentation on rollups faster through you know pre-confirmation and base sequencing hey like all of these changes that were many many years ahead in in the eth road map and we didn't even know we going to be possible etc etc maybe we can pull all of that forward many years uh in some cases and that's worth some additional

incremental risk and then we can we'll talk about igen the token later but that's another way that risk has been offloaded from eth itself so yeah there's there's this school of thought um that many folks that are you know very corar like ethereum development um are in that really the the main value prop and main product of eth moving forward is to be you know a settlement layer sure that's the functionality but also an exporter of eth the asset and eth security um and if you were to say like put a a Target right of 25 or 40% um you know for staking ratio which is being discussed right now then you

know we very quickly basically get to 0% issuance yield and so that will push more and more folks to restake which you know actually plays very well into this sort of um school of thought or this strategy which is hey we want the asset exported to be you know the the money of the internet on rollups but we also want e the validator set to you know kind of exported security to secure more of the ecosystem right that's the horizontal scaling um sort of road map right and if the issuance goes to zero then you know you'll be looking at me and reaking yield as the primary drivers of of returns for for stakers and operators um

and yeah I think that's very much at odds with a lot of folks in the staking community that really were not planning on you know capping or having this like a um you know soft cap right via the Target right um so yeah that's a it's a spicy debate going on right now very spicy which is okay that's uh let's get into a little bit you so let's take those that phrase that you mentioned of exporting eth the asset and exporting eth's security model which are different things and about the the impact that reaking may have on E validator set so there was uh a really interesting part for so the debate of minimum viable

issuance or targeting some percentage of stake rate is basically what is the appropriate amount uh of like percentage of stake that ethereum should have right and at a very high level what ethereum stakers or validators are doing is providing a service to the network they are securing the network and you could look at them as external service providers and so if you look at other proof of State like one of the big differences between ethereum and other proof of State networks is that it started proof of work and then it moved to proof of stake so ethereum's counterparts in salana or most Cosmos chains the stake rate is very high something like 85% and a design decision for those networks was to have in protocol delegation of stake theum doesn't have that it has a much

lower Target stake rate and there have been a lot of debates about what is the correct percentage amount of um like eak eth that is Stak and some of this comes down to a technical argument about well how much should you be paying these service providers they're paying a service they're providing a service to the network is it is eth much more secure if it's 60% stake versus 25 and if it's not then we probably shouldn't be paying all this extra yield to tiet we're basically overpaying these service providers another component of the argument is eth the asset and do you you know even if you're using a liquid staking protocol like Lio and you're holding Ste you are now introducing a new set of you know principal agent

problems or smart contract risk or whatever it is like some set of dependencies and so maybe it's not quite as good as actual canonical eth and so there's this argument about who who who do we favor here and I think there's a a worry where if you could hold a yield bearing version of the Native asset then more people will opt into that and maybe a maybe it's not good for ethereum the network or B maybe people don't understand the security conc concerns and you're introducing a lot of risk Etc and so there is the there have been these debates around should we limit you know should we change eth's issuance policy so that to discourage uh staking so after some percentage the issuance starts to tail off really dramatically

or in some cases could actually go negative um and you know I think that the where this intersects with reaking is uh a concern uh at least of of mine in this debate which I haven't seen addressed which is the way that this would work I I think that this if we were to implement some sort of Target uh for Stak R where issuance Trails off and goes negative it might have actually the adverse effect that a lot of folks I've seen predict which is oh if you tail off issuance then you're just going to disincentivize people from staking they're not going to stake and the amount of stakers go down there's there's a very good chance uh from from my seat that the invariant in

that equation is actually people are going to want to keep the same amount of yield that they have and you're going to in order for them to keep the same amount of yield that they were getting before you're going to push people out on the risk spectrum and you're actually going to incentivize even more uh reaking than they're otherwise you otherwise would so you're just increasing the vend diagram of people that stake and people that restake and the analogy to this would just be how monetary policy is conducted this is interest rates right when you make interest rates lower you you know you you don't limit the amount of people out there that are seeking a return all all you do people keep the return the same return that they wanted but you make them take more risk for to achieve that same return and so yeah I am and there

was a great yeah so I I think that's uh I would love to hear by the way if if if I'm just widely wrong about that or thinking about that in an incorrect way but that's what i' would be concerned about and sorry that I'll stop my monologue here and turn it over to you but there was a great episode with of Uncommon Core with onar and and Casper and John and hosu and hosu brought up I think a really interesting point which is what is the what is the impact of the amount of yield that we're paying to stakers what do what impact does that have on the validator set and how do we Define what a good validator set is because one of the other challenges with MBI is that if you limit the amount of staking then or a yield that's getting

paid to stakers and only the largest most profitable you know entities that are leveraging economies of sale can actually stay in business yeah so I think that's the that's the fun that's the tough trade-off um you know you don't you want to limit something like um Lio governance controlling 90% of of all circulating eth at some point right but you also want to you want to protect home stakers uh or solo stakers and I think folks have maybe correctly pointed out that this actually could be very tough for solo stakers because they are the ones who are you know least likely to actually be running um I would

say reaking operators as well it's it's you know they're not this is most of the reaking operators are professional you know um staking companies or or U you know any sort of like Enterprise grade sophistication right um and I won't comment like maybe on all of the mvi stuff right now I would just say that um it's interesting that you know the the introduction of Igan layer um I don't know if it's because of the introduction of Igan lay or it just happened around the same time people are really now taking uh for the first time actually measuring how much security they think they need um I think before it was just kind of a given and there are not

actually like 51 a lot of 51% attacks right on proof of stake networks and so people are just and and we know that you know it's not like you there's I think 11 times you know or 10 times more tvl on ethereum than there is sted and so it's not like you know the tvl of ethereum is that is what's at risk at any point in time people are actually finally starting to look at what is at risk in an attack how much does it cost to actually perform that attack and then what is sort of like the profit if you were to take you know what you captured versus what you had to pay to do that and then based off of that hey are we paying too much for security right now um

and I think avss are and app chains are looking at this for the first time um you know even Cosmos chains that don't use reaking are like oh you know actually we should start measuring this right and this is good um this is really good and I think the second piece is this introduction of kind of insurance this attributable security so right if something actually happens security Capital that can be redistributed to to the harmed users um because I kind of always been my issue with slashing it's like well you just slashed some operator did something and then you just slashed a bunch of you know depositors that like delegated to that operator you didn't actually get the operator itself and so

how do you actually you know kind of make the users whole um right and and but I think it is different products and it'll be super interesting how this insurance you know security plays with Slash Capital um but it's in general it's just healthy for the the whole system I think that we're taking a harder look at and and really trying to measure how much security we need and how much we should pay completely agree completely agree so I think that is just something to be aware of and we're going to we're going to have folks on the season to talk about that the this underlying current of mvi targeting State rate stake rates Etc and how that interacts with reaking very large so I think just listen in for

for some of that now miles maybe maybe the the best place to end this is we can riff for a little bit about the actual reaking platforms themselves and uh how are these platforms specifically the new ones going to position to challenge igen layer as the incumbent here and maybe to introduce there are a couple of different so there are some news stories some uh some rumors flying around but you know it was reported that that jeto uh has their own is is uh exploring a reaking solution and uh it you know it was also reported I believe earlier this week that there is a new um ethereum based competitor to igir obviously KAC has publicly announced as well and maybe

we can just riff for a little bit on igler has this massive head start they've got 16 billion in capital they've been building for a number of years at this point they have the brand The Trusted brand uh how are some of these new providers going to compete and maybe with this overall lens towards is it going to be segmented by ecosystem is it going to be cross chain uh Etc yeah um so I think it's we can talk about like uh which components might make sense to couple together um we could so let me let me say it this way like we have the chain right then we have liquid

staking tokens and then we have raking providers um and the cosmos Hub right is a chain and a reaking provider it doesn't do lsts um if goo decides to do reaking that is you know an LST provider that is vertically integrating some sort of fre staking service um and then I would say there's so those are the sort of like horiz uh vertical sort of expansions or vertical you know going up the vertical stack how you can combine um some of these things together and what combinations might make sense and then sort sort of a horizontal sort of uh expansion that a reaking provider could do which is pulling in more L1

assets right so being not just the eth reaking provider but being agnostic to the um the sort of assets that and maybe you know pulling in Bitcoin pulling in other L1 tokens right um so there's definitely going to be this concept of you know modular versus monolithic as well in among these reaking providers um you know who's trying to basically um do basically like everything under one system versus giving you know ABS is the ability to set up their own instance of reaking right where they're not subject to like the reaking providers governance for slashing or for um you know asset white listing and things like that right

um so there's lots of different interesting it's a really interesting competitive landscape and there's lots of different sort of ways that you could position yourself um and yeah no I think over the course of the Season we should probably even get more details on um how some of the third movers we'll call them right uh you know post aen layer competitors are are trying to counter position yeah and hopefully uh maybe to tease a little bit hopefully we might even have some of them on to talk about themselves uh depending on when launch timelines uh happen but I think uh the the the ones that I'm really interested in are we on the liquid staking season you and I talked a little bit about this Dynamic of uh you know cross-chain liquid

staking tokens versus being ecosystem specific and ecosystem specific one out we did we did a great episode on this with uh zve from Chorus one um and uh Lucas I believe and we were just they were describing some of the challenges uh because chorus one was if you remember actually light Lio launched on salana largely unsuccessfully and corus when was a partner to them and helped that and one of one of the big reasons why it was just very difficult for them to compete was the incentives that at the time it was marinade uh was able to they were able to dll out and Lio is already focusing the vast majority of its Firepower on its core Market in ethereum and so there's there these sort of mechanical reasons why it's been

difficult uh for these like very critical close to the metal infrastructure providers haven't been able to bridge the gap into onto other chains as well it's also I guess just there's this squishy alignment thing you know Li feels very I mean liquid sing is so close to the core you know if I were the ethereum protocol kind of EF you know Etc I'd be like yeah I want you to exclusively be doing this with us because this is a critical I I don't want I it would be much more resistant to it if you were this provider for other chains as well you know I see yeah and I wonder if that's this going to be the same thing with reaking reaking also feels extremely core to the function of the L1 so I I kind of wonder if that

Dynamic is going to be different or it'll be similar or totally totally I think it really comes down to what the demand side wants right how how important is this idea of alignment um and you know I think if alignment is super important and you you know most of the projects want to be aligned to eth right then you probably want to focus most your resources on like on building out eth before pulling in you know kind of spreading self then across other ecosystems um if the L1 asset that you're using for security or the asset you know doesn't have to be an L1 right it becomes sort of like a commodity right or it's just not part of your

identity um then you probably want to be as flexible and you know modular as possible U but I do have a just a a sense that one security is part of your brand um and so alignment does actually matter a lot um and yeah I think we'll we'll see on on kind of how these how these systems end up looking uh like what is the right combination of of mixing and matching for for uh what do you want to integrate like should you have your own LRT or like should you take an opinion on lrts as a reaking provider right um yeah jto like we see they're you already a core

player in the me Pipeline and the LST you know Market on SEL salana how can they leverage that right to to create the the best version of of freaking for salana um because that's the other piece the use cases right salana is not a rollup Centric you know ecosystem right it's going to have different use cases for reaking than what we see on ethereum where a lot of the the AVS use cases are providing you know services to rollups um or rollups trying to decentralize certain components like their sequencer um so I think if you are a specialist you're going to know where the best sort of use cases are and really lean in you know if you're spread out across all these different ecosystems you might

risk you know not being great and at targeting any single one um but at the end of the day it is kind of the demand side that will kind of uh Drive how this plays out man that's so interesting I you're totally right about that and fight the salana versus eth comparison is is really interesting because exactly what uh I think people on ethereum are excited about base sequencing and like pre-con base sequencing that on salana that's already that's much less of a challenge a because there are less rollups but B because the block times are so much uh lower on salana anyway or so much faster uh whereas there are going to be other challenges where I mean you are starting to see some l2s on

salana but they're also way less built out in terms of their auction infrastructure than something like ethereum is and yeah so if this stuff on I Me Goo it's got to be one of the most interesting projects in all of crypto frankly at this point to watch so yeah they're just doing really interesting stuff um maybe to to close here two dynamics that we haven't expressly talked about are I think one other something else that's going to play in here is whatever dual staking dual reaking model gets implemented and how these different uh reaking platforms Envision the role of their native token so igen positioning itself as this inter subjective token is extremely interesting it it remains to be we haven't seen what the response is from

the demand side of this equation yet we haven't we don't we don't have empirical evidence that abss are really excited to use igen in security we don't understand how avss are going to think about uh Ian as you know versus eth like so I don't know I think that's is still a big question mark that we'll maybe we'll get shom's take on that but we'll also talk to some of the abss as well but you know we might just have to see how that plays out you know yeah yeah I don't think we we didn't dive into like um yeah we did an episode I think what a week or two ago on the igen token we'll we'll do more we definitely dive in a lot more but yeah to me like the super interesting Concepts that have been introduced by aen are um outside of like

the main reaking idea is uh this idea of having an inter subjective work token and the idea of attributable or you know security or like insurance that um actually seizes and then redistributes the collateral uh these are like big open questions that could be just as big as you know reaking itself um so yeah we'll dig into it soon yep and I think finally what one something else that is going to uh you know put everyone's uh brain in a little bit of a give everyone something to Noodle on is that you again it's not just uh restak eth that you can use this for I mean karac has already brought up the IDE a of you know using

staking reaking with usdc and there's really no reason why that wouldn't work so I think which which assets end up getting used in reaking in addition to whatever that stake model is also going to be super interesting so yep yeah yep I agree um yeah that's funny because it's if you have some sort of like Burn Right for slashed assets um and you're using usdc you're not actually slashing the underlying dollars there right you're just actually giving those that free yield to Circle and messing up what is you know mismatching like deposits to suppli so anyways yeah there's lots of nuances but I think I think we'll we'll

um yeah we can dig into it it'll be fun cool all right partner this is going to be a great season um yeah as I said the first episode is going to be with shiram airing next week and then um yeah guys this is going to be a really fun one so excited to go on this Journey brother it'll be a blast yeah yeah all right we got a lot more to come till next week yeah cheers [Music]