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The Restaking Thesis w/ Sreeram Kannan (Eigen Labs)

By Validated

Published on 2024-04-09

Dive into the world of restaking with Sreeram Kannan from Eigen Labs as he discusses EigenLayer's vision, the future of blockchain security, and how it compares to existing solutions.

The notes below are AI generated and may not be 100% accurate. Watch the video to be sure!

Introduction to Restaking

Restaking has emerged as a significant concept in the blockchain world, particularly within the Ethereum ecosystem. In this episode of Validated, Austin sits down with Sreeram Kannan from Eigen Labs to discuss the intricacies of restaking and its potential impact on the future of blockchain technology. Restaking is essentially a way to make proof-of-stake networks more programmable, addressing both economic and architectural considerations necessary for the restaking thesis to work effectively.

What is Restaking?

Restaking, as explained by Sreeram Kannan, is more accurately described as generalized programmable staking. It allows users to stake their assets not just for securing a single network, but for validating multiple networks simultaneously. This concept extends the traditional proof-of-stake model by enabling stakers to make promises across a set of networks that they are validating correctly. If a staker fails to validate any of these networks properly, they may be liable to lose their stake.

Kannan emphasizes that restaking is not limited to using pre-staked assets. He states, "You can actually stake a token that is not pre-staked. You can stake any kind of an asset and make a promise across a set of networks that you're actually validating them correctly." This flexibility opens up new possibilities for network security and innovation.

The Origins of Restaking

The idea of restaking emerged from a need to empower innovators in the blockchain space. Kannan, who previously ran a blockchain research lab at the University of Washington, Seattle, observed that many new consensus protocols and scaling techniques developed in academic settings struggled to find practical applications. He explains, "Pretty much none of them could find the light of the day. Why? Because there are maybe five major layer one protocols. Unless you are a core dev in one of them, it's impossible for you to bring a new protocol to any of these systems."

Restaking was invented as a mechanism to allow these innovators to deploy and innovate on new ideas without the constraints of existing blockchain architectures. This approach aims to foster open innovation by permitting anyone to build new and interesting services on top of existing blockchain infrastructures.

EigenLayer: Enabling Programmable Staking

EigenLayer, the protocol developed by Eigen Labs, is at the forefront of implementing the restaking concept. Kannan describes EigenLayer as a series of smart contracts on Ethereum that enable generalized programmable staking. The core value proposition of EigenLayer is open innovation, allowing developers to customize and run arbitrary networks while benefiting from shared security.

Unlike traditional blockchain models where launching a new network requires its own asset, validators, and incentive structure, EigenLayer allows developers to leverage existing security and infrastructure. Kannan explains, "Our goal is we'll be in gigabytes per second by the same time. Interesting. So that's it's, EigenDA is as close as you can get to Ethereum trust while not writing to Ethereum."

Comparing Restaking to the Cosmos Vision

When discussing how restaking compares to the Cosmos ecosystem's approach, Kannan highlights two key values: open innovation and shared security. He explains that while Cosmos started with open innovation at all layers of the stack but no shared security, Ethereum began with shared security at the application layer but limited innovation at the core layers.

Kannan argues that EigenLayer combines the best of both worlds, offering "shared security and arbitrary open innovation." This approach aims to lower the barrier for launching new innovations at the full stack level while maintaining a common security base that can support an arbitrary number of networks.

Economic Design and Trade-offs

One of the critical aspects of EigenLayer's design is its approach to economic security and decentralization. Kannan acknowledges that there are trade-offs involved but emphasizes that EigenLayer externalizes many of these decisions to the protocols building on top of it. He states, "A protocol may come in and say, hey, I need like 50 validators, each of who have staked, you know, 100 ETH. That's a requirement that a protocol coming in can say, or a protocol can come in and say, I need 10,000 validators, all of which who have, you know, at least one ETH."

This flexibility allows protocols to tailor their security and decentralization requirements to their specific needs, rather than being constrained by a one-size-fits-all approach.

Addressing Bridge Trust and Security

One of the significant challenges in the blockchain space has been creating trustworthy bridges between different networks. EigenLayer aims to solve this problem by providing a common source of trust through Ethereum. Kannan explains, "Ethereum is the common source of trust for all of these systems. What do I mean by that? Each of these systems may have subsets of stake, but essentially what happens is when you're interoperating between all of them, they are settling back to Ethereum."

This approach allows for more secure and trustworthy interoperability between different services and networks built on top of EigenLayer.

Settlement Layer vs. Data Availability Layer

In the context of EigenLayer, Ethereum serves as the settlement layer, while a separate service called EigenDA handles data availability. Kannan explains, "EigenDA is as close as you can get to Ethereum trust while not writing to Ethereum." This separation allows for scalable data availability without compromising on the security and trust provided by Ethereum.

EigenDA is designed to scale horizontally, with its throughput increasing linearly as more nodes join the network. At launch, EigenDA aims to provide a throughput of 10 megabytes per second, with plans to scale to gigabytes per second in the future.

Scalability and Affordability

One of the key challenges for any blockchain system is ensuring scalability and affordability for users. EigenLayer addresses this by optimizing the settlement process on Ethereum. Kannan explains, "All these services write their state claims back onto Ethereum. So because Eigenlayer is a series of contracts on Ethereum, writing state claims are one of the cheapest things to do."

By focusing on efficient state claim writing and leveraging EigenDA for data availability, EigenLayer aims to provide a scalable and affordable solution for developers and users alike.

Applicability Beyond Ethereum

While EigenLayer is currently built on Ethereum, Kannan acknowledges that the core concept of restaking could potentially be applied to other blockchain ecosystems. However, he emphasizes the importance of coordination and convergence in the blockchain space, which is why Eigen Labs has chosen to focus on Ethereum for now.

Kannan states, "Coordination requires convergence. And we looked at where is the largest source of convergence? And, you know, on Ethereum also, where is the largest system, which is actually aligned to these values, the systems for coordination systems for open permissionless innovation at all the different layers."

Actively Validated Services (AVS)

A key component of the EigenLayer ecosystem is the concept of Actively Validated Services (AVS). These are specialized services that can be built on top of EigenLayer, providing specific functionalities that can be used across different applications and networks.

Kannan describes AVSs as "insured API calls," explaining that when making an API call to an AVS, users receive not only the output but also a trust claim backing it. This trust claim could be based on economic security or assumptions about decentralized trust.

The Role of Replayability and Verifiability

When discussing the importance of replayability and verifiability in blockchain systems, Kannan presents a nuanced view. He argues that not all data needs to be infinitely replayable, but rather what's important is the ability to verify and challenge claims within a certain period.

To enable this, EigenLayer incorporates a challenge and slashing mechanism, along with the EigenDA service for data availability. Kannan explains, "To have an ecosystem of services, which can all be verified transparently, we need the ability to slash, but also we need the ability for challenges to actually have access to this data."

Impact of ETH Volatility on Security

Addressing concerns about the impact of ETH price volatility on the security of EigenLayer, Kannan emphasizes the importance of matching the denomination of economic risk with the denomination of economic collateral. He suggests that there's a strong positive network effect between the monetary premium of ETH and its use as collateral in EigenLayer.

However, Kannan also acknowledges that for risks denominated in other units (such as USD), alternative forms of staking collateral might be more appropriate. This flexibility allows EigenLayer to adapt to different economic scenarios and risk profiles.

The Myth of the Immutable Ledger

An interesting point of discussion in the podcast is the concept of ledger immutability. While many in the crypto space view blockchain ledgers as immutable, Kannan and Austin explore the nuances of this idea. They discuss how, in theory, the Ethereum community could choose to reverse hacks or make other changes to the ledger if there was sufficient consensus.

However, Kannan points out the complexities involved in such actions, particularly due to the interconnected nature of blockchain systems. He explains, "Any downstream consequences propagated to places that you cannot control. And so this limits the revertibility of, you know, blocks in like Ethereum is because you have downstream consequences of some other person, some other person, they got there, they moved it around, you know, it's now you have to invert all of it is may not be possible."

The Future of Blockchain Coordination

Looking towards the future, Kannan emphasizes the need for better systems of coordination in the blockchain space. He argues that while many technical problems have been solved, the most challenging issues ahead are human-centric, revolving around governance, consensus, and the ability to respond to unforeseen events like hacks.

Kannan envisions a future where blockchain systems can better self-regulate and respond to issues without relying on external authorities. He states, "We have to do better. So I absolutely agree with you that the best, the most formal problems here are absolutely not technical. They are like a more fundamental philosophical level. We have to untangle the mess there to actually build better systems."

Implications for Solana and Other Blockchains

While the discussion primarily focuses on Ethereum and EigenLayer, the concepts explored have significant implications for other blockchain ecosystems, including Solana. The ideas of programmable staking, shared security, and specialized services could potentially be adapted or implemented in various ways across different blockchain platforms.

For Solana, known for its high performance and low transaction costs, the concepts discussed in this podcast could offer interesting avenues for further innovation. The ability to leverage existing security and infrastructure to launch new services or networks could potentially complement Solana's focus on scalability and efficiency.

Moreover, the emphasis on solving human-centric problems in blockchain systems resonates with Solana's community-driven approach to development and governance. As the blockchain space continues to evolve, the ideas presented by Kannan and discussed in this podcast could inform and inspire developments across multiple ecosystems, including Solana.

Conclusion

The conversation between Austin and Sreeram Kannan provides a deep dive into the concept of restaking and the vision behind EigenLayer. By enabling generalized programmable staking and fostering open innovation, EigenLayer aims to address some of the key challenges facing blockchain technology today.

While primarily focused on the Ethereum ecosystem, the ideas and concepts discussed have broad implications for the entire blockchain space. As the industry continues to evolve, the principles of shared security, open innovation, and improved coordination mechanisms are likely to play crucial roles in shaping the future of decentralized systems.

For blockchain enthusiasts, developers, and investors, understanding these concepts and their potential impact is crucial. Whether it's Ethereum, Solana, or other blockchain ecosystems, the ideas explored in this podcast offer valuable insights into the future direction of the technology and the challenges that lie ahead.

As we move forward, it will be fascinating to see how these concepts are implemented and refined, potentially revolutionizing the way we think about blockchain security, scalability, and innovation. The journey towards more efficient, secure, and user-friendly blockchain systems continues, and restaking could play a significant role in this ongoing evolution.

Facts + Figures

  • EigenLayer is described as a series of smart contracts on Ethereum that enable generalized programmable staking.
  • The launch throughput of EigenDA is planned to be 10 megabytes per second.
  • The minimum node requirement for EigenDA is only 0.5 megabytes per second.
  • EigenLayer aims to scale data availability to gigabytes per second in the future.
  • There are currently about 5,000 to 10,000 home stakers on Ethereum.
  • There are approximately 50 to 100 professional operators on Ethereum.
  • The current stake on EigenLayer is around $10 billion.
  • Kannan suggests that 100 networks, each sustaining $100 million of staking, could be aggregated into a common staked pool of $10 billion.
  • The podcast mentions that every 3-4 years, there's typically an 80% drop in the cryptocurrency market.
  • Kannan suggests that in an 80% market collapse scenario, you would need 5X more stake relative to a unit to maintain the same level of economic security.
  • The podcast mentions that launching a new blockchain network traditionally requires at least 32 ETH, but realistically thousands of ETH to be a block builder.
  • Kannan states that EigenLayer is not competing with rollups like Arbitrum, Optimism, or Polygon.

Questions Answered

What is restaking?

Restaking is a concept that allows users to stake their assets for validating multiple networks simultaneously, rather than just securing a single network. It's more accurately described as generalized programmable staking, where stakers make promises across a set of networks that they are validating correctly. If a staker fails to validate any of these networks properly, they may lose their stake. This approach allows for more flexible and efficient use of staked assets across multiple blockchain networks or services.

How does EigenLayer differ from traditional blockchain models?

EigenLayer differs from traditional blockchain models by enabling shared security and open innovation across multiple networks. Unlike traditional models where each new network requires its own asset, validators, and incentive structure, EigenLayer allows developers to leverage existing security and infrastructure. This lowers the barrier for launching new innovations at the full stack level while maintaining a common security base. EigenLayer also externalizes many decisions about security and decentralization to the protocols building on top of it, allowing for more flexibility and customization.

How does EigenLayer address the issue of bridge trust between networks?

EigenLayer addresses the issue of bridge trust by using Ethereum as a common source of trust for all systems built on top of it. When different services or networks interoperate, they settle back to Ethereum, providing a secure and trustworthy foundation for cross-network interactions. This approach allows for more secure and reliable bridges between different services and networks built on EigenLayer, as they all share the same underlying trust mechanism provided by Ethereum.

What are Actively Validated Services (AVS) in the context of EigenLayer?

Actively Validated Services (AVS) are specialized services built on top of EigenLayer that provide specific functionalities that can be used across different applications and networks. Kannan describes AVSs as "insured API calls," where users receive not only the output of the service but also a trust claim backing it. This trust claim could be based on economic security or assumptions about decentralized trust. AVSs allow for the development of highly customized, powerful solutions like secure multiparty computation, fully homomorphic encryption, AI co-processors, proof of identity, and more, which can be easily integrated into various applications.

How does EigenLayer handle data availability and scalability?

EigenLayer handles data availability and scalability through a separate service called EigenDA. While Ethereum serves as the settlement layer for EigenLayer, EigenDA is designed to handle scalable data availability without compromising on security and trust. EigenDA is designed to scale horizontally, with its throughput increasing linearly as more nodes join the network. At launch, EigenDA aims to provide a throughput of 10 megabytes per second, with plans to scale to gigabytes per second in the future. This separation of settlement and data availability allows EigenLayer to achieve high scalability while maintaining the security guarantees of Ethereum.

How does EigenLayer address the impact of cryptocurrency market volatility on network security?

EigenLayer addresses the impact of cryptocurrency market volatility on network security by emphasizing the importance of matching the denomination of economic risk with the denomination of economic collateral. Kannan suggests that there's a strong positive network effect between the monetary premium of ETH and its use as collateral in EigenLayer. However, for risks denominated in other units (such as USD), EigenLayer allows for alternative forms of staking collateral. This flexibility allows EigenLayer to adapt to different economic scenarios and risk profiles, maintaining security even in volatile market conditions.

What are the main challenges that EigenLayer aims to solve in the blockchain space?

EigenLayer aims to solve several key challenges in the blockchain space. First, it addresses the difficulty of deploying new consensus protocols and innovations on existing blockchains by providing a flexible platform for open innovation. Second, it tackles the issue of economic security and shared security across multiple networks, allowing smaller projects to benefit from a larger security pool. Third, it aims to improve interoperability and trust between different blockchain services and applications. Lastly, EigenLayer seeks to create a more programmable and adapt able blockchain infrastructure that can support a wide range of specialized services and applications.

How does the concept of restaking compare to the Cosmos ecosystem's approach?

The concept of restaking, as implemented by EigenLayer, differs from the Cosmos ecosystem's approach in several ways. While Cosmos started with open innovation at all layers of the stack but limited shared security, EigenLayer aims to combine both open innovation and shared security. Kannan explains that EigenLayer provides a common security base that can support an arbitrary number of networks, lowering the barrier for launching new innovations. Unlike Cosmos, where each network typically requires its own token and validator set, EigenLayer allows multiple networks or services to leverage a shared pool of security, potentially making it more efficient and cost-effective to launch new blockchain innovations.

What role does replayability and verifiability play in EigenLayer's design?

Replayability and verifiability play crucial roles in EigenLayer's design, but with a nuanced approach. Kannan argues that not all data needs to be infinitely replayable, but what's important is the ability to verify and challenge claims within a certain period. EigenLayer incorporates a challenge and slashing mechanism, along with the EigenDA service for data availability, to enable transparent verification of services. This approach allows for the development of specialized services that can be verified and trusted without requiring full replayability of all historical data, striking a balance between efficiency and security.

How does EigenLayer envision the future of blockchain coordination and governance?

EigenLayer envisions a future where blockchain systems can better self-regulate and respond to issues without relying on external authorities. Kannan emphasizes the need for improved coordination mechanisms and governance structures that can handle unforeseen events like hacks more effectively. He suggests that while many technical problems in blockchain have been solved, the most challenging issues ahead are human-centric, revolving around governance, consensus, and the ability to respond to complex situations. EigenLayer aims to contribute to this future by creating a more flexible and adaptable blockchain infrastructure that can support a wide range of specialized services and applications, potentially leading to more sophisticated and responsive blockchain ecosystems.

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