Sreeram Kannan, founder of Eigenlayer, is our guest this week. We interviewed him for almost 2 hours, and he detailed his broader thoughts on value systems for distributed networks. In an interview, Sreeram told us:
I feel like I'm an Ethereum guy because I seem to have that ethos. There are ideas of trustworthy neutrality, ideas of permissionless innovation, ideas of censorship resistance, ideas of empowering individuals to collaborate at a higher velocity.
Finding Ethereum was a watershed moment for me because of the above thoughts. Ethereum is the first distributed network to separate trust and innovation. First miners and now validators ensure trust in the network, allowing the “surface area for permissionless innovation” to expand. Any anonymity can be built on top of the Ethereum service, available to the whole world, no one will be discriminated against. L2 further reduces the cost required to bootstrap and maintain security, allowing more innovation to happen. This is a paradigm shift in the way we build digital products.
Eigenlayer is transformative, perhaps more so than any other alt-L1 or middleware protocol, because it represents a complete separation of trust and innovation, opening the door for anyone to try to build new applications, protocols, and networks. A few years from now, we can look back on this time and wonder how the alt-L1 explosion of early 2020 happened, while current technology infinitely expanded Ethereum’s “innovation surface area”. Eigenlayer will not pose a threat to existing systems, instead, it will create a new competitive trust environment that promises to transform the distributed network into a more efficient and secure one.
What is a feature layer?
Eigenlayers are a way that Ethereum stakers can provide other services, such as oracles, data storage networks, new consensus protocols, and multi-party computation. Today, to secure these systems, you have to spin up a new set of validators or a new trust network, and bootstrapping these is very costly. That's why you see networks like Aptos raising $150 million. to bootstrap initial network security. As mentioned above, Eigenlayer eliminates the need to bootstrap trust, unlike the ability to bootstrap a community. Instead, new innovators can borrow Ethereum’s network of trust and use it to secure their own systems.
Who is the founder of Eigenlayer?
Eigenlayer was founded by Sreeram Kannan, a faculty member at Seattle University, where he previously studied computational biology. Sreeram has always been interested in distributed systems. He wrote his doctoral thesis on peer-to-peer wireless systems in 2006, but the idea never really caught on. Wireless infrastructure wins for its reliability and data speed. So after earning his Ph.D., he turned to computational genomics, completing postdoctoral fellowships at Berkeley and Stanford before moving to Washington, where he eventually became a faculty member. He didn’t really get into crypto until 2018, when one of his former advisors called him and asked if he had heard of Bitcoin. All that was left was that he fell down the crypto rabbit hole until he came up with the idea of Eigenlayer.
Where did the idea for Eigenlayer come from?
Eigenlayer is a natural extension of Sreeram's mental model of the world. These models define how he sees humanity, being, and what it means to be human. One of his core mental models is based on Yuval Noah Harari's book Homo Sapiens, which argues that a human-defined evolutionary advantage that allows them to take over the planet is our ability to cooperate flexibly at scale. As with any other species, there is a lack of broad social trust factors that create cooperative friction. If these barriers can be reduced, large-scale growth of groups can be achieved through cooperation.
The Internet is one of the most transformative innovations in the brief existence of mankind. It greatly increased the flow of information and the speed of research among distributed groups, earning it the nickname the Information Superhighway. Developments over the past 50 years have been largely based on digital technologies and their application throughout society.
Blockchain and cryptocurrencies are a new form of internet-native innovation changing the world. They are not information, but cooperation highways. Anyone connected to the internet can now access these distributed value systems in a permissionless manner. Sreeram's great application of his mental model is to use the idea of the Internet to jump to blockchain and cryptocurrency. He decided to increase the speed of cooperation and wanted to accelerate the speed of global innovation. So he dropped everything and turned to cryptocurrencies.
How to view innovation
The paradigm of innovation is the "genius" who comes up with new ideas and revolutionizes the field. But in reality, innovation is more like evolution than intelligent design. People do science around different ideas, adapt them, and then those ideas compete with each other. The best idea wins, and the process repeats. So once you have this mental model (and Sreeram is all about mental models), the way to make innovation flourish is to have many people compose innovation on top of each other.
After the show, DeFi Dave mentioned how Sreeram's evolutionary mental model reminded him of cranes and skyhooks. A single skyhook could eventually do any build, but it's slow and relies on a single entity to do all the movement. If you look at how the cranes work, they are deployed to the areas that need the most construction and then build around those areas. If they need to be moved, they fail and shift positions. With enough cranes, the whole field of construction will rise higher and higher in the process of evolution. So when we think about distributed systems, those building the base layer need to be specifically designed to encourage as much innovation as possible, because any constraints will slow growth.
Why does blockchain need to separate innovation and trust?
As I mentioned above, the most amazing thing about Ethereum is that it separates trust from innovation. Before the advent of blockchain, innovators faced an uphill battle of building trust networks. Attracting attention and securing funding is very difficult. You have to sell your vision to a select group of VCs who permanently take a cut of your business in exchange for capital. The very nature of this process creates a financial system that needs to be highly centralized and regulated to eliminate trust issues.
However, with a distributed system, users only need to trust the underlying network security if they think the code is good. This is what Sreeram calls the "incomprehensible" concept. This is only possible with a network like Ethereum. Sreeram noted that this innovation is at the same level as venture capital, which separates innovation from capital. People with ideas and capital are together. They work together and create something new. This has led to tremendous growth over the past 70 years. Encryption fundamentally changes the entry point into the system, instead of having to attend an Ivy League school, work at a top company, or know the right investors, any random anonymous person can publish code that anyone in the world can use. Unlike Google’s motto “Don’t be evil,” the cryptocurrency motto is “Can’t Discriminate,” because you don’t need to know who the end user is, Sreeram said. Trust comes from the network, not users, intermediaries or governments.
In the first few years of Ethereum, the idea was to use sharding to scale network capacity. But market forces eventually dismissed the idea, and the core development team listened and agreed to the requirement for L2 rollups. This paradigm shift is natural and market driven. This is the right choice, L2 is now the cornerstone of the future of Ethereum. Eigenlayer is the next evolution of this scaling idea, going beyond aggregation to a completely open trust layer where anyone can innovate.
programmable trust
Everything Eigenlayer plans to roll out is entirely dependent on the recent transition to proof-of-stake, as trust is now programmable. Proof-of-work is great for strengthening network security, but it is unlikely to create negative incentives for miners other than incorrect mining. You can't slash in PoW, you can only fight for block rewards. However, with PoS, there are both carrots and sticks. Validators are rewarded for staking, but they can also be slashed if they execute blocks incorrectly.
A functioning civilization, in this case a digital one, needs positive and negative incentives to keep its population in line. In the real world, we have monetary rewards for work and prison sentences and fines for crimes. Before PoS was switched, there was no way to punish people who mispublished oracle feeds or datastore information. PoS now allows adding program trust to any accepted validator.
Now, when you want to join Eigenlayer, you have to choose which service to run. If you choose a compliant chain and you hate all censorship and refuse to validate certain blocks, your stake will be slashed. The same is true for any other network other than Eigenlayer, they make the rules of how the system should behave, and stakers are penalized if they reject or incorrectly generate blocks.
How will new projects be guided through Eigenlayer?
In our interview with ChainLinkGod, he said that Eigenlayer will not pose a threat to existing community networks. He's right, Eigenlayer is not a panacea. New ideas still have to be able to execute on their ideas and build a community. What it brings, though, is greater competition, as no existing protocol has an advantage simply because of its validator set and stake.
So how do you bootstrap a new protocol with Eigenlayer on day one? Well, Ethereum restakers are already getting 5-6% native ETH yields. They will then be able to choose any service they want on Eigenlayer. Just like during the DeFi summer, new protocols can launch and offer tokens in exchange for security. The token may start out worthless, but some re-stakers may take a chance and one day it will become valuable.
Unlike DeFi, re-stakers face less risk because they are committed to holding ETH stakes and don’t mind price volatility. They just want to make sure they earn more ETH or yield. This is a different risk class, so Eigenlayer should be more acceptable than DeFi.
middleware paradox
Eigenlayer can support new L1, middleware, and even smaller projects that never made sense to build before. Eigenlayer has a strange paradox that the network becomes more resilient as more applications and protocols are secured by Ethereum restakers. Sreeram pointed out that blockchains are like nation-states and dapps are like cities. Dapps get security from nation states, they don't protect themselves. It would be strange if each city or government department had its own separate police force and army. You can't run a country that way, you need an integrated security force. Once you secure your own country, you can export your security to other countries through partnerships such as NATO or the United Nations.
What this means for Eigenlayer is that once the oracle is powered on, its data will be secured by all Ethereum heavyweights that support it. It can now provide its price feed service to any blockchain or any network. Ethereum stakers are planning to run expensive validator nodes for other networks like Solana or Aptos, but they can provide middleware services backed by the highest network security in existence. So the new L1 can bootstrap all these cool services right away without having to build them yourself. As Sreeram put it, Ethereum became a “net exporter of security.” Ultimately, all technical arbitrage between L1s is removed, leaving the strongest community and most innovative team.
The ultimate goal of Eigenlayer
Sreeram wants to use Eigenlayer to create a new shared space where anyone can build on top of other creators in a non-permissioned manner. He believes that the ideal system should basically have a "permissionless innovation license". This will allow creators and builders to innovate on top of previous works, creating new derivatives, while returning fees to the original creators as attribution. In this sense, we can move away from the existing copyright model that inhibits growth and creativity, and instead work towards a more transparent and open society that constantly accelerates the pace of innovation.
It is the same model with a crane and skyhook that we described earlier. Sreeram wants more cranes and more incentives to build more of them. It's all about mental models, and Eigenlayer is truly poised to drive the next wave of crypto innovation.
