Eigen's Dual Staking Dilemma: Eth vs Eigen Security | Roundup

This episode delves into the complexities and strategies surrounding dual staking in the Eigen Layer, focusing on the interplay between Ethereum (ETH) and Eigen's native token.

1. Eigen Layer's Strategic Announcements: The podcast details the triple announcement from Eigen Layer, which includes the foundation's formal launch, airdrop details, and the introduction of an intersubjective work token model.
2. Community Response and Regulatory Challenges: The episode discusses the mixed reactions from the community regarding the airdrop and regulatory concerns that could influence future token distributions.
3. Implications for Tokenomics: Insights into how Eigen's approach could reshape the landscape of tokenomics, focusing on dual staking mechanisms and the balance between incentivizing participation and ensuring network security.
4. Innovations in Blockchain Security: Discussion on the innovative intersubjective work token designed to address the limitations of current blockchain security measures.
5. Future of Eigen and Cryptocurrency Regulations: Speculations on the potential growth of Eigen and how upcoming regulations might impact the crypto industry.

1. Introduction to Dual Staking

A brief overview of the episode's theme focusing on the dual staking dilemma between Ethereum and Eigen's native token.

• Mike Ippolito: "We're diving deep into Eigen's dual staking system today, a critical innovation for blockchain security."

2. Analysis of Eigen Layer's Announcements

Discussion on the specific details of Eigen Layer's announcements and their implications for the network.

• Miles Deutscher: "The announcement of the Eigen foundation is more than just formal; it's a strategic step towards decentralization."

3. Community Reactions and Airdrop Details

Exploration of the crypto community's reactions to the airdrop details and the broader regulatory environment.

• Mike Ippolito: "The airdrop has stirred mixed reactions, highlighting the delicate balance between regulatory compliance and community expectations."

4. Future of Tokenomics and Security

Predictions on how these developments might influence future tokenomics and security protocols in the crypto space.

• Miles Deutscher: "Eigen's approach could set a new standard for tokenomics, especially in how we handle security and incentivization."

1. Stay Informed on Token Developments: Keep up-to-date with announcements from platforms like Eigen to understand potential impacts on your investments.
2. Consider Diverse Staking Options: Evaluate the benefits and risks of staking different tokens, focusing on long-term security and potential returns.
3. Engage with Community Discussions: Participate in community forums and discussions to gauge sentiment and gather diverse perspectives on new developments.
4. Monitor Regulatory Changes: Stay aware of regulatory changes that could affect tokenomics and staking strategies.
5. Educate on Blockchain Security: Continuously educate yourself on the latest in blockchain security to better understand the implications of innovations like intersubjective work tokens.

In this episode, Mike and Myles dive into Eigen Layer's major announcement, unpacking the details and implications of the Eigen token airdrop, the Eigen Foundation, and the positioning of Eigen as an "intersubjective work token". They discuss the community's mixed reaction to the airdrop details and geo-fencing, the objectives and considerations around airdrops in general, and the innovative tokenomic design of the Eigen token in enabling a dual staking system with ETH to secure Eigen Layer and mitigate risks. Mike and Myles explore how this new staking model could impact the Eigen Layer ecosystem, AVS adoption of the Eigen token, and the overall bullish effect it could have on ETH and the growth of restaking. Enjoy!

Wormhole is a decentralized interoperability platform powering multi-chain applications and bridges. It provides developers with access to liquidity and users on over 30 leading blockchain networks, enabling use cases in DeFi, data queries, and governance. The platform is trusted by teams like Uniswap and Circle and, to date, the platform has facilitated the transfer of over 35 billion dollars through over 850 million cross-chain messages.

People

Mike Ippolito, Miles Deutscher

Companies

Eigen Layer

Books

Leave blank if none.

Guest Name(s):

Leave blank if none.

Content Warnings:

None

Mike Ippolito

I feel it was super positive and bullish for Eigen, the token and Eigen layer at large, and I wish more of the coverage had been focused on this. The long list of announcements really overshadowed what I think is one of the most interesting token designs we've seen to date, maybe the most interesting for an ERC 20 token. Hey everyone wanted to give a quick shout out to the wormhole foundation. If you are a bell curve listener, you know that transferring across chains can be a massive pain. I certainly do.

I complain about it on this program all the time. That's why we are super pumped to have partnered with Wormhole foundation, the stewards of the wormhole protocol. The wormhole protocol connects over 30 blockchains and six different runtimes, including Solana, Sui, Ethereum, layer twos, and more. And the coolest part about this particular partnership is that they have made custom bell curve nfts which you can get and mint for free. You can claim that by just going down into the show notes and clicking on the link.

All right guys, on with the show. Hey everyone wanted to give a quick shout out to this episode sponsor, fludd protocol, the optimal Dex aggregator. Now, if you are a listener of Bell Curve, you know that Mev is a massive problem, which is why we are so pumped to partner up with Flood on this season. Flood is the only gasless and Mev free aggregator that not only gets you the best execution, but also gives you back all the extra surplus that you create every single time you swap. Now this is relevant for both swappers and developers, but you're going to be hearing all about them later in the program.

So for now, thank you Flood, and back to the show. Hey everyone, this episode is brought to you by Uniswap delivering the best on chain trading experience in crypto, period, bar none. One thing I want to call out. Is the uniswap extension, so say goodbye. These days of these annoying as our pop up wallet extensions, you lose your place trading.

You have to open it back up. Uniswap now has a nice sleek sidebar that persists no matter where you are on the web. It's much easier to use if you click the link at the bottom of this episode. You can join the waiting list and I'll see what I can do to get you moved up that waiting list. But definitely go click the link, check it out.

Mike Ippolito

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. 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 bell curve roundup. You got me and Miles today. The homie, Miles. How are we doing, buddy? It's great to be back, my friend.

Miles Deutscher

Yeah, yeah. Spent some time on Empire, but, you know, had to come back home. Yeah, I know. I saw you over there. I.

What was that? All heart ripped out of my chest here. Yeah, but whatever. You started with the cream and then you got a. You got to go down and slum it with yen over there occasionally.

Mike Ippolito

Yeah. Yeah. So I've been waiting for you to comment on my mediterranean bronze here that I have. Being in Italy, it's a little rude. You haven't said anything.

Miles Deutscher

I was. Yeah. Waiting for the podcast so you could get, you know, the max amount of bang for your bucks with get my do. The comment ran me on it. Oh, dude.

Mike Ippolito

Honestly, Italy, at the risk of being non object, it is the best country on earth. It is so freaking nice over there. They got the food, they got the culture. They got the wine, they got the coasts. Yes.

Miles Deutscher

I got no notes for Italy. No notes. Nothing to complain about. It's all good. It really is.

Mike Ippolito

It really is. So I got. In terms of. I do feel like. So I actually unplugged from Twitter, didn't check my feed at all for six days.

And when I came back, I feel like I missed two years worth of news in those six days because I was gone for the Eigen lair airdrop. And we'll call it a triple announcement because they actually packed three pieces of news into one, two of which are actually extremely significant. And I think we could just riff for as long as. Feels fun here on the Eigen lair announcement, which is basically the big news of the week. So let's do it.

Maybe to give us. To give a summary on what this triple announcement really was. So on Monday, Eigen Layer announced three different things. They announced the Eigen foundation, which again, is technically an announcement, but should not have been a surprise to anyone. We all assumed that Eigen was going to Eigen layer, was going to progressively decentralize, but still, they formally announced the foundation.

They also announced the details of the airdrop, and they also announced this idea of Eigen as an inter subjective work token and effectively pushing this idea of dual staking between ETH and Eigen, the native token to be honest, I got a lot of this, actually, from the blockwork slack and the combined Twitter response, but a lot of it was not super positive. I think you and I both are of the opinion that actually, especially what they're doing on the Eigen dual staking inner subjective warp token. That is super cool and very bullish Eigen layer of the project and Eigen the token. But I think they overshadowed it by combining all of these announcements into one thing, and to be honest, not doing a super great job around communicating the details of the airdrop. So why don't we start with the details of the airdrop that's gotten a ton of attention so far, so we don't need to spend a ton of time on that, but we should maybe focus the majority of this on the more bullish, sort of good part of Eigen, the token.

But can you give us a sense of why were people upset in general with this airdrop? Yeah, I think so. Maybe just running through, like, reasons off the top of my head why people might be upset about the airdrop. So they're going to airdrop a total of 15% of supply, which is actually quite a lot. Now, this first round was only, I think, 5%.

Miles Deutscher

I could be wrong on that, but I think maybe the amount was a little bit less for some people if they deposited later. And so it was a function of both how much you deposited and the time it spent in the protocol. But I don't think people should really be complaining based off of where Eigen is trading. Pre market is, it's about a billion dollar airdrop, and it will just, you know, it'll be well over $2 billion if they, you know, once you get to the full 15%. So why are people upset?

I think the whole, it being, you know, claimable on May 7, but not transferable, meaning like, you cannot sell your airdrop, for. They have not announced any sort of timeline on when it becomes liquid. But, you know, I think this is something we'll see more and more. The current, like, legal meta is that you need to do this, or lawyers are strongly advising projects to do this for regulatory reasons, and so not much you can really do about that. And I think we'll get to the staking component and what the token does later.

But I think there's also a rationale that you could make here. That Eigen layer wants to encourage folks to stake this, because it's going to be a critical part of the Eigen layer, trust and security marketplace. If you can't sell it, people are more likely to stake it, especially if you then maybe in the future release some information around ongoing incentives for staking your eigen. And then the last one, I think it was the geofencing.

I don't really have benchmarks, but it seemed like a long list of countries even compared to most airdrops today. And I think what pissed people off was that they didn't. Geofence deposits, they let you put in your tvl let you see your points accumulate. And then it's not like those folks, if they were to go to one of the approved countries, couldn't claim their airdrop. But it's just very challenging to do in one of the geofence countries.

I'll pause there. I think, you know, some of this stuff is just the regulatory environment. It's really challenging. I don't think I can layer ever, you know, want it like it wasn't their actual, like, desire to do this, but. But yeah, it's just the dynamics of the regulatory environment.

Mike Ippolito

So let's focus on that last point, the geofencing. Sure. So I just said, I got back, didn't check Twitter for six days, opened up my timeline, and just saw a bunch of people whining about the eigen layer drop. And I just tweeted, nothing upsets crypto people more than being given free money the wrong way. And oh, my gosh, I.

I didn't know any of the details when I tweeted this, but I just got bodied body people were super upset and they made, they made a couple of good points. So one, there's this idea. It's not really free money, is it? Right? You're like, you're locking up capital in a smart contract.

There is risk there. You're taking on risk and you're getting compensated for that. So it's not free. And that's totally legitimate. And then it really was around not being geo fence for depositing, but being geofence for withdrawing.

And there was an additional nuance, which ceteris Parbus over at Masari pointed out, which is that they actually, not only did they allow people to deposit, but they incentivized you to deposit with points. Points. And honestly, I pushed back a little bit, but I ended up agreeing with him that it does feel a little bit from the perspective of a user. If you're going to incentivize me with points and then not tell me that you're going to block me, that does feel a little bit like a broken promise. And I understand that.

Here's something that I got a question for you on this. In terms of the risk that you are taking locking up capital in Eigen Lair, how much risk are you really taking? Honestly, like, I think the. The pros and cons, right, of locking up capital with an extremely well funded blue chip, frankly, western based project is like, you're going to be subject to the regulatory and geofencing stuff. You just are.

And if we're treating people like adults, I'm sorry, there's a little bit of, like, you guys should have been aware of this. This should have occurred to you that this was going to be the case, that Eigen lair wasn't just going to throw caution to the winds, ignore the regulators, and, like, you know, and so, you know, people are also complaining about the amount that they got airdropped. And it's like, well, the amount that you get airdrop should probably be consummate to the risk that you're taking. And there's a massive difference, in my mind, of locking up capital in an Eigen layer smart contract, which is probably audited by, you know, yes, gigabrained team of devs, smart contract hours, all this stuff. And they would probably compensate you anyway if there was some big problem with some $10 million defi protocol on a new l one, like, the compensation should be different, you know.

Miles Deutscher

Yeah, I agree. I agree. I think, you know, a lot of the deposits were speculative in nature. A lot of the deposits were not, you know, putting their ethan to Eigen layer because they want to hold it in there for the next, you know, five to ten years and. And just have, you know, a nice three to 4% of extra yield or whatever percent of extra yield it was.

It was really around expectations for this airdrop. And so, you know, any sort of speculative activity can go one way or the other. Yeah. And so that's. That's, you know, that's kind of like, I don't have a ton of sympathy in that sense, but, yeah, I think, you know, I think there's not a lot to say on the geofencing part.

And what is the risk? Like, it's probably. I know we saw, like, blast was a multi sig, right? I don't think Eigen layer was a multi sig, but it may have had multisig governance for a bit. Both of them is you're putting some level of trust in the team and in the developers.

And I don't think it'd be one thing if there was you had deposited into eigen layer slash, you know, restaking to avss was live for a long time with slashing. Right. So maybe you're taking on slashing and smart contract risk and now you're feeling like, you know, this is, this is really unfair. But no, I don't think like the risks were that crazy. Yeah.

Mike Ippolito

Okay, Miles, what do you think about, you know, the other thing that people tend to complain about a little bit is the amount of, first of all, this isn't an airdrop, it's a stake drop. Okay. But the amount that is getting stake dropped to the community. Yeah, 15%. And you and I have had this discussion before around air drops.

There is, you know, to broadly over generalize, I feel like most people fall somewhere in the middle around this. But there are two camps. There's the airdrop entitlement camp, which is, I want to just basically get airdropped, the value of a free car and then dump my, and then withdraw my assets. And thats probably not worth it. And then theres the camp, which is these people are taking an enormous amount of risk locking up capital in a smart contract.

Theyre bootstrapping so that the project can get a high valuation and attention from VC's and all that stuff. And again, the truth probably is somewhere in the middle of those two things. But people around the Eigen layer, airdrop specifically, what do you think about the, the 15%? And this is maybe, maybe the backdrop of this is that last week, Renzo, which is one of the new lrts, they did their airdrop and they allocated 2.5% of supply to the community. But they also, they included, they did a pie chart where they just resized the 2.5% to look like 25%, which was not super great.

And then they ended up walking it back and introducing more supply to the community. But where do you fall? Because this is what always happens, is, well, maybe you should be getting more or less sure. I just maybe like take a step back. What are the potential objectives of an airdrop?

Miles Deutscher

And there can, you can, you can hit multiple of them and ideally you want to. Way I look at it, is one rewarding those early adopters who took on a lot of risk to bootstrap, liquidity in your protocol or bootstrap whenever you are trying to incentivize two is reaching, potentially reaching new users. So airdropping to non users that in the hopes that they come, either become a user or maybe even a developer comes and starts contributing. And then I think there's three. You can use an airdrop to incentivize future action that you want or future behaviors that you want, meaning make it partially claimable.

And the full claim is based off of continuing to use the protocol in a way that protocol is trying to push users to do. For this one, maybe it's staking or B, Eigen, you'll get another phase of this airdrop. That's just total speculation, but that's one way to do it. Then the last one is just this fuzzy idea of getting your token distributed as widely as possible to a very large user base. Right.

And there might be benefits to this around wider decentralization of governance participants. Maybe it's for some reason you want lots and lots of different Eigen stakers and Eigen holders so that, you know, it's not ultra concentrated. Right. If, like, eigenstaking is going to be core to the protocol and it's, you know, the, the holdings are really concentrated, that poses a risk that at any point, you know, one of these very large holders could just pull out. So, yeah, I think those are, those are the kind of like broad objectives.

And I think there was, you know, components of all this with this eigenplayer airdrop. And I think, again, 15%. It also really matters. That percentage matters a lot. Based off of what the market cap of your token is, 15% is above industry benchmarks broadly.

And the market cap is, well. Well, maybe one of the largest projects to launch in a very long time from an amount standpoint, I think, you know. Well, I'd be very curious to see just how, like, the distribution looks and how concentrated it is to, like, the. The whale depositors versus, you know, some of the smaller depositors. But yeah, I think they are rewarding early adopters sufficiently.

I'm very curious to see like, if, you know, future, you know, unlocks of even more airdrop is, you know, contingent upon staking it or something like that. Right. Um, and yeah, I think, I don't know about the distribution piece here, but I'll pause. Okay, I've got some thoughts here. And so totally agree with all the possible objectives of an airdrop.

Mike Ippolito

One additional bit of context that I would add is, I think that has changed. The emphasis on what airdrops are trying to do has changed over time. I think if you listen to, I think Kane was the original, or he not, it wasn't an air, it wasn't airdrops, but yield farming. And if you listen to guys like Kane and Rob Leshner in the beginning talk about how they thought of it, I think there was a lot of sort of like, bitcoin and ethereum protocol design thinking there. And if you listen to what they were trying to do, yes, they were trying to bootstrap liquidity and attract new depositors, etcetera.

But really they did believe in this idea of trying to get the tokens out into the hands of as many people as possible. And similar to the design philosophy of bitcoin and Ethereum, make it this very flat, unopinionated protocol that people would build on top of. I think what has happened, at least on the app layer, is that largely people don't try to do that anymore. They said, you know what, that actually wasn't a very smart idea. You can look at like yearn and sushi as examples of taking that way to the extreme and basically distributing all your tokens.

And you're like, oh, I actually can't fund myself. So you know this. And by the way, being subject to 10,000 degens on the Internet is not the correct way or governance structure to build an app. And so a lot of the modern airdrops that are happening are much more focused on the first couple of reasons that you were saying, acquiring new users, incentivizing an action, rewarding first users, etcetera. And so the amount, especially because a lot of these are app like, and you start to think of these as more equity tokens.

You want to distribute a smaller amount because you want, rightly in an equity like thing, you want it to be going to the team and the builders, et cetera. And you're not really trying to distribute that much of the supply. I think on something like an l one, there still is an imperative to. The value of an l one is that it is extremely distributed and you don't actually want there to be a ton of the supply in the hands of a couple big investors or team members. You can look at newer l one s as an example of maybe the new l one s.

If you wanted to do pros and cons versus Ethereum and bitcoin, the pros is that they have the second mover advantage. There's new tech that's enabled. You can learn from the mistakes a lot of the early l ones made. But the con, and the tricky thing is that investors own a bunch of the new l one s and the supply schedule and the unlocks are going to be a bitch and they're going to have to work through that. So I get in and maybe this is where we can start to transition a little bit into the Eigen token and this rebranding as an inner subjective work token and Eigen dual staking.

Now, by making Eigen this, sort of taking some of what ETH was originally doing and actually making it this slashable token, it actually looks a little bit more l one like than app equity like. And I think that you could have made a really strong. You can make a really strong opinion that if Eigen is going to be this inner subjective work token, then you want it similarly to an l one. You want it into the hands of as many people as possible, and you want it to be less subject to these big investor and team member unlocks. And so, honestly, I'm usually a fan of limiting, not just giving the community a bunch of the airdrop that they're just going to dump later.

But I think you could have made a pretty compelling argument in this case that Eigen layer should have drop more. Oh, interesting.

Miles Deutscher

Yes and no. I honestly am not. I'm not totally sure. Because what really matters is that, first of all, Avss adopt Eigen as a staking token, right? And I think you want, I mean, to be fair, to defend, like, why, you know, maybe an investor having all, like, big investor holders here is good, is because if there's lots and lots of this Eigen token that is locked up in investor investing contracts and going to be staked, that makes the amount of Eigen available for security higher.

And so I agree with you to a certain extent. I also think that it's kind of pros and cons of having these investors large investor bases for l one s is that you end up with very large staking ratios. Like Solana has, what, 60 something percent staked. Most cosmos, even higher. Yeah, most cosmos, like 70.

Yeah, most cosmos chains are above. Are well above 50%. Right. Because these are long term holders. And you don't really want, like, you know, if Eigen.

If you're. If you're the eigen, the protocol, you want as many people to stake as possible. And, you know, you don't want that number going way up and way down all the time, because, you know, it's. It's in the hands of people that are actively trading it or don't necessarily plan on holding it for the long term. But at the same time, I agree with you.

You don't want that concentration risk that I mentioned in the first part as well. It would not be good if, when Eigen layer finally vests, all of a sudden, 20 or 30% of eigen, the security system is gone because those investors finally unstake and sell. And so it's a nice balance. It's a balance. Right.

And I think the other piece I would mention is, with any airdrop, it's also a question of opportunity cost. It's, what could this 15% be going towards instead of an airdrop? And how important are those ongoing incentives that you will eventually implement? In Freigan's case, I would argue that they will need heavy ongoing incentives in order to bridge this gap of enormous amounts of deposits to the realistic amount of real yield that 30 to 50 AVss are going to generate a year from now. Right.

And so I would say, like, if you, you know, like, blow your whole wad on the airdrop, and then you're left with like a pretty small incentive pool, that could actually really hurt, like, adoption of the platform, because there's, you know, there's no, there's not enough of the supply to really help AVss, like, keep those stakers and operators on board in the early days before we hit, like, exit bossy on the, the real rewards. Yeah, I think it might be interesting. You've actually convinced me. I take it back. I agree with you.

Mike Ippolito

It is interesting to compare the Eigen airdrop to. By the way, this is something that investors have been arguing about for a long, long time. I don't know if you remember Bill Gurley going on podcasts a couple of years ago, bemoaning the traditional IPO process, talking about direct listings. And if you talk to traditional investment bankers, they describe this kind of nice aesthetic pop. They're trying to price the ICO such that underprice it just a little bit so that it pops on the first day.

And it's this nice marketing event. And the Bill Gurley argument says, how much are you paying for that initial pop? Because the way that IPO works is you sell at an initial share price. That's the cash that goes into your bank. And if it pops on the first day, you could be looking at five to 7% that you could have sold more that could be in your bank account that you could be doing things with.

Miles Deutscher

Yeah. And so people, people argue about this because on the one hand, it's like, man, that's a really expensive marketing campaign that we're running here. On the other hand, if you have a bad IPO day, I probably, it doesn't matter, but, like, it does kind of stay on you. It's a little bit of a stench that you gotta, you gotta work off. This is the first impression that people have of you in the market.

Mike Ippolito

So, I don't know. I don't have a super strong opinion on it. It's just a. It's a challenge. But I agree that you.

You don't want to blow your whole wad in one shot. And also, it's just kind of a human psychological thing. When you give someone something for free, they don't value it as much as opposed to kind of making them work for it. I agree with that. It's funny, I didn't think about the whole, like, non claimable aspect here, but, yeah, maybe.

Miles Deutscher

Maybe equity ipos should also do a stake drop where it's not non transferable. Right. Because it is. There is something to be said, like, when it's claimable on day one and tradable on day one and it's just down only. Oh, yeah.

It's. It's. It doesn't, you know, really help with the kind of, you know, makes the party a little bit less fun. Right. Kind of dampens the mood a bit, but.

Mike Ippolito

Well, we have our. So, in traditional markets, there's a. Something called a green shoe option, which is a provision in IPO underwriting that grants the underwriter the right to sell more shares than originally planned. So basically, the investment bank that wins the mandate. Usually there are many different investment banks that are involved in an IPO mandate, but they have this option to basically prop up the stock if it's trading lower on day one.

I guess the crypto version of that is whatever the agreement that the token issuer has with market makers, which is always. But a little bit of a black box for me, depending on who you listen to, it's totally above board, or it's basically a thinly veiled pump and dump where mms are granted option. Basically options. Free options in the token. So, yeah, I think it is actually an important psychological.

There's an important psychological impact to whether the token goes up or down. But they have other levers for making that happen. They do, they do, they do. But, yeah, I think it'll be very interesting to kind of like, just, you know, see the supply dynamics of eigen once it finally does go live and how much stays staked and what the. Like, you know, the incentives are to do so.

Hey, everyone wanted to give a quick shout out to the title sponsor of this season of Bell Curve, the wormhole foundation. Now, if you are an on chain user, which I bet you are, if you're listening to Bell curve, you know that the cross chain experience in crypto still sucks. Let's just call it spade a spade. We talk about it on this program all the time. Interop is still a big problem, which is why we specifically wanted to team up with the Wormhole foundation.

They are a decentralized interop platform that powers multi chain applications and bridges. So that could be anything from DeFi to NFTs governance, oracles and more. So if you are a developer and you're building cross chain assets, apps or data or anything like that, I highly recommend that you click the link at the bottom of this episode and go check out to see what you can build on wormhole and wormhole. First of all, this is a fun team. They did something really cool with us.

You can actually go and click the link at the bottom of the screen, which is going to send you to a landing page where you can claim your own unique wormhole NFT. So we're doing this with me and we're doing this with Jason, my co founder. So help a brother out. It's a super cool NFT, I promise. Go click the link at the bottom of this episode and fill out your po app.

Get your free NFT. And if you're a dev, head over to wormhole and check out to see what cool cross chain stuff you can build. Hey everyone wanted to give a quick shout out to this episode sponsor Flood protocol, the optimal Dex aggregator. Now, Fludd is the perfect partner for this episode on the multi chain future because Fludd is solving so many of the issues that we're going to be talking about this season and this is relevant for both traders and devs. So if you are a trader, you should definitely head over to Floodswap and start trading because they solve three massive problems.

One, gasless trading, no more pesky trading fees. Two, you don't have to worry about getting front run mev free. And then three, they have excellent order routing so that you know that you are getting the best price. Head over to Flood swap and click the link in the bottom of the show notes. We're going to send you right there.

For the devs out there you can leverage Flood's flexible hooks, allowing you to make swapping a first class purchase primitive by adding custom order types like twaps. Or if you're a wallet builder or something like that, you can actually build your own order flow auction in and start recapturing a bunch of bad MEP. If you want to reach out to them, go to devslood bid or just jump right in the discord. All right guys, thanks very much. Appreciate you, flood.

Hey everyone, this episode is brought to you by uniswap delivering the best on chain trading experience. Period. Bar none in all crypto. Here's how I would divide the protocol today. There's a web part, a mobile part, and an extension part.

You can say goodbye to the pop up wallet extension, which is not great from a UX perspective. Now, what they've delivered is this nice clean sidebar where you can just very easily track swaps, sign transactions, send or receive crypto anywhere. Just a huge UX improvement on the web part of it, huge improvements here you can buy and sell 700 plus tokens at your price on your terms. And they've got limit orders, which are powered by Uniswap X. And there's gaslit.

They've also got real time charts, transaction logs, pool data, project information, all this cool stuff that just really improves your UX trading on the web. And again, all this is powered by the smartest protocol in terms of Uniswap or Uniswap X. Click the link at the bottom. Uniswap extension is in alpha right now, and we'll see what we can do about getting you moved up that list. Thank you very much, Uniswap.

Mike Ippolito

Let's talk a little bit about the second part of this announcement, which again just largely went under the radar. But I feel it was super positive and bullish for Eigen, the token and Eigen lair at large. And I wish more of the coverage had been focused on this. Yeah, yeah, right. There's so much packed into this day, and I think there was pieces of news that were very easy to predict, like, we're not going to leave people thrilled.

Miles Deutscher

Right. And unfortunately, those parts of the announcement of the know, the long list of announcements really overshadowed what I think is like one of the most interesting token designs we've seen to date. Maybe the most interesting for an ERC 20 token that goes so far beyond just the typical governance token and really also solves big problems for the protocol with this design. And so, yeah, I think we can. There might have been, in hindsight, maybe like if I were in their shoes, or like we were talking about this before we started recording, maybe you space these things out a little bit more, right?

You get people really excited about the token, the purpose of the token, and eigenstaking with the white paper and the blog post and the threads, right? And then you kind of prepare people for maybe the less great news around, like claimability and geofencing and stuff like that, with like an announcement, and then you finally release, like, the claims. But it's okay. So just one more final note on the geofencing stuff. So there's a great.

Mike Ippolito

I would recommend people go read this post about this from Jake Trubinsky. There's a lot of armchair lawyers here that really don't know what they're talking about. Jake Trevinsky is a guy who absolutely does know what he's talking about. And he describes in detail that a, the extremely complicated and frankly risky kind of scary regulatory environment that these protocols are facing and why non transferability and geofencing are super important. So I just recommend that people do that.

But the other thing that at least I have come into contact with around, whenever legality becomes a thing, sometimes it produces these weird results where. All right, let me give you an example. So there's a really unfortunate way that the legal system works around HR sort of complaints. If you were like, if there's a situation where you need to, an employee has to be let go or something like that, by saying that you're sorry, like, hey, this isn't working out, I'm sorry. Oh, yeah, you are admitting that you are at fault here, and then that can be turned and used against you if that person were to turn around and sue.

So the legal system in some cases forces these really weird, inhumane interactions with people. And I don't know if this is the case, but maybe it would not shock me at all if, you know, people are like, well, why didn't Eigen layer say that they were going to geofence? The lawyers might have said, hey, if you indicate that you're geofencing, it's a tacit admission that you should be worried that it's a security, blah, blah, blah. You know, I don't know that that's the case. It just wouldn't shock me.

So sorry. No, no. It's such a good example, like an analogy to bring up, because, yeah, sometimes it just kicks legal stuff. It's like common sense and logic to the wind, and it's just. It's really frustrating.

Miles Deutscher

But that's where we are. That's okay. So, Miles, let's get into it here. This is the really exciting second part of this announcement, which is positioning Eigen, as I keep using this jargon, an inner subjective work token. So can you give the audience a sense of, what does that phrase mean?

Mike Ippolito

Why are we talking about this idea of inner subjectivity? And then what is the role of eigen, the token, going to be within the Eigen layer? Mechanism and apparatus. Yeah. Okay, great.

Miles Deutscher

So let's break that up. Let's start with what is a work token? We all know, like work tokens that's one way to call an l one staking token or any sort of staking token, right? You are staking capital to do work, and in return the capital collateral collateralizes the work you do. And if you do good work, you get rewarded.

If you do bad work, you lose that capital or you lose a portion of that capital from slashing. Now, before we get to inter subjective work tokens, I think we should first lay out really what are work tokens today and what are the limitations of them. There's this concept of objective and attributable and, versus intersubjective and attributable. And the limitations with work tokens today are that they are objective and approved and attributable only. What that really just means is that they can only secure work that is, you know, provable on chain and they can only slash when it is provable on chain.

Everybody can see from local information that to, you know, double signed a block header, right? Or everybody can see that you didn't follow the rules of the chain locally that everybody has agreed upon, right? And now where this becomes tricky is that a lot of eigen layer Avss, the type of work that they are doing is not, if it's done incorrectly, it's not provable on chain. And sometimes it's, the problem is this work is taking place on a different chain, right? Whether it's a restaking secured l one, or maybe it's just this committee of operators.

And so it's very hard to prove things on Ethereum that something was done on an AV's that was malicious. Um, and sometimes it's even impossible on that AV's to prove on chain that it was malicious. Um, so an example of this, easy example of this is just incorrect. Price feeds, right? So an oracle, Oracle provides price feeds.

Um, you know, there's nothing on chain that can tell you that, you know, giving, you know, a price of bitcoin as like a dollar when it should be $70,000 is, is incorrect, right? But two humans observing the system, you know, can clear it's, it's, it's not contentious at all, right? That it's incorrect. And so that's intersubjective. There's another category of like subjective, which is, you know, was this good or bad?

Like is. Yeah, is Italy better than France? You know, and, and that is, it is correct. That's not subjective at all, right? Like, that's not, yeah, that's out of scope.

Out of scope. That's not good for work. Tokens period. But the problem is, again, it's really hard to construct slashing agreements for this category of inter subjective and attributable faults. So that is things that cannot be proven on chain.

And we have 16, whatever it is, billion dollars worth of restaked ETH, right. And we do not want to be putting that restaked ETH at risk of slashing with things that are completely decided basically and socially, like off chain and governance. And so what do they do? They have basically all abs, have a type of really easy types of slashing to handle, which is everything that is objective and attributable. And they have other types of slashing that is really messy.

And this is this inter subjective category of slashing. And, you know, I think this whole concept of, you know, overloading ethereum, social consensus happens when, you know, let's say the $16 billion of ETH is securing an AV's, right? And the majority of operators collude or something like that. It's not provable on chain and it is intersubjective. And then we end up having to fork Ethereum to really roll back this chain.

So what do they do? They introduce a second staking token that is basically meant to handle all of the messy kinds of slashing, and that is eigen. And so Avss, I think what they're saying should have, you know, two types of work tokens securing them. They should have ethnic securing them, or any sort of non Eigen token securing them for things that are objective and attributable. So things that are proven on chain.

And they should have Eigen securing basically any work that is inter subjective. Not being able to be needs governance basically to arbitrate slashing.

That's what eigenvalue is. And so we've had like intersubjective work tokens before. They reference Auger as one of the original types. But there were a couple issues with that previous iteration of intersubjective slashing token. One being that it is very special purpose.

So it was just built for like, the arbitration process was just built for prediction markets. Yeah, I got thumbs up bubble. I hate those things, by the way. I don't. Oh, they bring me joy.

Mike Ippolito

I think it's funny, every once in a while on our Zoom summer will give like the thumbs up or like the balloons will fall from the. Yeah, you have very serious conversation. I've just have balloons all over my head. Yeah. Anyways, okay.

Miles Deutscher

And so, anyway, so, yeah, previous iterations with special purpose. And the other problem is that when there is, you know, a slashing event, right? That's intersubjective. It's handled via a fork. So the token forks, now that's all good in a world without DeFi, but now that's really challenging when you have two different versions of these tokens and one should have no market value.

But that means everybody who has that token, not in the staking contract in DeFi, has to be able to follow the correct fork. It's just not practical, and nobody's pursued it before because it's because of the challenges there. So Eigen breaks these trade offs by creating this purpose built token that is meant to handle intersubjective and attributable types of slashing events. The trade offs they've broken is that this is now a universal token. So Eigen can be used for any different AV's.

And they do this because what's built into the eigen contracts is that you can set up rules as you're setting up the AV's, instead of everything following one special purpose set of rules you can make. This is more modular, where you can have each AV's have its own set of pre agreed upon rules and laws, right? So that when there is a slashing event, it's really, it's not contentious. Everybody who is observing and knows the rules because their preset can follow them and follow the right fork. So I'll pause there, but definitely have some more comments to kind of unpack.

Mike Ippolito

So. All right. There's a lot there. And I think there's kind of like the value of a work token. And then there's also this objective versus inter subjective slashing conditions.

And to give you an idea, I think one you and I were talking about this old example from August of last year in Cosmos, which ended up. It's something called Prop 818. And it was this very contentious vote that got done. This was in the early days of replicated security around Cosmos, where two validators double signed. So in a sense, this is a bad example, because this is actually a really objective slashing condition.

But listening to the drama play out of whether or not these validators should actually be slashed could tell you a little something about how contentious anything that isn't pure, even this case, was interesting because it was actually purely objective, like how much human drama these sorts of events can actually create. Because this is people's money on the line, right? And I think in the cosmos example, I think that these validators actually get tombstone, so they just get booted out and they can't come back. So there was more than just the whatever the slashing conditions were. Yeah, there was like much greater.

Miles Deutscher

Yeah. And to me that, you know, points to the huge importance of like setting pre agreed upon processes and rules, you know, before these things launch slashing. Right. And in that case it was even the fact that governance had to actively do the slashing is probably not ideal. If it's objective, then it's on chain, then it should just follow a set of smart contracts or that process happens automatically.

If it's something really messy, then you should have agreed upon the rules beforehand and make the decision that has to go through governance as non contentious as possible. It's, hey, here are the rules. They broke them. Vote yes if you are following the rules that you also agreed to follow. That to me is the importance of setting all of this up well in advance and especially with having two sets of slashing rules, or if you have two types of work tokens and that map to different types of slashing, making that all very clear and making the latter the messy kind, able to be AV's specific because AVss will have their own rules.

Mike Ippolito

So getting to the other part of this, which is just this idea of work tokens, this is, I agree with you, this is just such an interesting innovation. You got to hand it to eigen layer. They are category creators. They came up with the whole concept of restaking. And I think this is, you know, people talk a lot about tokenomics, but I think this is probably the first genuinely innovative tokenomic like token design that I've seen in, in quite some time.

And if you think about the value of ether being okay, people view it as a money, but the reason why you actually want to hold that is you need it to participate in validating the Ethereum network. And you can do things like stake it and get rewards, etcetera. This is positioning Eigen, the token within the Eigen layer restaking ecosystem as something very similar. It's a work token, and there's a reason to hold it outside of a more traditional equity app token thing where you're getting stream of cash flows. It actually belongs within the protocol and it's not jammed in there or Jim, it's actually done in such a way that it solves a real problem.

I think the Ethereum, there needs to be a better word than Ethereum deed state. But the Ethereum core devs, Ethereum foundation is going to like this a lot because there was always a concern around Eigen layer overloading Ethereum's consensus. This removes an enormous portion of those risks, and I think it's going to accrue a lot of value to Eigen the token. Yeah, let's maybe unpack exactly what that means, though, by showing the worst case scenario without this Eigen token staking design versus what a worst case scenario would look like with it. Imagine there's a huge AV's like Eigen DA, and Eigen DA has hundreds of roll ups that it's supporting.

Miles Deutscher

For Eigen DA, the inter subjective type of slashing is data withholding, meaning. So these eigenda operators download the data. They have a system called proof of custody, which is objective and attributable. So if the operator doesn't download the data, we have the way to prove that and slash them with anything. All the data is on chain.

You can actually see that. But there's this second concept of what if they downloaded the data, they pass the proof of custody test, but then they withhold the data. They don't make it available, right? Not making data available is not something that you can prove on chain. So that's the inter subjective type of slashing here.

And without this dual staking sort of system where I can handle the intersubjective type, the data withholding, what would end up happening is, let's say the majority of Eigen DA validators collude, and so they are doing something where it looks like the majority is all doing it, which usually means it's correct and honest. But in this case, it's a dishonest majority. They withhold a bunch of data. Let's say the sequencer operators that are in cahoots with the DA operators are able to basically steal a bunch of user funds. Um, and now without Eigen here, the only way to punish these operators and to, you know, basically recover these funds is to fork Ethereum itself.

Like, this is the example of what people are worried about when they say overloading Ethereum's consensus, meaning that, you know, the slashing, you know, is not provable on chain. And so you have to do it through some sort of like, social consensus or governance. And without eigenvalue, that fallback is ethereum itself. That's when all the folks that warned us about the risks of Eigen come out and say, this is what we told you. Overloading Ethereum's consensus, no good, bad outcome.

Now, let's take that same scenario with this dual staking design.

In this dual staking design, you would have basically the proof of custody. So the storing and the downloading, storing part, basically secured by restaked ETH and you would have data withholding secured by restaked Eigen. Now the same scenario occurs. You can actually punish these actors, even if it's the majority that colluded by basically submitting a challenge that says, hey guys, we agreed upon this preset rule that they had to not only store and download, but they had to make the data available. Right.

We can all see right with our human eye that they did not make the data available. We're going to fork Eigen, or we're going to fork be Eigen and those that we're going to vote on it. Okay, great. So now we have a new version of Eigen that is the canonical Eigen. The dishonest validators are punished because this new fork basically burns all the tokens that were staked to them.

And so we don't have to actually fork Ethereum through social consensus in order to punish the dishonest validators. We can punish them at the more of like the app layer with this ERC 20 token that was staked to them. Yeah, so in that case, yeah, EF is happy you didn't overload ethereum social consensus. You kind of pushed, kicked all that, the messy slashing stuff to eigen token. And that's good because it satisfies basically both types of faults.

And beforehand, you could not actually punish those bad actors without forking Ethereum. So there's a lot to unpack there. And I think the immediate. All right, so let's talk about this within the context of eigen the token. Is this a good thing or a bad thing or a bullish or bearish token?

Mike Ippolito

I suppose you could make a case that it would be bearish, the token, because what's the phrase you're making at first risk capital? You are essentially securing, basically, you're underwriting any risks within this rehypothecation system. And you're saying that, look, I'm going to position our network equity token as the first risk capital, which, to be honest, is what aave and some of the other DeFi protocols do as well. Its what banks do, and thats kind of risky. Eventually, over a long enough period of time, bad things happen.

You end up burning through some equity value and then people apply a little bit of a discount there. Sure. Okay, so maybe thats not great. I do think, though, the. Well, im just going to say I dont really agree with that take, because I think, first of all, the risk of slashing does not happen very often.

And to be honest, there, especially as soon as you get into this realm of inner subjectivity, no one's really incentivized for it to happen. Even. There's a huge difference between forking Ethereum versus forking Eigen layer, but even the hurdle rate for approving a vote to fork Eigen layer is extremely high. I think these slashing events are not going to happen very much at all. And so I think you're a positioning Eigen is extremely useful token, and I think there's probably much less risk than there would be in the case of like a bank or something like that defaulting on its portfolio of loans.

There also is an emerging school of thought that actually slashing, maybe we don't need slashing really at all. This is a quote from Toegrill over at scroll. The more time passes, the more I start to agree with Kevin Sekniki from evil labs that slashing is not necessary for protocol security. And I've heard this take around before. This was six months ago.

People were debating should there even be slashing on Eigen Lair ever. And I was always in the camp that you need slashing. But one thing I've been thinking about is that in bitcoin there's really no concept of slashing. And that actually works. I know, don't at me.

I know proof of work and proof of stake are very different, but it actually kind of works fine. I don't know. I've been more in the camp that maybe slashing it is a little bit of an overrated concept in general. And yeah, I think it's just very bullish. I think that's not a significant risk.

And whatever the benefits that you get from making Eigen necessary to hold and valuable outweigh the risks of slashing. Cool. Yeah, I agree. Just to address the slashing, is it useful or not? Piece first and then I can give you like my overall thoughts on the token.

Miles Deutscher

So I would say not having slashing with proof of stake, it still does make the cost of attack higher, right. If you have proof of stake without slashing, and you're able to, even if you bring in a bunch of restaked security without slashing, that still makes the cost of attack higher, not nothing, right? And so yeah, like we been very involved in the development of mesh security and we're going to do a similar rollout of mesh security without slashing. Then mesh security with like some slashing, because there are benefits to just increasing that, you know, economic security number to a very high number. Like, you know, to a very high value makes it harder to actually attack the chain.

The second piece is, if you were to. My biggest qualm with slashing is that it's typically the operators that would be doing anything malicious and it's not their capital, right. That's getting slashed. So you're slashing these like everyday stakers because they selected the wrong operator. The operator is basically getting the reputation slash.

But let's just put that aside for a second, because I do think these systems are more secure with slashing. It's just a question of like, can you basically get most of those benefits without it? Now to my overall thoughts on the token, I think this is overall, I totally get the first risk capital. I think it's a bit skeuomorphic and I don't think it's. I think you could argue that every l one token is first risk capital.

In that sense, we're not bearish on them. So why, I actually, I really love this because I think everybody was looking at slashing coming. And again, the really messy slashing types, the AV's specific slashing types are pretty scary, at least on the sur, on the surface. And by kind of kicking all of the messy slashing types to Eigen, that keeps the cost of capital for restaked ethics really low indefinitely. Right.

It's saying the only way that this actually the only risk you're taking on is double signing and like incorrect execution, maybe. And those things are, you can mitigate those things with lots of different tools. Like, you know, cubist is a great product that has like the, the anti slasher, which protects against double signing. And that is because my worry was that when slashing is implemented, there would be very big outflows because people that were there who are okay with the risks of depositing without slashing, maybe they're not okay with the risks of depositing with slashing. Now you're limiting the surface area of what can be slashed with that huge number of TVL and kicking that over to Eigen.

And that's okay. That keeps the cost of capital of that original TVL really, really low. I've got a question for you on that, though. So let's put ourselves in the shoes of an AV's that's procuring security here. Now, initially, everyone was just doing it in ETH terms.

Mike Ippolito

Now they're going to have to make this extra decision. How much do I want in ETH denominate security and how much do I want in Eigen, if the idea is that? And how is it going to work in between? Okay, ETH is lower cost of capital, so maybe cheaper to acquire. Like you can buy in bulk type thing.

People already own it, right? People already own it, but you're not actually insuring yourself from some of the riskier inner subjective challenges that you actually could have. So how do you balance, what is the mix going to look like ultimately, of Eigen denominated security versus ETH denominated security? That's a great question. Versus, versus also the native token, which is originally what we were talking about.

Dual restaking. Yeah, they were there. There was going to be some amount of their own token.

Miles Deutscher

The short answer is we don't know. I think in terms of the cost, it will probably be ETH is the cheapest because it's the most abundant and there's the least amount of slashing risks around it. Eigen is probably going to be the second cheapest because everybody like Eigen is going to be a much larger market cap than all of these AV's tokens. And anybody in the Eigen layer ecosystem who is already staked ETH is going to own some Eigen and they're going to restake that too. Now is there are projects because projects haven't really been.

Doesn't seem like they're being very precise, right? With the amount of like ETH restaked ETH that they want. It's just kind of like, let's get a big number. I don't know how precise they're going to be with the amount of restake Eigen. I suspect it's actually not going to be that, that precise as well.

But it's hard. It's hard to say. And now there's this last question on the native token staking, right? Yeah. Right.

Because you could have you there is, you know, I kind of need to think about it a little bit more. I would say that there's a world where you could have, maybe you could kick the inter subjective slashing to the native token only and then use that instead of Eigen and then have restaked ETH. Just get you that big number for objective and attributable slashing. I think the challenge there is that it's still not as abundant as Eigen is going to be for among this supply side of operators and stakers. Not everybody's going to hold your native token.

You're going to have to go get. It's going to like a cosmos chain. You have to get investors, et cetera, et cetera. And two, it's not custom built really to handle these inter subjective slashing. Events.

There's a world where native tokens that would have to fork maybe to actually resolve some of these really, really messy tyranny of the majority slashing events. That's actually not great, because they have that token used in Defi as well. And that goes back to that original issue. Whereas this Eigen token is custom built to be able to handle those. Those sort of forks without disturbing liquid Eigen, which is being used in Defi.

I would say that could have these try staking systems where you get, really, the majority of your security. This feels complicated. How about this, though? You could pay for security with emissions to Eigen stakers and to ETH stakers. And you could send protocol revenue to native token stakers.

And then as your protocol grows over time, you could make, you know, these could also be like two different consensus sets. Yeah, I agree. Seems really freaking complicated. But at the same time, there is a way to do this where it's not saying that token holders are missing out on value capture here. I think value capture of protocol revenue is a totally separate question than what's securing your protocol.

There's lot there. Okay. So we don't really know how it's going to shake out in between what protocols are going to want more ETH or eigenvalue. How are the yield dynamics going to work here? And I think there are two things.

Mike Ippolito

Like, one thing that I am at least questioning is there was always a little bit of a question of where is the yield going to come from on the ETH. Because there are 50 avss Eigen layer announced, 50 plus abs's. But there's $16 billion worth of ETH. And the whole point of restaking is that the emissions are lower than they otherwise would be if you were just a cosmos chain or whatever. So how much of that, like, what is the APY going to be on the units of ETH that are getting deposited?

Like, not super high. And the delta, there was going to be the Eigen token as really people were farming Eigen. But now Eigen has positioned itself as, like, actually we are, you know, the Eigen token is kind of the token that is going to be accruing some of the yield. And again, the other reason is this is bullish, for Eigen is now Eigens going to have its own return stream. But now, is the role of Eigen going to be subsidizing the ETH deposits still?

Like, how is that whole yield dynamic gonna work? You know? Yeah, I agree with you if you're saying that, like, we were already gonna have to use Eigen to bridge the gap for ETH stakers. And now you're gonna also have to use Eigen here to incentivize Eigen staking and, yeah, that it could end up being a challenge. I still think it solves more problems than it causes, though.

Miles Deutscher

I think that's one of the examples it causes, or like one of the maybe like, issues that get caused here. But I think people are just going to want to hold and stake Eigen as a way to basically get this index exposure to all of these AV's rewards. Um, and so, you know, I think AV's emissions, airdrops, that's going to cover some, some portion. Right. Uh, I think LRT's are going to handle a lot of these agreements in general.

And, yeah, I think, I think it's still fair to like, ask what the APY is going to be, though, and look at this big number and say, like, well, it's just getting bigger now. Right. And, yeah, you need lots and lots of Abs's. And I do think that this also just so without Eigen, again, what other problems does this solve for Eigen longer term? It does solve kind of a monetization problem, right?

Mike Ippolito

Yeah. If Eigen was just a governance token, then the only way to actually, like, have value flow back to Eigen holders would have been to take a rake on those ETH payments, those payments to ETH stakers. And we're already saying that there's too many deposits for the amount of value that's going to be flowing to them. If you were to try to take a rake on top of that, that's a really tough, overly extractive proposition. Whereas you introduce Eigen and you give it, like, you give it a purpose that solves a protocol problem, right.

Miles Deutscher

And value can flow back to it for solving that problem, because you take on risk as maggots taker. So, yeah, no, overall, I think extremely bullish. So here's like, maybe zooming out of these specifics in general, is one of the reasons that I was, and remain very bullish on Eigen layer for ETH value accrual was that you're going to unlock this new yield reward stream. And I know this is kind of a heretical or sort of unpopular opinion, but the reason I think ETH is very bullish as an asset writ large is that it can do this thing that bitcoin can't, which is earn yield. And I understand the, the logical arguments that a lot of people, because it's a work token, it is a productive work token.

Mike Ippolito

And by making it a universal work token that's productive asset. You are expanding the market share of the reward streams that ETH can accrue to it. So in a sense this is, now you're taking some of those reward streams and diverting them to the Eigen token. And I think probably it's, it's a positive sum thing overall because you're mitigating a lot of the risk that ETH was gonna take on by earning those new reward streams. But yeah, I don't know.

So I think it's probably just positive sum, actually. I think so too. I think the risk that like ETH would have taken on, you know, without, by you know, taking on both the like pretty straightforward types of slashing and the messy kinds like would probably not be worth whatever the marginal rewards they get for taking the intra subjective messy stuff. At some point it just would have been really scary and it would have raised the cost of capital a lot for avss, which would have in turn like actually probably stymied the whole growth of this restaking ecosystem. So yeah, I think no net, very positive.

Miles Deutscher

They are using this token to solve challenges that the protocol add. They're using this token to keep the economics of the marketplace really healthy and really, I guess the cost low on the supply side. Then they have now a great excuse to take basically capture value from the entire ecosystem of AVss because the token is actually doing something critical for them. Yeah, but this question of like will every AV's adopt eigen for intersubjective and attributable like source of work. I think, I think they will, but I think it's right to question and really kind of like unpack what the trade offs are of using this versus just using uh, the native slashing token with, with restaked ETH.

Mike Ippolito

Yeah, I, I think there, there is a question there. I do think maybe some protocols will opt not to do it, but overall I think it's kind of a no brainer from, it's just rare that you see such a win win win. And maybe I'm be, I hear myself being really positive on it. If there are alternative opinions or pushback, whatever hit me and miles up about it, because I would love to. I know this is still really early, this news just got unveiled a couple days ago, but yeah, when I kind of got the gist of what they were describing, it just clicked for me and made a ton of sense.

So I'm supportive of it. Yeah, exactly. I think at the end of the day, it's up to the demand side of AVss to decide if this is really bullish or not. But on paper, if you're eigen layer and you can get them to adopt it, then, yeah, incredibly positive development, I think. Yeah.

Cool. It'll be fun to see how this plays out and, you know, how these actual like, designs are set up and if we have like a, you know, set of best practices that we kind of land on sooner rather than later. But also maybe the last, last thing. I wonder what these like, you know, incoming competitors are going to do now. Me too.

Miles Deutscher

Right? You've kind of unveiled now this new concept.

It's going to be even more egregious if you just copy and paste this exact same concept for whatever your new restaking protocol is. Or is there a way that they're going to counter position with something that's a little bit more like, hey, you don't have to make our token integral to your security system. Like, we're going to make it easy for you to lean on your native token at the cost of maybe value capture from our side. So. Yeah, well, pay attention to how to, like, these competitors counter position or if they just.

Mike Ippolito

Well, I think. I think I'm taking a leaf out of your book here. I think there's a distinction that the market doesn't fully get yet, which is the external versus native restaking. And I think there's a big opportunity for. There's protocol that's launching later this year, which is probably going to go with the native repository.

There are a couple angles you could do. You could really focus on the native stuff and try to adopt a large majority of ETH validators and do mev boost like, things, which makes a lot of sense to me. You could. I know you're not super bullish on this. I just think it really depends.

You could accept multiple assets going for ETH. You do? I'm bullish on that for some reasons. Yeah. Just not.

Okay, cool. Yeah, so I think there are different angles. There was an article in coindesk this week about how Solana restaking is taking over and they hinted that Jito is, you know, unconfirmed if that's true, but, you know, hinted that Jito is getting into that game. And so, yeah, I think, honestly, I think it's. I bet you we could do an update pod in like three months.

I bet restaking is going to become a routed space because just like anything else, they're going to be copycats. And to be honest, probably people are going to lose a lot of money. I think Eigen layer has a pretty strong first mover advantage here, but we'll see. I agree. You could counter position like the axies are on the design of the protocol.

Miles Deutscher

You could counter position by going after a different set of use cases, as you mentioned, native versus this external restaking. Or you could counter position with different sort of economics, maybe propping up the native token more so than of your customers, more so than using something like Eigen or whatever their governance token is. Of all those, I hate the last one the most. Because the ultimate problem with shared security and restaking is I think you're asking people to basically take on the equivalent of foreign exchange risk, sort of like getting paid in like something that is sort of low liquidity and unproven, etcetera. And it could go to zero type thing, as opposed to a token they actually want to hold, which is ETH and maybe Eigen.

Mike Ippolito

So I don't know, I think propping that up is you're taking on even more of that risk than you otherwise would. And if it were me, I'd be taking a risk management if I was in charge of one of these risk taking protocols. I know you have to, you know, hey, mister misses AV's like, we're not going to dump your token, but like, realistically they want to dump the token, you know, not trying to hold these things on the balance sheet and take a bunch of token risks. Yeah, exactly. Exactly.

Yeah. So lots more to come. Yeah, yeah. Well, the other just an ending. We're going to pour one out for our fallen homie, CZ.

I don't know if he's a fallen homie or whatever he is, but CZ's got four months in prison for violating Kyc AML. So. End of an era. End of an era. But you know, he's going to hold on to all of his binance shares.

I can't believe he got four. That's so. It is a simulation. Simulation confirmed. Yeah, but, yeah, I wonder if that's a little bit of a win win because four months of jail sucks, but he keeps all of his, he retains his ownership.

He only had to pay a $50 million fine. Only 50 million. I mean, he's got, you know, he got 10 billion. It is only 50 million or however many billions he's got. A lot.

Yeah, yeah, yeah. It's crazy. Yeah, I think curious doesn't feel like binance has been affected, so as long as finance keeps chugging, it's kind of like a, we'll see you in four months. Yeah. I wonder, all these personalities, I do wonder how they're going to evolve.

A lot of them are just going to get churned out. But I could see cz being maybe a Michael Milken sort of figure, just kind of revered. I think people like Michael Milken because, a, it seems like he was a really bright guy, very innovative in a lot of senses, but he was representative of kind of the cowboy days of Wall street, the Wild West, LBO, junk bond takeovers that used to happen. And there's probably on Wall Street, I would guess, a heavy amount of nostalgia for those days. And, you know, right now, you and I spend a lot of time like this wild west kind of era, but, you know, when it's gone, I bet we're gonna miss it.

I think this too, Will. Yeah. 100% keeps it entertaining. Oh, you know, it will be a lot more boring at some point, but okay. There is no industry like it.

It just moves so fast. It's so dynamic. It's so interesting. Yeah. Go away for six days and come back.

Miles Deutscher

Come back to a whole new, whole new newsfeed. Yeah. Like, does that happen in any other industry? If you left, I don't know, healthcare for six days, would you feel like. You missed a full year of stuff, mostly curd cancer.

No, I agree. I've been working on that for a while. Yeah. Yeah. All right, buddy.

Mike Ippolito

This is a fun one. I think we can drop it here. Yeah. I hope we did it justice. We got more to talk about soon.

Miles Deutscher

We'll get more details and. Yeah, good to. A lot of fun there was, buddy. It was all right. I'll see you.

Mike Ippolito

Hey, everyone. Mike here. If you're a bell curve listener, you know that transferring assets across chains can be a massive pain. I certainly do. I complain about it on this program all the time.

That is why we are incredibly excited to have teamed up with the Wormhole foundation, the stewards of the wormhole protocol. And the coolest part about this particular partnership is that they have made custom bell curve nfts, which you can get and mint for free. Click the link at the bottom of this episode. Take you get your free NFT.