Author: Aleks Gilbert, DL News

Translated by: Felix, PANews

In an exclusive interview with Sreeram Kannan, the founder of the restaking protocol EigenLayer, he discussed the protocol's explosive launch and the lessons learned from the controversies that arose after EigenLayer's introduction.

Since its launch in June 2023, EigenLayer has achieved a start that many crypto projects dream of.

EigenLayer has accumulated approximately $20 billion in user deposits, and its parent company received a $100 million investment from a16z.

Even better, the project quickly proved its value: according to founder Sreeram Kannan, over 100 projects have flocked to EigenLayer, including cryptocurrency exchange Kraken and interoperability protocol developer LayerZero Labs.

However, EigenLayer may have developed too aggressively, facing a series of controversies, including accusations that it attempted to buy off some influential crypto researchers (and key researchers).

“For some reason, EigenLayer has become the center of Ethereum to some extent,” founder Sreeram Kannan said in an interview. “And we were not prepared to be the center of a major ecosystem.”

EigenLayer currently has $11 billion in deposits. Although it may have originated from academia (Sreeram Kannan is a professor at the University of Washington), with the goal of creating a “decentralized trust-free market,” its launch has become a classic story of overnight success.

EigenLayer makes it easier for certain protocols to launch by allowing projects to leverage the computers and Ether (ETH) that run and secure Ethereum itself, a process known as restaking.

At last year's Istanbul conference, Kannan likened this concept to military alliances.

“Cities have no armies, nations have armies. Sometimes, even many nation-states coordinate to establish truly cooperative alliances.” “This is exactly the same phenomenon. Shared security is absolutely better.”

Some Ethereum researchers quickly viewed EigenLayer as a breakthrough. But others warned that too many services relying on the same batch of Ether for security could undermine the stability of the blockchain.

In other words, if a project built on EigenLayer fails, the restaked ETH would fail as well. To continue Kannan's analogy: if a city fails, then the entire army would fail too.

In short, critics worry this could lead to a chain reaction of failures that ultimately harms Ethereum itself.

To alleviate concerns, EigenLayer rolls out a new feature every few months. Later this year, EigenLayer will change its security model to limit the impact when certain applications fail.

However, one attempt to emphasize security did not go well.

Earlier this year, EigenLayer hired prominent Ethereum Foundation researchers Justin Drake and Dankrad Feist as advisors.

They were hired to address the risks that restaking poses to Ethereum and were compensated handsomely. Drake's daily rate could be worth millions of dollars.

Conflict of Interest

But this conflict of interest was only made public after a crypto KOL wrote about it on social media.

The lack of transparency not only contradicts DeFi values but also sparked criticism of the Ethereum Foundation for ignoring conflicts of interest.

Rotki founder Lefteris Karapetsas wrote, “I am shocked that our Ethereum Foundation researchers, who guide protocol development, receive six-figure and seven-figure compensation from the protocol.”

Drake and Feist both stated they would not compromise because of EigenLayer's money.

Feist said that if implemented correctly, EigenLayer would bring “huge benefits” to Ethereum. “I believe the current leadership intends to do this, and I plan to hold them accountable for it.” “If I believe that is no longer the case, I will not hesitate to express that and/or resign.”

Drake pledged to use all the money he earns from EigenLayer for other Ethereum projects in the form of grants or investments. “I am also ready to terminate my advisory position at any time, for example, if EigenLayer moves in a direction I believe is against Ethereum's interests.”

The value of cryptocurrencies deposited inEigenLayerreached$20billion at its peak.

According to Kannan, at the request of the Ethereum Foundation, EigenLayer delayed announcing its partnership, as the Ethereum Foundation wanted to disclose the relationship themselves.

However, crypto KOL Jordan Fish (better known as Cobie) wrote on X that Ethereum Foundation researchers were “obtaining life-changing funding” from projects that “may have incentive conflicts with Ethereum,” then mentioned EigenLayer.

Drake confirmed this relationship on his website and X, adding that the cryptocurrency he received could ultimately be worth millions of dollars.

Feist also confirmed this relationship, although he only stated that his compensation was “a certain amount of tokens.”

In response, Kannan claimed, “Although people think this is some kind of disruptive thing. The reality is not so.”

Complete Transparency

“It is completely transparent; we talked to the Ethereum Foundation. The Ethereum Foundation asked us not to publicize it. … They said, ‘We will publicize it ourselves, in the right way.’”

But according to Kannan, this payment was also a thank you to the two researchers for their significant contributions to shaping EigenLayer's direction.

Kannan stated, “EigenDA is a protocol built on the ideas of Dankrad and Justin. We want to reward those who actually invested and created these ideas.”

But just as one wave calmed, another arose.

Token Vesting

An article in August reported that Eigen Labs pressured partner companies to distribute new tokens to employees.

Eigen Labs denied this allegation. Then in September, some critics pointed out that there was evidence suggesting that early, well-funded EigenLayer investors could bypass token vesting, which the company stated was an exaggerated concern.

Kannan stated, “In the crypto space, being correct is not enough. Generally, when you want to build trust, you have to prove you are correct; this is a higher standard.” “This is really difficult, especially for a project of this scale.”

To address this challenge, Kannan stated the company is investing more manpower to improve transparency standards.

“If we want to be the coordinating engine for humanity, we need to be able to withstand this (scrutiny).”

Kannan once doubted that cryptocurrency was a speculative bubble, but now he speaks like a true believer, often using passionate rhetoric.

Kannan recalled, “I had dinner with a U.S. Congressman, and he asked, ‘Can you tell me why you are in cryptocurrency?’”

“Many DeFi protocol founders say, ‘To improve the financial system and make it inflation-resistant,’ these are familiar and well-received phrases. But I said, ‘This is the greatest leap for human civilization since the Constitution was enacted.’”

Kannan is passionate about peer-to-peer networks and entered the cryptocurrency field in 2018. He wrote academic papers on the subject and eventually set out to create his own blockchain called “Trifecta.” But he was unable to raise funds.

If he had successfully attracted venture capital, launching the blockchain would have been easier. But if the new blockchain is based on Ethereum, it can also be launched easily.

“EigenLayer is seen as a mechanism that can solve its own problems.”

Related Articles: Review of EigenLayer's Trust Controversy: Investor Staking Rewards, Lock-up Tricks, Token Distribution Issues on the Table

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