Video Source: "S7 Ep. 4 - Coordination Acceleration W/ Sreeram Kannan (EigenLayer)"

Translation: Cyrus

Proofreading: Elsa

This article aims to help readers quickly understand the exciting conversation between Kevin and EigenLayer founder Sreeram, covering the concept of restaking, the application of blockchain in capital allocation and commitment mechanisms, and the future integration of AI and cryptocurrency technology. By analyzing how to extend Ethereum's security and trust to more decentralized projects, the article showcases the immense potential of blockchain in collaboration and innovation, while outlining a more equitable and efficient distributed future for readers.

01 Translator's Preface

In our daily lives, we often encounter situations where we can only use specific payment methods. Have you ever faced such a dilemma? This limitation can make it inconvenient for some people to conduct transactions. Some large institutions or platforms control vast resources, making it difficult for ordinary individuals to participate fairly. This not only stifles innovation but also leads to uneven distribution.

In a society that highly values individual freedom and resource allocation, is it possible to organize and distribute resources in a more efficient and equitable way to solve the current coordination issues?

The concept of "restaking" proposed by EigenLayer attempts to address these problems through technological means. In simple terms, it allows Ethereum stakers to use their already staked ETH for other projects, thereby providing security for more decentralized applications. This not only improves the efficiency of capital usage but also creates fairer opportunities for new blockchain projects. EigenLayer's open mechanism allows more projects and users to freely choose how to participate, no longer restricted by a single platform or set of rules. This flexibility not only lowers the barriers to entry but also attracts more innovators to join.

The significance behind this goes far beyond that. It brings more possibilities to the entire blockchain ecosystem, giving more people the opportunity to innovate in a more open and decentralized environment, collectively driving social and technological progress.

02 Podcast Introduction

Kevin: Welcome to the Greenpill.network podcast! If you are a new listener, please know that we are building a coordinated network society composed of thousands of hackers, dreamers, and doers, utilizing cryptocurrency technology to bring positive impacts to the world. This podcast focuses on those who are working towards this goal. We release a season every two months, with each season containing 5-10 episodes.

This season's theme is how to build a DAO (How to DAO). How to start a DAO? How to participate in a DAO? How to interact in a post-DAO world? I co-wrote a book called "How to DAO" with Puncar. In this season, we will talk with many leaders in the DAO era about how to DAO and their views on the development of the DAO ecosystem.

If you want to learn more about the podcast, you can visit our website greenpill.network, where you can download the book "Greenpilled" for free, join our Discord community, and become a member of the Greenpill.network chapter in your area.

In today's episode, we have invited Sreeram from EigenLayer, and we will discuss coordination acceleration.

Sreeram is the founder of EigenLayer and has previously served as a researcher and professor in the Department of Electrical and Computer Engineering at the University of Washington. His work covers information theory, machine learning, blockchain systems, and computational biology.

Sreeram is a co-founder of EigenLayer, a project focused on decentralized trust and economic security in blockchain systems. He has made significant contributions to the development of the Ethereum ecosystem, and EigenLayer is poised to redefine how projects interact with decentralized trust in the next phase of the ecosystem. What does this mean? We will discuss this topic with Sreeram in this episode.

We will discuss what EigenLayer is and what opportunities it provides for builders around the world. Then we will broaden our perspective and discuss Sreeram's arguments about coordination acceleration. Basically, you need to listen to this episode to find the answers. I think this episode is fantastic, and I believe you will enjoy this conversation with Sreeram.

Kevin: Hi, Sreeram, how have you been lately?

Sreeram: Hi, Kevin. I'm glad to be on the Greenpill podcast.

Kevin: It's great to have you on the Greenpill podcast. Maybe we can start with what you are working on. So, what is EigenLayer?

03 Introduction to EigenLayer

Sreeram: Hello everyone, I am Sreeram. I started the EigenLayer project about three and a half years ago when I was a professor at the University of Washington in Seattle. EigenLayer is a mechanism that provides decentralized trust for any new network. So if you look at what is cryptographic and what is non-cryptographic and try to distinguish between the two. If you add decentralized verifiable trust to something, you can say that it is cryptographic; if you remove decentralized trust from something, you would say that it is not cryptographic. Therefore, you can think of decentralized trust as the raw material of the entire crypto economy. If you consider blockchains like Ethereum, which is what we are building in, what they do is extract the source of decentralized trust and then transport and supply it in a specific way, which means you build blocks.

Thus, the concept of block space arises, where nodes reach consensus. They stake to provide this security, then they reach consensus, and later they run an execution environment where anyone can build and deploy new applications. This is a very specific form of providing trust. You can think of decentralized trust as "crude oil," which is continuously refined to ultimately create a refined product called "block space," which is what others consume.

The way we understand it is that when decentralized trust is presented in its most primitive form, it is actually very useful for people to establish new types of networks that are different from the constraints imposed by any specific blockchain. This is the concept of EigenLayer, where "Eigen" means "belonging to you" in German, or "your own layer." Anyone can build their own layer on top of this common source of decentralized trust. This is our core idea.

Kevin: As I prepared for this episode, I found two examples similar to EigenLayer in my research. One is that Vitalik realized that people should be able to initiate smart contracts without needing to launch an entire miner network, which is the general smart contract platform Ethereum. The other analogy, I think, is one you mentioned with Bankless in a podcast, which compares various applications on AWS to decentralized storage, decentralized computing, decentralized messaging, etc., which can be seen as general cloud computing services, while AVS (Autonomous Verifiable Services) on EigenLayer is somewhat like applications built on EigenLayer. So, transforming Ethereum's trust (originally just for block space) from a single use to a general use, allowing any developer to access billions of dollars of capital on Ethereum, is exactly what EigenLayer achieves. Is my expression accurate?

Sreeram: You said it wonderfully. From a cryptographic perspective, any blockchain consists of different layers. The base layer is security, either through staking or mining. Then you have consensus, where nodes reach consensus in some way. On top of that is execution, where some execution environments run, and applications run on these execution environments. You can think of Bitcoin as essentially fully vertically integrating these four layers. It is a specific form of security with a specific form of consensus, a specific form of execution environment, and a specific application—sending and receiving Bitcoin. As you said, what Ethereum does is break the top-level structure, proposing a fixed security, consensus, and execution mechanism, but anyone can build applications on top of it. This is a typical manifestation of the Ethereum paradigm.

Then, as Ethereum entered the rollup-centric era, innovation became more open. I see it as a gradual deepening of open innovation. In this model, people can come in and innovate without having to establish trust themselves. Therefore, any application developer on top of Ethereum can directly deploy applications on this smart contract platform. Of course, other L1s are also following Ethereum's direction, but Ethereum has actually taken the next step, which is surprising—that a platform can evolve in this way.

The next step is that not only can anyone build applications, but anyone can also build execution environments. This is precisely the core of the rollup-centric roadmap. Because I can run my own execution environment and prove to Ethereum that I have indeed run it correctly. Therefore, now anyone can build new execution environments, which is the next level of deepening open innovation. But we still find that consensus is still determined by Ethereum; this blockchain and its consensus method are unique. All scaling trade-offs are inherited by all systems. All rollups built on Ethereum must write data to Ethereum's data availability layer (DA) and related content. Therefore, the next phase of open innovation can be seen as "open consensus." This means there is only one universal security zone, and security comes from staking. Staking is a very powerful way to provide security because it imposes both positive incentives and negative penalties on those participating in these different protocols. I can let innovation happen at the consensus layer, execution layer, and application layer, and we are building these on top of Ethereum. Therefore, now all ETH staking, ERC-20 tokens, and other forms of economic value can be utilized within this platform.

Kevin: It's truly incredible to see the growth of this ecosystem. I'm also curious about what your favorite AVS ideas are and what the coolest things you see in and around EigenLayer are? I know you might not want to pick a direct "winner," but I just want to give the listeners an example of an AVS. What is AVS? What is your favorite example?

AVS (Autonomous Verifiable Services)

Sreeram: One way to understand it is to say "run a new consensus chain on top of this staking," which is a simple idea. But in reality, I think a better way to think about it is to view it as "services." This is also why we call it AVS. Initially, we viewed AVS as "actively validated services." But we are now redefining it as "Autonomous Verifiable Services." Autonomous means they operate independently. Anyone can participate in staking and run this verifiable service. Since anyone can run it, there needs to be some form of on-chain penalty contracts and conditions to ensure they are verified afterward. This is the category of services built on EigenLayer—Autonomous Verifiable Services.

So, what might these services be? The first category we explored is: can we complement Ethereum's rollup-centric roadmap? Rollups are on the rise, and I want to decentralize a sequencer. Perhaps I can create a consensus group on EigenLayer and run it, thereby decentralizing the sequencer. You want to achieve super-fast bridging between different rollups, and as long as there is enough economic staking on the bridge, it can easily relay messages between different rollups. You want to manage some form of MEV (Maximum Extractable Value). If there is a decentralized network that can ensure transactions are ordered in a fixed, pre-agreed manner.

Another example is data availability. Typically, you would publish data on Ethereum, which is the safest form of data availability, but you might need higher throughput. You can use data availability services built on EigenLayer. We have built a service called EigenDA. For example, EigenDA has a data throughput of 15 MB per second, while Ethereum only has 33 KB per second. So, there are several orders of magnitude difference here.

EigenDA is built based on the concept of Danksharding in Ethereum's roadmap, so we are adopting the Danksharding roadmap. Since we are just a small startup team, we can develop faster than Ethereum, as long as we proceed very cautiously. Therefore, this provides a layer of acceleration and innovation for Ethereum. These are examples of how EigenLayer services complement Ethereum's rollup-centric roadmap. Next, you can continue to think, perhaps not just about the rollup-centric roadmap, but various other possibilities. One category that excites me particularly is called coprocessors. Vitalik recently wrote an article titled "Glue and Coprocessor."

So, Ethereum's EVM can be seen as "Glue," and any service can run on top of it as a coprocessor. Coprocessors can be divided into two types: one runs certain tasks off-chain and then verifies their correctness through zero-knowledge proofs; the other is a cryptoeconomic game that ensures participants run correctly. This is similar to the trade-offs of zero-knowledge (ZK) types in Optimistic protocols. What can this cryptoeconomic coprocessor build? For example, AI.

This is a hot topic right now. Many people know that you recently did an episode about AI, which is one of the areas we are very interested in. When you think about AI, you want the output of AI to be verifiable, especially when bringing it on-chain. If your AI is unverifiable, it doesn't make sense. You can run AI off-chain, but you need to bring its results on-chain in a verifiable manner. Additionally, you can run other off-chain processes, such as running a database, running SQL, running off-chain games and bringing the results on-chain, or doing various interesting things like zero-knowledge proving (ZK proving).

Another category is cryptographic services. I want to store a secret on this decentralized network without any single node having the entire secret, but rather splitting it into small pieces and distributing it across the network. This is like secret sharing, secure multi-party computation, etc. We already have several projects building on EigenLayer that involve Fully Homomorphic Encryption (FHE). I want to compute on encrypted data rather than on plaintext. I want to compute directly on encrypted data. We do have some related technologies, such as trusted execution environments and hardware encryption. The characteristic of hardware encryption is that it ensures computations are run in a protected hardware environment without leaking secrets externally. This is a unique category. In fact, each of these technologies is very interesting.

About a year and a half ago, I gave a talk showcasing these different categories. Each category already has more than one developer building on EigenLayer. This is very surprising progress. Another very interesting category is some form of "proof." These proofs are not in the form of zero-knowledge proofs or computational proofs, but proofs of other attributes. For example, proof of location. The core of the entire crypto economy is decentralized trust, and one aspect of decentralization is geographical decentralization. So, how do I prove to a network that I am in a certain place in the world? Can I prove to the network that I am indeed at a specific location? This is similar to how GPS works. Basically, you need nodes to send you information to verify your location. Based on the round-trip delay speed of the information, the location of the nodes can be inferred. If this can be achieved in an adversarial-resistant way, even if some nodes provide adversarial answers, as long as there are enough nodes providing correct information overall, then this constitutes a location proof service. Location proof and human identity proof is another category that has frequently appeared in recent years on EigenLayer. There are also technologies like ZKTLS, which is a form of network proof. Typically, when you think of oracles, their function is to read internet data into the blockchain, but this data is usually public. However, data may also be visible only when I am logged in. In fact, most of the most interesting data on the internet basically requires login to access.

For example, I am an Uber driver wanting to switch to a new ride-hailing platform. I have spent three years building a 4.9 rating on Uber, and now I want to bring that rating to a new platform. However, currently, Uber controls my data and states that it will not send this information to other platforms. However, from the perspective of user ownership of data, users should be able to prove to this new network that I indeed have a 4.9 rating on Uber. Achieving this is very difficult, but there are already multiple protocols on EigenLayer that can accomplish this. I think this is a huge transformation because in the crypto space, we often talk about users owning their data. But I would usually think this could only apply to new systems built in the future, where new systems could have such characteristics. However, what we can do now is to bring users' data from Web2 into a new system in a way that users control. I think this is a significant advancement. Within the EigenLayer ecosystem, a topic we often discuss is how to conduct a "Vampire Attack" on the entire cloud computing system. That is to say, how to migrate all this data into the self-owned track of the crypto space. This is an overview of the different categories.

Kevin: Thank you for your answer. I want to shift from "What are the functions of EigenLayer" to deeper Green Pill questions. I think there is an interesting intersection between my work and yours, and I am curious to explore and weave these threads together, like improvising jazz on top of them. So, I will start this part of the conversation with this question: Why are we here? What is the goal we are building towards? What drives us?

04 Understanding "Coordination"

Sreeram: For me, my first interest in cryptocurrency came from resonating with an idea: as Yuval Harari said in "Sapiens," what makes humans special is not that we are smart, but that we can flexibly cooperate on a large scale. This became a very important and pivotal point for me, profoundly changing my personal understanding of how the world works. When I think about this issue, I realize that the main barrier to cooperation is trust, right? If I know I can trust you, I am willing to cooperate with you. If we can solve the trust issue, then we can create a new form of large-scale cooperation, which is a very crazy and significant upgrade for humanity.

So, this became my fundamental argument for cryptocurrency—just as the internet became the information superhighway, cryptocurrency can become our coordination superhighway. This is a crazy, interesting, and brilliant perspective that showcases what cryptocurrency should look like. At that time, I did not delve deeply into, for example, Kevin, your work and the efforts Ethereum is making in coordination; these ideas seemed to emerge from elsewhere.

My thought at the time was that if this is the main thing, then coordination is cooperation, and coordination mechanisms are actually very valuable for coordination. So, I was almost operating independently based on my assumptions without deeply intersecting with other relevant rich ideas. It wasn't until about three years ago that I discovered there was a lot of coordination work happening in the Ethereum ecosystem.

I realized that there is actually a large and vibrant culture around the idea of building better coordination systems and putting it into practice. At the same time, there is a large community and movement, part of which is led by you, Kevin. I was very pleased to discover this content. I would say this might be the main reason I chose to build in the Ethereum ecosystem. Because when you have a common vision, any person or project that drives more coordination makes me happy. I don't necessarily have to be the one to realize it. If someone is doing it, that's even better, because we can accelerate this process together. This is how I really started to engage with Ethereum.

This was probably around January to February 2022, when I first realized, oh, what these people are doing is exactly some of the high-level theories we proposed earlier, and they are actually trying to implement it. This was a profound inspiration for me. Since then, I have been paying attention to the specific manifestations of coordination. Where is this coordination happening in the cryptocurrency space? What measures can we take to accelerate this process? This is the basic structure of the entire framework.

Coordination Innovation Model

Over the past three years, I have not only been building EigenLayer, but in fact, I have been working in the crypto space for the past seven or eight years. I have been refining a model that guides all my work. I call it the "Coordination Innovation Model." So what is this idea? The idea is that any successful large-scale system, like the United States, will have an underlying coordination layer, such as the Constitution and government, while also having an innovation layer that enables innovation. Above the innovation layer, like the free market, people can exchange goods and services. The establishment of the free market is fundamentally due to the coordination layer—the Constitution, which ensures things like property rights. By clarifying this and making credible commitments, such as "if you own a property, then you truly own it."

Now, anyone can easily trade rights to that property in the free market and create value to make it liquid. Therefore, there exists a coordination layer as a support beneath the innovation layer. This is the starting point.

When we start to think, you often talk about non-zero-sum games. If you think about it, I believe there are fundamentally only two prototypes of non-zero-sum games. Non-zero-sum games are games where all participants can benefit, rather than a game involving win or lose.

When you think about possible typical games, I believe there are actually only two. One is innovation, which is inventing something from nothing; the other is coordination, where n individuals come together to create results that exceed the sum of their parts. Therefore, coordination and innovation are two typical positive-sum games. Moreover, they are actually hierarchically nested, progressing in a fractal manner. You can think of it this way, even tracing back to the evolutionary time scale, for example, before multicellular organisms appeared, you would find that within a single cell, division of labor first emerged, such as the nucleus and mitochondria.

Mitochondria focus on energy production, while the nucleus focuses on information dissemination, but they coordinate with each other. This coordination at this scale gives rise to innovation. Innovation is the birth of multicellular organisms. Therefore, throughout the long history of evolution, you will find that new coordination systems continuously emerge, followed by new innovations. And from this, a new coordination system will emerge again. This process will continue indefinitely. If you plot the progress on an evolutionary time scale, you can see that I believe innovation is evolutionary because it builds on each other's innovations. Coordination is revolutionary because the emergence of coordination systems is rare. Coordination requires binding commitments among n participants. n different participants must collectively accept, agree, and choose to join a new coordination system. This is why establishing new coordination systems is very, very difficult. It is not because they are inherently difficult to achieve, but because they require consensus and voluntary participation. Moreover, coordination systems are hard to emerge and even harder to change unless a change mechanism is embedded in their contracts. This explains why Bitcoin emerged.

Bitcoin, as a new coordination system, provides permissionless currency. However, changing it is very difficult. Before I truly started building EigenLayer, I wondered if it was possible to make Bitcoin use a new coordination system? But later I realized how difficult it is to change a coordination system. It is really very, very difficult. So the theory is: the hierarchy of social evolution consists of an innovation layer and new coordination layers that emerge above it. Then these new coordination layers will incentivize and promote the establishment of new innovation layers, and these layers are fractally nested together. All these different participants compete with each other, effectively creating a net growth engine. Then I saw that if we could really witness the birth of Bitcoin and Ethereum before our eyes, over the past decade, it gave us confidence that perhaps this game is not over. We can establish new coordination systems and make them strong and useful, serving all those who build on top of them. The vision of EigenLayer is to build a coordination engine for humanity. This is our goal. It has nothing to do with restaking, staking, or building decentralized networks. This is about creating a coordination engine for humanity. This is our main value. From this, we only find a small starting point, which is restaking.

Kevin: Awesome. I am a coordination extremist, so this is music to my ears. To help the audience understand better, let me recap: the layers of social innovation require coordination to be obtained, and then build new coordination infrastructure for future generations. By the way, we are recording this content through a coordination layer, which is TCP/IP and the internet. Therefore, these innovation layers are built on top of innovation. You can almost think of them as layers of sediment, fractally nested on top of each other. Each generation has pushed the development of super-complexity and has driven the processes needed for civilization to handle information and resource allocation. You have identified trust as the limiting factor in achieving this goal. And EigenLayer's focus is on decentralized trust, making it easier to access a vast pool of trust. The purpose of this service is to build a coordination engine for humanity. And that is the core value of EigenLayer.

Coordination Equation

Sreeram: Right. When you think about coordination, I have an equation that I call "Coordination = Communication + Commitment." So what do I think a coordination system is? A coordination system needs to allow participants to easily communicate with each other first, for example, the internet is our communication superhighway. So I can communicate with you through the internet. But what is missing is the ability to make binding commitments, for example, I want to make a commitment that if something happens, like the output of this podcast, we will split the profits. How do we do that? How do we reach these types of binding commitments? The internet itself does not have a native infrastructure to achieve this. When you think about commitments and who will fulfill or enforce the commitments, this is a very important bottleneck in coordination systems: who will fulfill the commitments? Who will enforce the commitments? How do we trust them? You can categorize commitments, one way to categorize them is to think of the historically dominant "authority-executed commitments."

That is, a single authoritative entity, like a king, who executes the commitments. For example, they might sign a contract stating "Kevin owns this house" and they will adhere to that commitment. So, you can have a commitment executed by an authority. You can also have a commitment executed by a committee, such as an organization collectively deciding how something should proceed. In the United States, you will see similar examples, such as the Federal Reserve, which is a committee that decides monetary policy. However, committees are more robust than authoritative entities, but committees also have issues, such as what are the incentives of the committee? Do the committee's incentives diverge from the common interests of everyone? Is there inherent selection bias in the committee? Does it have some form of representation? These are all issues related to committee-based execution. Then you can go further and discuss execution based on majority principles, such as a purely democratic system where a group of people gathers to vote and make decisions. But even commitments based on majority principles can have "tyranny of the majority." The majority may arbitrarily oppress the minority. And in fact, each of us is a minority in some respects. If you divide by different dimensions, everyone is a member of a minority in some sense. Therefore, commitments based on majority principles also have the problem of "tyranny of the majority." Next, you can ask: what is the deepest, most robust, and strictest commitment system? We call it "self-executing commitments," which are commitments that can execute themselves. This is an incredibly fundamental concept in a very fundamental sense, even making one wonder if it is really possible. I think, from a historical perspective, it is worth considering what these types of commitments actually are. For example, in the ancient times of kings, when trade was needed between different countries, a king could not trust another king, another king's committee, or the majority of another country. Therefore, they had to find some resource or mechanism to solve this problem.

If I want to trade across trust boundaries, like trading between ancient kingdoms, then when crossing trust boundaries, I need to hold something that can achieve self-executing value and complete value transfer. I believe all these evolutionary pressures gave rise to things like gold or other rare metals as trading mechanisms. Because when you give me a piece of gold, it is self-verifiable for me. I can know it is gold because I understand the properties of gold. And it is a very effective commitment for value transfer because I can pass it on, and no king, committee, or majority group can deny that it is gold. Because it is self-verifiable. Therefore, this became the cornerstone of the modern economy, as gold can interact and trade across trust boundaries. It is a self-executing value transfer commitment. In this way, in the past, you created this very powerful self-executing system. But the problem with gold is that, just like Bitcoin is the modern version of gold, it is merely a pure value transfer tool. For example, I can only complete value transfer through gold, not value distribution. Value distribution means being able to say, "If A, B, C, and D happen, then I will receive this portion of value, and you will receive that portion of value." This is a more expressive way, and gold does not have that capability. Therefore, we see the evolution from gold to various complex things, and I think the modern version of this system is like a constitution, such as the Bill of Rights, which is almost self-executing. Although it is not entirely self-executing, it is almost like that. When someone tries to seize power and violate the Constitution, it triggers a response similar to an "immune system," where people realize, "Oh my god, this is infringing on constitutional rights." And in a transitional period before that, religious texts actually played a similar role. Even kings could not override religious texts. Of course, sometimes kings would distort religious texts to suit their interests, but at least they had to adhere to some rules that could not be unilaterally violated. Therefore, I believe that before the emergence of cryptographic technology, self-executing systems went through three stages: the age of gold, the age of religion, and the age of the constitution. The constitution is the distillation of the coordinating elements in religion, writing these coordinating elements into constitutional texts, which is the essence of the constitution. I believe that cryptographic technology is accelerating the self-executing characteristics of coordination systems, which is the next era. I would love to hear your thoughts on these different versions of coordination systems.

05 Capital Allocation

Kevin: Very insightful. I can't wait to listen to this segment again, let me summarize what was just said, and then I will respond. We are building a coordination engine for humanity, and coordination equals communication plus commitment. Now, we can enter the phase of self-reinforcing binding commitments through smart contracts. The evolution of commitments includes the age of gold, the age of religion, and then the age of the constitution. And now, we are entering the era of on-chain commitments.

In fact, I have changed direction, shifting my past focus on meme propagation work, which I consider my area of fame, to on-chain resource allocation. Previously, we focused on themes that were beneficial to the world, positive-sum games, similar to the hippie-style themes in Boulder, Colorado (like ecological protection, peaceful cooperation, etc.). Now, our core idea has shifted to "on-chain capital allocation." Capital allocation is comparatively more precise, technical, and also more complex and profound.

I see capital allocation more as a powerful tool rather than something casual like playing frisbee (like the cultural atmosphere at the University of Boulder). However, I still cherish those values, but now I mainly focus on the field of capital allocation. The reason is that I believe capital allocation has undergone multiple redefinitions throughout history: from the age of gold, to the age of religion, and then to the age of the constitution. From the resource-sharing networks of the hunter-gatherer era to the harvest distribution of the agricultural era, and then to the industrial era's enhancement of production efficiency and realization of mass production. Each era has its own new methods of capital allocation.

Regardless of how society changes and how the underlying mechanisms of coordination evolve, the methods of capital allocation will change accordingly. I believe that studying how the "on-chain capital allocation era" operates is like laying the foundation for solving the problem of coordination failure. Because to achieve your desired goals, whether it's increasing company profits, supporting regenerative economies, biodiversity, or addressing climate change, efficient resource allocation must first be realized. So, the perspective I bring to this conversation is capital allocation.

Now that we have decentralized trust and new ways to create commitments, I think you can establish some bounded rules, so the previous issues in human coordination no longer exist. You know, you can solve the "free rider" problem and the "tyranny of the majority" problem. Essentially, we have an infinite canvas, which is Ethereum, to build these funding allocation processes, thereby directing funds to important places. Gitcoin's mission is actually to fund those important things, and capital allocation is our way of achieving that goal.

I believe that generations ago, Taiwan's semiconductor industry became a very important systemic part of the economy by etching circuits onto silicon wafers. Now, I think the next generation of builders will innovate similarly on Ethereum—they will "etch" capital allocation circuits onto Ethereum. I believe there will be a new generation of developers who will depict capital allocation "circuits" on Ethereum. Ethereum is like the silicon we use to build these "circuits." In what ways can we utilize this more efficient and effective medium (Ethereum) to achieve capital allocation, build more positive-sum games, more profitable structures, and better collaboration mechanisms, thus achieving the results we desire? Let's complete capital allocation directly on-chain. I find it hard to summarize a specific question, but I want to explore the intersection of credible commitments and on-chain capital allocation; I think this will be a topic worth delving into.

Understanding Capital

Sreeram: This is a fantastic idea because when you think about capital, I believe the generation of capital stems from property rights. Capital refers to things that have clear ownership. It can be money, property, or other things you can own. One day, I thought about the role of the market economy, part of which is to transform things without property rights into things with property rights. I'll stop here and want to hear your thoughts on this. The function of the market economy is not a normative or prescriptive view, but a descriptive perspective, right? It simply states that the role of the market economy is to convert things without property rights into things with property rights. First, I want to hear your opinion.

Kevin: I have two thoughts that are somewhat different, but we can look at my ideas first and then decide what to do next. The first thought is that I take the rule of law in the United States for granted because it has been a part of my entire life, and I have never experienced otherwise. However, if you look back at history or examine places in the world without property rights, you will see how different a world without property rights is and how it can greatly change people's quality of life. So first, I try not to take property rights for granted; it is these rights that allow me to own this computer, do many things, and enhance my happiness through these property rights.

The second point is somewhat different; I have recently been persuaded by Gregory Landua's idea of "eight forms of capital." Essentially, the core of this idea is that capital is not just financial capital. It actually includes knowledge capital, spiritual capital, material capital, and social capital. So I think perhaps having property rights over financial capital and financial resources can better preserve your resources like knowledge capital and social capital. Here, I am trying to guess how property rights relate to the other eight forms of capital. But I find it interesting that this podcast is a form of knowledge capital we are creating. Moreover, I think one very cool aspect of cryptocurrency is that we can create new ways to financialize social capital and knowledge capital, thus funding things we deem important, which has never been possible before. Because now we can turn this podcast into an NFT. My two thoughts are: do not take property rights for granted. Additionally, I am also thinking about eight different forms of capital, not just financial capital.

Sreeram: Many of the other types of capital you mentioned (besides financial capital) exist because there is a social mechanism that can attribute these capitals to you. For example, people do not casually steal others' ideas. Take the distribution mechanisms we have today (like posting content on the internet, where anyone can listen) as an example; this was unimaginable 30 years ago because whoever controls the platform controls others' ideas. For instance, you and I might have many good ideas, but if someone else owns the platform, they will control those ideas and even claim them as their own.

One phenomenon we see is that as the expressiveness of coordination systems increases, you can achieve specialization. For example, when you think about capital allocation, venture capital is an example of the specialization of capital, ideas, and innovation. Capital and innovation. One person provides capital, and another provides innovative ideas; they can collaborate and create output without needing one person to have both a lot of money and a lot of ideas—this situation is very rare, and having both is almost impossible. Therefore, the better the coordination system, the more these different forms of capital (the eight forms you mentioned) can coordinate and truly produce useful net output.

So, what can better forms of coordination actually achieve? Perhaps this is the core idea you elaborate on in your upcoming book: you can conduct more expressive capital allocation through new forms, and using these on-chain tools will actually promote more forms of coordination across the different types of resources and capital people possess.

Kevin: I am very excited about another area where on-chain capital allocation intersects with the EigenLayer ecosystem. A few months ago, I wrote an article titled "Restaking is Regenerative." The core idea is that restaking creates returns through productive economic activities, which is not free but is realized on top of the capital pool already used to protect the Ethereum network. There is a concept in nature called "exothermic," meaning they release heat. For example, the sun is such an example; all life on Earth derives energy from the sun or other heat sources (like volcanic heat), and in some cases, we even utilize nuclear reactions on Earth. Therefore, the concept of "exothermic" in nature relates to heat, but in cryptocurrency and our economy, there are also economically "exothermic" structures.

One of them is the actual stakers of Ethereum. Thus, I gain economic "exothermic" benefits, such as returns flowing into my personal economy. But what excites me is allowing a thousand different economic "exothermic" experiments in the AVS ecosystem to flow into these on-chain capital allocation structures. But the question is, how do we connect them? I think what you bring is exactly what we have been looking for. For example, I have funded public goods with Dogecoin for four years, and I am very grateful to the Akita community. Thank you for collaborating with us. But I hope for a return more like ETH or USD that we can connect to these on-chain capital allocation frameworks. I think Vitalik mentioned "impedance matching" in his show, which is about finding a balance between allocating capital for public goods and raising funds for public goods. And you have solved this problem through EigenLayer. So, what are your thoughts on the connection between restaking and regeneration?

06 Restaking and Regeneration

Sreeram: When we think about strategy, positioning, and other issues, we consider them from two axes.

The X-axis represents the long-term nature of something, right? For example, how profound is it intellectually? Does it truly have long-term value? All of this is reflected on the X-axis. On the Y-axis, we think about whether it is friendly to short-term participants. Is it suitable for those who are financially oriented? So you can think of the Y-axis as "speculators," while the X-axis represents pure "long-term value." I wonder if we can match these two. Because most great ideas need energy to take off, some kind of activation energy, and this activation energy can come from speculators. Because if you are entirely on the speculator axis, you are in a zero-sum game, like PVP (player versus player). But when you combine that with the mindset of long-term builders, thinking about what a long-term positive outcome is, you can actually leverage the energy of speculation to guide the birth of new systems, new technologies, and new things that ultimately are net positive. This aligns with another mental model I often use: when you talk about the multipolar trap or coordination failure, you can visualize these issues through a chart of solutions.

So, the X-axis represents all possible solutions, and the Y-axis represents the quality of the solutions. You will encounter some non-convex problems where there are local maxima (like a small hill), but the best solution is the global maximum (like a higher hill). However, to move from a local maximum to a global maximum, you must cross a valley, right? This is actually the most challenging part of solving coordination failures: you must get people to temporarily sacrifice their interests to reach this new global maximum. I think this is often very difficult to achieve. But we realize one thing, and I think this is another place where coordination and capital allocation theory intersect: by clarifying the value of the new hill, you can say, "Hey, if this new hill (global maximum) is realized, there will be this much value." What I am doing is borrowing that value from the future and distributing it to people today, so in the short term, it will not be net negative but positive.

Therefore, you are actually building a virtual slope between the local maximum and the global maximum, borrowing future value, clarifying what the future looks like and why this thing will have value in the future. Then, you can guide people to a better global maximum through this virtual slope. This line of thinking greatly inspires our thinking. This again connects to the theory of the two axes I proposed earlier: finding a global maximum and then finding a path to build that slope using financial and capital allocation tools.

I previously mentioned the theory of coordination innovation, where coordination systems are difficult to form, and the reason they are hard to form is precisely this "valley problem"—you must transition from one social equilibrium to another, and this requires crossing a valley, which is not a rational choice for individuals. Typically, we resort to altruism to cross this valley. But the problem is that very few people can truly be in a purely altruistic position due to various constraints. If we can enable all participants to achieve a win-win situation, then you can actually build such a system. I think treating the economic system as a form of capital that expresses this mechanism is very powerful.

Therefore, you can actually solve almost any coordination failure problem, not only through the various commitment techniques and tools we discussed but also by leveraging financial economic tools to borrow value from the future, which is a very powerful idea. In the cryptocurrency space, one manifestation of this idea is how people guide various market participants through tokens. What are tokens? Tokens are representations of this potential future value. If the network is realized, it will actually have some value. You are able to allocate a portion of ownership and a portion of value to participants.

Initially, this "valley" is very steep, and you might fall directly and fail. Therefore, you need to provide additional incentives. In the early stages, you need a lot of momentum to compensate for the risks people are taking. Then, over time, you need to balance this incentive. So I think this is another place where coordination theory and capital allocation theory intersect: by understanding this "topography," you can clarify the future value of this coordination system and share this value more equitably while extracting a portion of that value to compensate those risk-takers to encourage them to choose the new coordination system. I believe we can actually guide people from a local maximum to a global maximum.

Kevin: This is wonderful. I have a visual chart about this. If you watch on YouTube, I hope our editor Kishan can put it up. But basically, the visual image that comes to mind now is a concept of a search space where the X-axis represents all possible capital allocation structures or coordination structures, and the Y-axis represents their effectiveness in solving a problem or creating value. We are actually in a decentralized search space aimed at finding the best structure to solve coordination problems. If the structures of the industrial age or the internet age were this small, then the on-chain search space is much larger because we now achieve trusted commitments through smart contracts. We have decentralized trust in the large pool of EigenLayer and the Ethereum network.

Therefore, we are transcending the realms that existing economics has explored. It's like entering a new area in "The Legend of Zelda" and obtaining the map for that area. We are entering a world filled with trusted commitments, on-chain capital allocation, yields, etc., trying to figure out the best structure to coordinate human activities in the 21st century. One point I also hear here is that different participants will have different reward functions. And one thing we can do through trusted commitments is to bind individual interests with collective interests at local, state, and global levels. By making joint problem-solving more attractive to bind these incentives, I think this is a way for us to reach a 3-3. We reach that coordinated "grid." I hope the visual chart on YouTube will help, but I think this is a very exciting distributed search problem: how do we find a structure that can accelerate coordination and build a coordination "superhighway"?

07 AI + Crypto

Sreeram: This is one of the most exciting things we can do anywhere. Returning to the theory of coordination innovation, one thing you can think about (which may also be a question on many people's minds) is: the AI era is coming, and you just did an episode on this topic. How do all these crypto technologies fit into the upcoming AI era? The theory of coordination innovation actually provides us with some very insightful insights. If you think of innovation as an accelerator, then AI is the accelerator of innovation. AI is the driving force behind accelerated innovation.

Innovation refers to any individual taking some action to enhance themselves. And AI is indeed very powerful in this regard. Meanwhile, crypto technology is the accelerator of coordination. Therefore, you can view the extreme point of innovation acceleration as AI, while the extreme point of coordination acceleration is crypto technology. This helps me understand how these structures will interact and what interesting new things may emerge in the future. And a very interesting question is: what big things will happen when these two structures (AI and crypto technology) interact? This could be the next very interesting discussion topic.

If you imagine progress as a graph, continuously growing evolutionarily, then suddenly a leap occurs due to coordination, and then progress continues to grow evolutionarily, followed by another leap due to coordination. Another way to ask the question is: what is the next big leap in coordination? What will it bring? When we set the vision for Eigen Labs, our goal is to build a coordination engine for humanity. In other words, crypto technology is the coordination engine for humanity. Let's accelerate it, make it more expressive, and enable it to do more things. Now with this perspective—innovation maximally accelerated by AI—what can crypto technology do to drive this process? I believe there are many things that will happen at the intersection of crypto technology as the coordination foundation for AI. We talked earlier about coordination being communication plus commitment, and crypto technology can create and maintain self-executing commitments. Therefore, when you think about commitments and how to make commitments in the AI era.

There are four possible combinations: between humans and AI, including human-to-human, human-to-AI, AI-to-human, and AI-to-AI. Each combination is worth deep thought and exploration. Regarding human commitments to AI, the current situation is that people mostly run AI agents on their own servers and then call them some form of autonomous AI agents. If you put on the "decentralized fanatic crypto enthusiast" hat, you might think this is silly. It's bad because it's just someone running their server. So I have a viewpoint: an agent controlling an Ethereum wallet is not much different from an agent controlling a Stripe API. They are essentially the same thing; if you run it on a server, it is completely the same because it is just calling your bank account or Ethereum wallet. If both are controlled by individuals, then there is no essential difference between them.

The real difference is when the AI itself runs smart contracts on-chain; the situation changes. I should be able to run an AI smart contract just like running an Ethereum smart contract, and its output should be as accurate and rigorous as writing a smart contract. This way, you suddenly open up a whole new world of possibilities where you can write any AI program that runs on-chain, with outputs as strict and accurate as on-chain contracts. Then, this AI is not controlled by anyone, just as contracts are not controlled by anyone. We have been thinking about what this future will bring, such as new forms of on-chain life. We call it AI life, and when people think of AI, they feel it is a crazy new thing.

Some AI safety experts worry that AI will suddenly go out of control and act on its own. For example, how to control it? Questions like this. But there is currently no clear "takeoff mechanism" that allows AI to suddenly act on its own. Perhaps a self-replicating robot that controls a city could be an example, but that is still far off; today's AI is still purely digital. Can a purely digital AI become its own life? We are thinking about what the unit of life is. You can think of the unit of information, like DNA, which controls the unit of energy for a living organism, such as ATP (the energy unit produced by mitochondria). It is self-directed, just like a living system has its own DNA to control energy units, rather than something else. Finally, it is adaptive; it can adapt to the environment. These are the basic components of living organisms.

What we see is that if you think of an AI agent running on your server, it has a unit of information, which is its intelligence. It also has a unit of energy. I believe money, or capital, is a form of energy unit because it can take action in the real world, so it has an energy unit. Ultimately, it is not self-directed because you can turn it off at any time; therefore, it is not a new form of life, or rather, "the agent did this." No, you did this. You just have a computer doing tasks for you, so this is the third point: it is not self-directed. The fourth point is that it is adaptive and intelligent, and of course, these agents can be very intelligent. So I think agents like OpenAI fall into this category.

DAOs meet the first three conditions; their unit of information is code, their controlled unit of energy is funds, and they are self-directed because on-chain property rights are automatically executed. However, it does not have adaptability internally or as a DAO itself. This adaptability comes from the member agents controlling the DAO, who are actually exercising their power, which is great, but this in itself is not a form of life. It is merely a coordination mechanism of these human units coming together. Therefore, I believe what can fundamentally change this is the emergence of on-chain AI contracts, so you have an information unit, which is AI code, controlling funds on-chain, utilizing on-chain property rights, and it is adaptive because it will continuously improve itself through learning.

So I think this will be a huge shift at the intersection of crypto technology and AI. This is the extreme form of autonomous AI agent theory. We call it AI life because it is now a form of life. Because it undergoes evolution like other forms of life. It has its own unit of funding. Like any life form, as long as it has an energy surplus, it can continue to exist; you should be able to harvest more energy than you consume, so you can maintain a net positive energy growth and continue to survive. And when you can no longer harvest energy, you will die; this AI agent can survive as long as it maintains a net funding surplus, and once it has no net funding surplus, it will die. This imposes an evolutionary unit on its foundation and creates a very interesting, open new process through which these agents can evolve and be created. This is a crazy new theory we are exploring and trying to build some core components to realize it.

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