Unchained - The Chopping Block: EigenLayer Launch, Celestia Controversy, and Ethereum’s Future - Ep. 714

Episode Date: October 6, 2024

Welcome to The Chopping Block – where crypto insiders Haseeb Qureshi, Tom Schmidt, Tarun Chitra, and Robert Leshner chop it up about the latest in crypto. In this episode, the crew dives into Ethereum’s homestaking crisis and its growing competition from high-throughput chains like Solana. They tackle the explosive drama between EigenLayer and Celestia, including the controversial $82 million token sale by VCs. The discussion also covers Ethereum's future, staking rewards, and how restaking could boost its long-term value. Tune in for a deep dive into the challenges and ethical debates shaping the blockchain space right now! Show highlights 🔹 Total Fees in DA: Data availability (DA) layers generate relatively low fees compared to other blockchain networks. 🔹 EigenLayer Token Launch: EigenLayer launched at a $6 billion valuation, sparking drama with Celestia over DA performance. 🔹 VC Staking Practices: Polychain sold $82 million in Celestia staking rewards, raising ethical concerns about token vesting practices. 🔹 Ethereum Homestaking Debate: Ethereum’s focus on homestaking is being questioned as it faces competition from faster, high-throughput chains. 🔹 Ethereum vs. Solana: Ethereum is urged to take growing competition from Solana seriously to maintain its market dominance. 🔹 Restaking for Monetary Premium: Restaking in EigenLayer could significantly boost Ethereum’s value and long-term sustainability. 🔹 Staking Rewards and Inflation: Staking rewards protect investors but can lead to ethical issues with inflation mechanics. 🔹 Scaling Ethereum: Critics suggest Ethereum should increase bandwidth and capital requirements to enhance scalability and performance. Hosts ⭐️Haseeb Qureshi, Managing Partner at Dragonfly  ⭐️Tom Schmidt, General Partner at Dragonfly ⭐️Robert Leshner, CEO & Co-founder of Superstate ⭐️Tarun Chitra, Managing Partner at Robot Ventures Disclosures Links Disclosures Related to Employee and Investor Staking by EigenLayer https://docs.eigenlayer.xyz/eigenlayer/information-and-transparency/disclosures  “Polychain invested around $20mil in the Series A&B round of Celestia and have already sold over $82 million worth of $TIA just from staking rewards” by @gtx360ti https://x.com/gtx360ti/status/1839553081773560045  “I think there's a sane version of this where we recognize that 32 ETH is much more of a barrier than bandwidth reqs” by @VitalikButerin https://x.com/VitalikButerin/status/1841756178692358587  Learn more about your ad choices. Visit megaphone.fm/adchoices

When you look at total fees spent on DA, it's like kind of completely small. The reality, though, is that most people don't read the disclosures. I think we're going to go to a world where things are going to look like the Aginler disclosures more and more. The initial inflation curve is highly correlated to the number of trading firms and not VCs investing. Theorem should start taking seriously the competition that it's facing from Solana and many of these other high throughput chains. Allowing people with one ether to stake is going to potentially make a more complicated validation network.

Not a dividend. It's a tale of two quond. Now, your losses are on someone else's balance. Generally speaking, air drops are kind of pointless anyways. Unnamed to trading firms who are very involved. D5.8 is the ultimate policy. D5 protocols are the antidote to this problem. Hello, everybody. Welcome to the chopping block.

Every couple weeks, the four of us get together and give the industry insider perspective on the critical topics of the day. So quick intro is for us to got Tom, the D5 Maven, and Master of Memes. Hello, everyone. Next we've got Robert, the Crypto Connoisseur and Tsar of Superstate. Glad to be back from a paternity leave absence. Yes, I think you've been very missed. The people have been calling out for when Robert's coming back to the show.

GM, I'm back. Welcome back. Next we've got Tarun, the Gig of Brain, and Grand Puba at Gauntlet. Yo. And finally, I'm Haseeb, the head hype man at Dragonfly. We're early-stage investors in crypto, but I want to caveat that nothing we say here is investment advice, legal advice, or even life advice. please see chopping block that xyz for more disclosures.

So we were just commenting actually that it does feel like it is baby season in crypto. It's like a lot of people are like out from the conference circuit or they're just, you know, just busy hold up. Because what is it in particular that made you feel like now is the time to go on paternity leave? Is it the bear market? It's like, okay, let's just get out of the way. Nothing else is going on. I see by the definition of it has to do with, you know, paternity having a child. You know, I didn't really time that.

It just kind of happened. And so that was the catalyst for me to take a couple weeks to stay at home and turn off my phone. Okay, fair enough. Nothing to do with the crypto ecosystem. All right. I'm just asked because it does feel like it is. Did you know what the word paternity meant before this conversation? I did.

I did. Okay, just checking. Just checking. You rewind like 10. Yeah. I think it's a reasonable question. There's a lot of people who are out. around the same time.

I'm just noticing it that, I mean, I don't want to be like, you know, giving a list of names, but it does feel like it's also an age thing, is that... Oh, it's definitely an age thing.

The crypto generation is getting into the 30s. And like, I think in a way, the conference circuit is also not adapted to people who have families. And so, you know, I think we might start seeing things like,

you know, child care or like other kind of more parent-friendly type things happening more in crypto because crypto you know everyone started as kind of like a young schizo you know like insane people that's that's where this industry came from uh weren't a lot of parents around in in you know 2010 that's true and there's way more now that we have all aged 14 years 14 yes yes yeah damn so anyway well congratulations uh and i'm sure everybody on the on the everybody in the audience is very excited to have you back.

So let's talk about markets. So one of the big stories this week has been the launch of eigen token. So Igen token, of course, is the native token of eigenlayer, which is a, how does one describe Egon layer these days? It's a restaking protocol that is also an Oracle protocol. That's also a DA protocol. It's the simplest way to describe it is it's a marketplace for services that need capital to to get capital from operators, so people who are running nodes to delegate to them

without them needing to get more capital. They can reuse their same capital. That does not sound like the simplest way to describe it. I would call it like a trust marketplace. You'd call it a trust marketplace. Okay. Those are all reasonable ways to describe by Gingler. I think it's this beautiful kaleidoscope that everyone can see what they want to see. In their own image. It's a Vorschach.

Exactly. Yeah. It is the Rootracht test of crypto. It's beautiful. Anyway, okay, so EigenLayer, they launched their token finally. So if you recall, their token was, quote, unquote, launched a while ago with their irdrop, but the token was locked and it finally got unlocked and has begun trading. Today, it's trading around $6 billion fully diluted valuation. At launch, it was around $7.5 billion.

But there's been, as always with EigenLair, there's been a lot of drama around the token launch as well as the unveiling of the DA layer. known as eigen-DA. So you had a lot of snipping going back and forth between the eigen-Layer team and the Celestia team. Now, you guys are investors in both Eigen-Layer and Celestia, so I imagine you're probably in an uncomfortable position seeing your two children fighting.

But the high-level story is that eigen-DA is higher performance, but cuts a lot of corners, and doesn't obey, I think, the usual expectations about how a DA-layer is supposed to be architected, whereas Celestea throwing a lot of shade on them and saying, no, no, no, no, you guys are not real DA. We're real DA. You know, we have, you know, your super high throughput is fake. It's centralized. It's not, it's not quite giving you all the guarantees that you would want from a DA layer.

Tarun, give us your perspective on, you know, how do you think about what are the expectations that a DLA are supposed to have that are being violated by or not being violated in this disagreement. Well, I think at the end of the day, if we're going to be completely honest, a DA layer is like one of the most boring infrastructure pieces in crypto. It's like it's like plumbing in the subway. Like yeah, you definitely need you need like a lot of plumbing, especially if there are leaks and floods and you need to make sure water doesn't just get stuck in the tube. So it doesn't, you know, the train doesn't run. But is it like a very interesting thing? No. And I think that's sort of why there's so much bike shedding about like feature sets versus like bike shedding

about usage because at the end of the day, it's like looks the same almost to the end user where the end user is someone who's a roll up developer. And you can basically think of data availability as just a way of, and in the simplest case, just a way of ensuring that users, if a roll-up operator is misbehaving, have a way of saying, hey, here's all the data you confirmed, here's kind of why I think you're doing something wrong and you can use that to help you construct the proof to withdraw your assets on the main chain. That's like, you know, if I say even a little bit more, there's going to be 500 people by bike shedding and telling me like, this feature that you forgot about this, doesn't matter? But to the average end user, honestly,

I feel like going beyond that is crazy. I mean, there's a bunch of things like data availability sampling, which are like reconstruction things and our network-wide safety things versus user-wide safety things. But again, I just think like at the end of the day, the market will just. Yeah, so you take the view, the fights are so vicious because the stakes are so low.

That's like the vibe here. I don't know if it's like the stakes are low because like there are a lot of roll-ups with lots of assets using these things. I think it's just, A, they're very low fee generating networks, right? Like if I look at the total fees generated by... For now, very low. Yeah, for now, very low.

Yeah. Insanely low, yeah. But the thing is, I think they're not going to be competitive with Solana and, you know, sui and other low transaction chain, low, sorry, high transaction throughput chains, unless they're very cheap, right? Like, that is their value prop. They're sort of a race to the bottom inherent in them. They're not like a value capture mechanism by any means.

But what they are is exactly, like the useful plumbing that everyone needs. And, you know, the market will dictate which one's feature set is the best. Okay. So let's put this drama aside because it sounds, it's pretty egg-hedy. But let's talk about what makes DA valuable. So, like, why is DA valued as highly as it is by the market? market. So Celestia right now, what's the, what's the FDV of Celestia? Obviously, it's the largest DA layer in existence today. Last time, it was like $8 billion, but that could have been

a while. It is $5.6 billion. Okay. I went on paternity leave and I came back and, you know, the prices are different. Yeah. The main thing that's changed is Celestia. That's a good, good barometer of how the world's passing you by. Yeah, market's been moving a lot, obviously, in the last couple days just because of a macro, but, um, So, okay, so it's worth a lot of money. Normally the way that we think about what blockchions are worth is as, you know, maybe let's call it two primary things that tend to make blockchons valuable, either one, the fee stream, or it may be that these are fees that are collected by validators,

or it may be that fees that are burned. The second is the spread and or utilization of the native token. So if you think about Ethereum, you know, one of the ways in which Ethereum is valuable is the fees that get burned. The other way is that Ethereum is used on many different chains as a form of money or as a... As a currency.

As a currency, exactly. Which of these is... How do you tell the story about the value of something like Celestia where the fees are extremely low and it doesn't really seem like Celestia is trying to get Tia to be used as money anywhere? Well, let me add a third value

as part of the discussion. future value, right, and future opportunity, right? Amazon hasn't done a dividend ever, right? And it's like one of the biggest companies on Earth. It's not about necessarily how much you're making in fees today or whether you are to- But in the future, it has to get cashed out through one of those two mechanisms, right?

Well, yes or no. I mean, Amazon was cash flow, you know, it was not making income income, like for years and years and years and years and years, and years and years, eventually there has to be a way for them to capture value. Capturing value doesn't have to be fees as they're currently structured, right? They just have to have the ability to capture value. So I think like the third big bucket is optionality and like strategic value. Like if this, if either one of them becomes a data availability layer to everything else in the crypto ecosystem,

it doesn't matter if there's no fees for quite some time. It doesn't matter if they're not a currency. Right. For a long time. For a very, very long time. Yes, markets are patient, but eventually it has to be cashed out. If there's traction in other ways. Okay, so maybe this is the word for traction, right?

Because like Amazon had crazy traction for two decades, you know, but like they weren't profitable. So like I would say if there's like significant traction in adoption as a data availability layer or security layer or a central service for the rest of the ecosystem, that is, you know, discernible value. So I would also give what to other things, which is that, I would say DA layers in particular have a value proposition that I would say is like the opposite of, say, Salana or Sui in the sense that their value is actually sort of and future value is tied to the expected number of rollups. So if you think there's 10,000 roll ups in the future between now and then, like we're at pick a horizon like two years or five years, then you expect the DA layers to be having actual real fee. growth over that time, right? They, their fees and kind of usage scale with number of roll-ups, not number of users or capital, which is oftentimes why I think you have to view their value prop as very different

than things where, you know, it's like Arbitrum or Solano or Hyperliquid where I really do value things on like the capital on like the fees generated on capital on those networks versus the kind of like number of protocols, right? Like, there's this kind of this difference between value and companies based on how much they're able to accumulate capital and fees per unit capital versus fees per unit user or, you know, number of users, which, and so DA is sort of a little more Web 2 metrics wise than a lot of other crypto things that way, because it's really about number of rollups and growth in number of rollups. So you're really sort of betting on that when you're thinking about their long-term fee growth. I would disagree with the statement that Celeste is not trying to make Tia money. I think they're just trying to do it in a different way. And the same way we talked earlier about EigenLair really being a marketplace for node

operators who are running other networks to earn extra income by running using the same capital for other services. I think Tia is trying to do something that's not crypto economic, which IgenLayer is crypto economic and focus fully on more the ZK side, right? of like, I'm going to be this layer of these proofs are intermediateed by. And that, in theory, could be more than just roll-ups, right? It could be other applications that use it as a place for storing ZK proofs and validating ZE proofs and stuff like that.

So I think like, and the idea is that that will be a, have a monetary premium because people will use that to write to kind of prove some properties of their finances in the long run. So I think like that, they're kind of taking two different. views and I think in my mind, that's why they're both interesting is because they both, they offer kind of these differentiations. But I also think it's kind of crazy to me that when there's so few roll-ups generating real fees that were fighting about them, like Zuck and Google were fighting when Google launched that shitty social network they launched in 2008,

you know, like those things were so much bigger. And this has like same amount of like fighting over it, which is ridiculous. No, not glass. The social network. Circles. Yeah. Like 2007 or something, Tony. I forget when that was.

I mean, just struck me as you do need some sort of premium. Otherwise, inherently, you know, margins on a commodity are going to trend towards zero. And so, you know, even if you think, oh, hey, there's going to be a bunch more roll-ups, like, why are people going to choose your, you know, DA layer versus. the next best is going to be marginally cheaper. And therefore, you need some sort of like Stikinis or brand premium or something. And that's also kind of why they've been, I don't know, it feels like they're trying to make it more of a thing than it actually is and trying to sort of build this brand on Twitter.

And there's all like TIA AirDrop kind of phenomenon too. So I don't know. I think you need some way to kind of like pull forward some sort of future premium around the brand today. Otherwise, it is just like, again, when you look at the sort of a total fee spent on DA, it's like kind of pitifully small. It's also, if like you talk to roll up developers, I feel like the choice of DA, like the bigger choice for them is whether they use Ethereum as DA or whether they use something else. Right. That seems to be worth 99% of their decision process versus like the like the now increasing, ever increasing field of DA later. So I think all of these players are going to find other monetization.

I think Eugenler obviously is the most easy route because restaking has so many other services. You can have like MEV auctions, oracles, provers, like everything, right? The revenue model is very obvious for restaking. In fact, DA to me is like should be a de minimis part of the revenue. Long term, if I want to value the overall restaking market, a DA should never even be mentioned in the first 20 sentences. should be like the last thing mentioned. I think the fee growth for everything else should be much higher. On the other hand, for the Celestia model,

I think like if they get all those ZK-proving stuff built into the layer done as expected, then like that is a differentiator. But I just sort of, I think like bike shedding over, like minor censorship details is kind of crazy when the roll-up sequencers themselves censor the shit out of these transactions. And we'll pause or go down, you know, like, It's like it really feels like a lot of bike shedding when I look at like reality versus. You know that meme with like the horse where it's like a really has like a very really well-drawn back part of the horse and on the front it looks like a kindergarten or dirt?

Like I feel like that sometimes. Okay. Okay. Let's talk about the other big drama that's been playing out is with respect to Celestia. There is some on-chain sleuth who pointed out that Pollychain, one of the big venture funds in crypto, had sold $82 million in Celestia staking rewards from their staked tokens that had still not vested. So, you know, generally speaking, a VC that invest into a token project, there'll be a one-year cliff before any of their tokens unlock. But in Celestia, as with many other projects, the VCs

are able to stake their tokens, and when their tokens are staked, they get staking rewards, and those sticking rewards are not locked, even if their underlying principle is locked. So they were able to sell, according to this on-chain sleuth, $82 million of token rewards, despite the fact that they had only invested $20 million originally into Celestia, meaning that they'd realize a 4-X before any unlocks had ever happened. So this triggered a bit of a conversation about how, you know, what are the ethics of VCs staking vested tokens or lock tokens? And should it be, should they be allowed? You know, is this okay? is it's not okay? What are the norms around this? And I think it's something that very often retail investors don't feel like they have a good understanding of, you know, how do lock tokens

and how do staked lock tokens play into the overall liquidity mechanics for new tokens? So anybody want to give a quick reaction to the story and how you guys think about staking, investing and all that? I don't know. I mean, I feel like this happens at normal markets too. Look at the icon, Carl Icon thing. Obviously, that blew up on him, but it's almost exact same thing. I guess it's like, as long as it's disclosed well and like that you can see like what the impact is, it seems better to allow it than to disallow it because I actually feel like by disallowing it for new staking networks, you potentially lower your security overall, unless you also lock up the staking rewards, but then like now people have to make their

contracts a lot more complicated. I think the audit surface, if you add lockups to the rewards also gets a little bit hairy. So I'm not saying it's impossible. I'm just saying it's a lot more work for people. In general, though, if you look at the original proof of sake networks, like that people raise money on, like, I would bet that there was, you know, people are up in arms because they're actually paying attention this time. But I would bet you that in the 2021 era, like Solana and Luna locked rewards were probably worth tens of billions, single digits to tens of billions. The famous story about serum, all the serum investors made like a 40x before anybody ever. Yeah, that one was probably the most egregious economics of distribution.

I mean, thanks Sam Binkman Reed on that one. But like, yeah, with that one, it was even more egregious, where it was like, 1% of the token was the public float. The rest was staking rewards and investors owns like 80%, I believe. And so investors were getting 80 out of 81 of the staking rewards, even though they were fully locked up. And so the entire inflation was going to investors in the project. And it was pretty ridiculous because those investors in the project were getting all of

the inflation that was liquid. And that was like a multiple of like the existing public flow. Like I think what we're talking about here is the same mechanism, so to speak, just with a less egregious set of ratios between what is the flow, what is the annual distribution by stake and how much do investors have? And in response, you know, like I think Aginler put out some disclosures and I feel like the disclosures were actually very good. Like I feel like that that if there's some standard around disclosures about this,

So it's probably better than just trying to, like, restrict it. Because I think there's always going to be ways to get around it. The beauty and sins of crypto are the derivative markets are easier to create than spot markets in a lot of ways for assets. I mean, not if you're like 90% of the network, but if you're a medium-sized investor, there's always people who are willing to. My point is, like, in crypto, I think the more you add these kind of constraints, the more people will be creative on the derivative. side. So like, you're not, you know, you might be robbing Peter to pay Paul, but it's like, I, that's why I think disclosures are, disclosures are the best. Disclosures are the best. Disclosure. Absolutely. I think, look, as long as you disclose it, I'm more or less

fine with whatever weird thing you do. The reality, though, is that most people don't read the disclosures and they don't even necessarily know where to find the disclosures. The disclosures aren't standardized. It's better than nothing. And I generally think like, okay, as long as you disclose, free markets, go for it. If you can, if you want to, if you want to, you want to, to have staking rewards locked, you want to have them unlocked, you want to have no sticking rewards, unlocked tokens. Like any of those is fine in principle. There's no reason why one is good and the other one is bad.

As long as everyone knows what the rules of the game are and everyone's playing the same game, I think in general, like as a VC, vast majority of rounds that have stakeable tokens, or sorry, vast majority of rounds that have proof of stake networks. They tend to have the tokens are stakable and the token reward, the reward, the reward, the reward are unlocked. It's just like the norm. Most of the time that I see a token project, that's the way that it works. It's not always. There are some exceptions,

but I'd say that's probably more common than not. That's like definitely the modal investment into a proof-of-stake network. Now, when as an investor, I look at that, I'm naturally going to be pricing in, like, okay, well, that ameliorates some of my risk, I have some early liquidity,

and I kind of juice the total amount of ownership that I have in the protocol. It's sort of like protecting me against inflation, because, of course, I'm going to be inflated away as the year one inflation, which tends to be higher than year two and year three inflation. So it sort of creates us like inflation resistance to the what the investor's own. But does that matter in the first place if most investors are negotiating for a fully diluted percent ownership of a network or protocol? Like if you're already starting off by saying, you know, I want this percent of the token supply, then it doesn't matter what the inflation is at any other point. No, it does because usually when you quote an FDV, you're not doing, you're not incorporating any inflation.

post-G-E. So you're incorporating like the Treasury, you're incorporating like, you know, team tokens and whatever. You're almost always not incorporating any like economic inflation. You can't know the inflation in some cases, right, because the burning mechanisms are dynamic depending on usage and stuff like that. So can you guys see the, I've shared the Eigenler disclosures? Can you now do my share shared screen? No. Okay, there we go. Thanks. I thought these were actually pretty good because they were like, it's relatively simple. It's like in the docs in the main page, like pretty easy to find. And I feel like they actually did try to to go through each of the components, even though they have this programmatic incentives, which will be dynamic relative to

usage. I think like stuff like this is actually going to become the standard over time. And I I thought this was at least like they already had this ready. You know, it was really easy, really simple. I think we're going to go to a world where things are going to look like the Agenlar Disclosures more and more, to be honest. Yeah, I fully support that. I think that's great. And I think it's a good idea for us to also develop more norms around disclosures.

What is the playbook for disclosures when you're launching a new project that gives investors everything to experience? The big thing in my mind is that, okay, as an investor, if I see, okay, you know, investing in this project and the, there's going to be staking of lock tokens, I incorporate that into my future, into the way that I price the investment, right? I might give it a marginally higher price because I know that I'm going to get some of the future inflation, you know, allayed by getting some staking of the token rewards. if they instead said, no, no, no, no, no, we're not going to give, we're not going to give inflation resistance, or we're not going to allow you to stake your lock tokens, or not going to allow you to give liquidity in your locked tokens, then I would just price the investment lower, all things equal, right? So, like, it's a very easy solve for VCs of you just change your pricing, right?

Because you have an expectation of how many tokens you're going to get over time. It feels to me like it's just better for the market on the whole for there not to be staking of locked token. or at least that if you stake lock tokens, you don't, you can't unlock the rewards. Right. They stay locked or they stay vested on the same schedule. Yeah, I think that would be better. That just seems better for me. Yes, Tarun, you're right.

It causes marginally more engineering effort for the teams. But it's just such a minor. I mean, there's so much other stuff that this is not the hardest thing they're doing. I don't disagree. I do think a lot of people, this is the part of their code base they don't want to innovate on. You know how like, you know, when you start a company, if you ever read any of these like old school startup people's advice, you know, like Paul Graham, whatever. Those types of people will always have something that's like the number one thing you should never do in a startup is innovate on corporate structure. You only get two chances to do an innovation and you don't want to wait just one of them on like your legal docs.

And like I feel like a lot of teams treat this reward stuff as that. Which is ironic given like opening eye been one of the most successful. Actually, Google as well. They had this crazy IPO. This is pre-pandemic stuff, right? I don't think this advice is like what people would say now. Well, yeah, I think if the next team that comes along that is doing a proof of stake network says, hey, we've decided that we're not going to do staking of lock tokens.

I think in general, VCs are indifferent. So in case that I feel like many times I see entrepreneurs really think that they have to do this. otherwise VCs are not going to find their investments to be particularly attractive. And I just think this isn't true. I think that I've never really cared one way or another. It just affects the way that you think about pricing the deal. But all things equal, it's just the same thing because the investors end up with X amount of tokens at the end of three, four years.

And that's the way that we price a deal. I will say the more, the higher inflation, I would bet, And this is mainly kind of like anecdotal slash empirical, but not like I've done a full analysis on the existing deals. But I would say that the initial inflation curve slope is highly correlated to the number of trading firms and not VC's investing. Like whenever there's more trading firms, the slope is like way higher. And you know it's just because the trading firm slash market makers kind of. like influences. So like my thing is I actually think that's where the more negative adverse behavior comes in with regards to this, especially because like oftentimes they'll have the

market making deal and hedge the other side and whatever. So I think it's just that it's good people are paying attention. And this is also why I think disclosures are probably like the first line of defense before kind of changes to the contracts and stuff. But okay. Let's talk about some more drama going on in Crypto Land, which is now around Ethereum and a big debate around home staking. So let's talk a little bit about Ethereum homestaking. So unlike many networks, Ethereum, it's actually pretty easy to run a home staking node. So the principle of Ethereum has always been that Ethereum wants anybody with commodity hardware and a normal internet connection to be able to validate the Ethereum network.

It's very core to Ethereum's principles that that be true. Now, that's not true for many newer networks, right? So it's very difficult for somebody with a, you know, crappy laptop and, you know, I don't know, some, you know, a Starlink connection or something to be able to validate Salata, for example. But Ethereum has always had a very strong culture that home stakers should always be able to validate the network, not miss blocks. And that also influences the way in which Ethereum's network parameters are configured. So it doesn't require that much bandwidth, doesn't require that much compute. in order for you to be able to run Ethereum. And that constrains also the degree to which Ethereum

has been able to scale. Because if you allow that you can have higher bandwidth going through the network, or if you allow that blocks can be bigger and require more compute, then that might price out some people who just have commodity hardware who are trying to validate on these crappy home networks. So for a long time, this has been at the heart of Ethereum scaling philosophy.

But lately, this scaling philosophy has started to get questioned. And I would say at the center of a lot these conversations has been Max Resnick, who's been, he's one of the co-founders of, what was the company? Well, I don't think he was the co-founder technically. I think Rook-Dow, existed first. He was just working at Rukdow, yeah, which turned into SMG, which got acquired by consensus. Got it.

Okay. So he's been one of the new generation of Ethereum researchers focused on M-EV, but he's also been a very strong-voiced critic of Ethereum-Bee. somewhat calcified in its thinking about scaling and arguing very strongly on Twitter that Ethereum should start taking seriously the competition that it's facing from Solana and many of these other high throughput chains. And that Ethereum itself just start prioritizing lower block times, higher gas limits, and just trying to get more throughput going through the underlying chain.

A lot of the barrier to this has been the culture of believing that no, no, no, no, no, the most important thing for Ethereum is making sure that homestakers are never kicked off the network. So we started to get Vitalik also weighing in saying that, hey, maybe this makes sense. Maybe actually we should start having higher bandwidth requirements for home stakers, especially given that, if you recall, in order to stake on Ethereum, the minimum amount to stake is 32 ether. Now, 32 ether is, you know, it's almost 100K. It's a lot of money. So it's much more than, you know, a random person with a crappy computer would have sitting around to be able to, chunk all that money onto, you know, staking a proof of stake network.

And we've gotten all these stories of people coming out saying, going, oh, wait, what about me? You know, I run a home staking rig. I have a crappy internet connection. You know, please don't forget about me. Don't create the network to be so high throughput that I'm not going to be able to continue verifying the chain. So what do you guys think about this home staking debate?

Do you think Ethereum has gone too far in the direction of this kind of purity ethics about home staking? Or do you think, look, this is the heart and soul of what Ethereum's about. Without this, what makes Ethereum unique, Ethereum has to hold on to this, you know, being the loadstone of what makes Ethereum decentralized. Well, I'll jump in first. I mean, I agree that Ethereum, like pretty much any chain,

should strive to have a higher throughput, right? Like, the way a chain is evaluated by most people is, can I click buttons that things happen quickly and without failure, right? And I think it would be irrational for a chain to say we don't want to be faster. We don't want more throughput. So in that sense, the easiest levers here are block speeds and block limits and like things like this. You know, I think that is a great goal and I think it's what they should be pursuing. But when it comes to homestaking versus, you know, having a higher capital limitation on it, I

don't necessarily believe, and I can be convinced, but I don't believe that allowing people with one ether to stake is going to make a faster, higher throughput chain. It's going to potentially make a more complicated validation network with more competition, so to speak, but more fragmentation. And like, I don't, I don't necessarily believe that, you know, if we 10xed the number of validators, it would necessarily lead to a faster, higher, through put chain. I think the two are at odds pretty directly. Yeah. So I don't know.

It seems like my solution recommendation would be why try to lower the stake in requirements of one. I think it makes it more complicated and worse. Anyway, it's a outdated religious argument for Ethereum. It's not a practical. So you think the homestaking ethos about, hey, we want to make sure that normal people can run the blockchain on commodity hardware. You think that's outdated and, as you call it, religious dogma that should be left behind. It makes sense for, like, yes, anyone should be able to get a copy of the blockchain.

Like anyone anywhere should be able to get a copy of the blockchain and you still can, right? The question is, what's the economic requirement to validate transactions of that new ones coming in of that blockchain? and like participate in the MMP pool. And it's like, you know, even if you're not a mining pool, anyone at home can download Bitcoin. Anyone can download, you know, Ethereum, you know, the entire ledger in the history. It doesn't change if there's still a capital requirement to validate transactions.

Yeah, it feels like we're getting sciop a little bit. Like even when Heath was still proof of work, there was a push to like everybody run like a node at home, even though you weren't actually participating in, you know, validation, creation of, new blocks and now it's like, okay, well, actually, no, that is the thing that matters. And like, you can, yeah, you obviously can still run a node at home even if you're not staking and suspicating consensus.

And so, like, I, I don't know, it feels like, I think we brought this up in one of salon episodes too, which is I think, the one thing I do like about, so sort of each design principles is like, it's a very simple heuristic, right? Like, can you run this on a consumer grade laptop and a consumer grade internet service? If you don't have those sort of boundaries, the question I was always like, where do you stop and I don't know where that line would be if we sort of you know give this up I agree I think on the margin there's probably some higher or that the capital constraint of 32 is probably the the limiting factor here it's not so these other components but I don't

know where you should stop like you can you can always sort of crank up the the required specs for a node or for the bandwidth of the speed of the connection required and you're always going to be able to eke out of the more performance. So it's like, I don't know where we're sort of on the margin. People think there's a good place to stop. Yeah, the home staking thing, it's, it is a very good point because, you know, before the merge, when Ethereum was still proof of work, obviously it was not true that normal people could participate in proof of work. You know, like participating in proof of work, like, yeah, you can't just have some home GPU. Participate in an economically meaningful manner. They could run the GPU. They could run. They could

the software. They could be mining. No, no, no, no, no. But you can also participate in a proof-a-stake network where you're missing blocks and you're like almost always going to be behind the tip of the chain. But what they're measuring is what percent of skip blocks are you going to have with a consumer-grade connection, right? Like, that's the, that's the barometer. So it's the same thing, which is that is it economically viable for you to be participating in consensus or not with consumer- Well, I think the difference is the economic viability part is like there's the 32-eath that you're measuring yourself against here, whereas no one knows the viability in P.O.W for a solo

miner because I find it. Of course you know. You know, just run, just get a consumer grade GPP. No, you can still join a mining pool and like get some minimal. Like I'm not saying it's right. There are there are money. There were there were ways to still do. I think you're kind of a little bit like there was no no there was no way to make money on the GPU. Ethereum Asics, Ethereum Asics took forever. There was really a long window opportunity. That's where we were when we did the merge. We were in a pure ASIC world.

GPUs were no longer competitive by the time that we did the merge. That's true. But did it on Bitcoin some solo, you know, minor with like not that much throughput when a Bitcoin flock like, I don't know, a couple weeks ago or something like that. And it was in the news. Like, it still happens. It does, right? But like that person is losing money on an expectation if they're not, you know, strongly connected.

Look, people love lotteries, whether they're mean. coins or being the one solo minor to win. Yeah. Right. Fine. So if you run a home staker, why can't we just treat it as a lottery? And it's like, hey, who knows? Maybe one, you know, you're going to miss a bunch of blocks, but you might get lucky.

So I think, you know, to Tom's point of like, where, you know, where do you draw the line? If you don't draw the line, you just get to Solana, sui, et cetera, right? Like that's Monad. That's like the, there's no. There's no. You get to ICP. You need to, you know, have like a T. one connection into data center somewhere.

I don't think insane clown posse coin is there's a long spectrum. It's exactly at the top of people's tongues nowadays. But I would say, you know, and maybe this, you know, I know earlier, and now I'm going to have to eat shit for what I said earlier, which is I'm like, ah, no one cares about the, the, the, the, the, the, and distinctions between the different DA layers. But one distinction that does show up is this notion of like, can I as run a light, client that can validate most of the network or with high probability, a lot of the network. And without having to do all of the things like running MEV boosts to be economical, making sure

I don't miss any votes, whatever. But also I don't have to put up capital, right? So I'm not really necessarily earning to run the light client, but I'm also, it's very cheap for me. And so that's sort of the Celestia dream and data availability sampling of like, I can sample a little bit of the blockchain and if I do it in the right way, then I can validate the whole chain is correct. And that's one sort of more core tenant of theirs. And I like, you can argue that there's some slicing that already happens, right? Like no one runs an archive node in Solana or like the people who do, it's like much harder to run than just like I'm running a normal Solana node.

And underneath, you've already always had that. Well, there's some like pruned transactions that maybe you want to worst case transactions you want to test against, right? Like, there are real reasons to have these kind of horribly hard to run nose for worst case testing and training. And then Ethereum, you've always had archive node, full node, like client, right? And I think what's going to happen is the continuum between full node and like client is just going to fill up.

There's going to be different levels. And each of them will have different economic participation levels in the long run. Where would you draw those levels? Yeah, it's a good question. I think, like, one level is obviously the, like, pure, like client validate things are working. The second level, I think, is being able to validate that, you know, multiple chains or sequencers are doing the right thing.

Like, running a single, like, client is isolated. I can't really. And it's actually expensive if I had to run, like, many like clients. So the question is, like, can I do a single, like, client-like thing, sample many chains. And then the third, I think, is this sort of like reconstruction. If there's an error, how can we reconstruct? Now, in practice, we've seen very few of those incidents, right? So it's kind of funny. If you think about it, there's been so much research spent on how do you reconstruct an error. But there've been very few. I mean, obviously, it's because the sequencers have

been kind of centralized. And there's a lot of other stuff that goes on that makes this not happen. But I guess like I think the band Vitolic has the most reasonable tradeoff, which is like, hey, if we're going to, if we're going to like keep the ethos, well then yeah, well, we should be able to like lower bandwidth requirements or increase bandwidth requirements, but lower a stake. Increased bandwidth requirements or lowers. Because like, yeah, it is kind of crazy to see like and, you know, I feel like I've seen these people since 2016 on on Twitter who are like, very early Ethereum, people who are like, I have hundreds or thousands of ETH and I'm staking it, but actually I have an 8 megabit internet connection. And I'm like, somehow it's like very hard

for me to just like, like I get that there's parts of the world that that have very low internet connection. But like you have like hundreds to thousands of Eath and you're earning staking rewards on that. You're telling me you can't get Starlink. Like it's like it's now getting to be incredulous. I think in 2016, it was a little more like, okay, we get that, you need that. I'm very partial to Max Resnick's campaign here because he's been beating, I think, a drum that's a little bit less trying to find a way to square the circle in a way that Vitalik is of trying to say, okay, let's keep the ethos of this, but let's just update the parameters to be a little more modernized relative to just being stuck on this thing that we decided however long ago that like, okay, no matter how crappy your internet connection is, we're going to make it work for you. anywhere in the world. Max Resnick's thing is more like, hey, guys, let's not lose. And it feels like we're losing.

And it's kind of tapping into this feeling that I think a lot of people in the Ethereum world are feeling, which is that ether itself has been in kind of a malaise. It's underperformed a lot of other assets. And at the end of the day, although Ethereum is, of course, a technology and a community, it is also a currency. and the health of that ecosystem depends on that currency remaining strong. And if people feel like, hey, you know, we've been giving a lot of the spotlight to the roll-ups and to, you know, a lot of the other EVM ecosystem and the DA layers and the blah, blah, blah.

And in a way, like, are we not, you know, it's kind of like the feeling that many people had in the U.S. when Trump came to power in his first term of like, hey, are we kind of the chumps? of the free world in that we're giving all this protection and money. Roll-ups are NASA. A little bit. That's kind of the vibe that I'm detecting from Ethereum Twitter is that they're just kind of like, hey, did we just end up becoming like the cucks of the free world? And like we're just giving all of our resources and attention and innovations to everybody else.

And our token is down only. So I will say, I will say an interesting distinction between roll-ups and the amount of fees they generate for the base layer versus restaking is that restaking returns the monetary premium back to Ethereum, right? Because I have a reason to buy ETH to restake it. And like, in a lot of ways, eigenlayer is actually more likely to help increase fees to Ethereum by 100x versus any roll up at this point, which is again, why I'm sort of negative on DA. Because DA is a little bit like roll-ups where it's like, yeah, sure, we'll pay you a de minimis amount relative to the value we're taking, right? And, and, and, and, and, and, and, and, and, and, and, and, and,

Yeah, I think like Ethereum used to focus, in my mind, things that improve its monetary premium. And like, restaking is probably the number one version of that. Do you agree, disagree though, with the thrust of the Max Resnick, like make Ethereum great again vibe? I think like I take the dialectic a little bit more on this than him. But I agree with him in sort of an engineering standpoint. I think like we're, it's just also more like, I think there's a lot of things people want to do in Ethereum at the same time. there's kind of a little less of this like sprint engineering mindset, I think, within Ethereum development in general, where it's like instead of like picking one task to work on for like a month

that's like this is the sprint for like what engineering future we want, there's like a hydra of like 10 of them all at the same time progressing, which is inevitably that's going to happen in decentralized organizations. So Ethereum needs more agile. But I agree with Max, but I think like he's also widening the hydra. at the same time. So I kind of, I feel like if we can do, if we can kind of, come on. I know these are, these are like single line changes, you know. No, no, no, but like the MCP type of stuff. And like a lot of the other stuff to take advantage of that is like a lot, right? Like I just, I just would like, if we could just like sequence things instead of like trying to do everything in

parallel at the same time, I feel like that that would be. And that's more my criticism is that like somehow like we should do these types of changes, but we should also like be delivered about the sequence in which we do them. Tom, as the home staker on the show, what's your take on the Ethereum Politics question? Yeah, well, I live in the US and I don't live in the UK countryside, so I have a great internet connection and a great machine.

So I'm very much in favor of upping the requirements. I do feel like this is also something that could be more bottoms up. Like, you know, hey, if there's a group of stakers out there that is like, you know, what the fuck, like we have plenty of capacity, what's up it, like they could probably just go ahead and start pushing through larger blocks and like seeing how much of the network kind of comes with them. Like it feels like this is like a tyranny of the minority kind of thing. And it's like these are actually not the people who kind of drive the network.

So I don't know. I think broadly speaking, I agree in terms of shifting towards pragmatism. And I even kind of remember this when they were like looking at how sort of october gas prices were getting set with very much like finger in the air. Like this looks roughly right. This is kind of in line with our direction versus like, you know, any sort of production application is going through like a million rounds of, you know, on-device testing, QA testing, like looking at all these little perfect benchmarks before any sort of change goes out. And I feel like there isn't that sort of like a sort of pragmatic engineering culture at Ethereum. I don't think you should go all the way. Like I think this salon is maybe maybe a bit too far.

And you also don't want necessarily break the ecosystem. But it feels still a little bit like kind of cottage industry. vibe right now in sort of, yeah, Heath Devland. All right, well, running down on time, Robert, do you want to give us a last word on ethosstaking politics? I think it's time to make ether great again,

but it's not gonna be by trying to lower the requirements down to one ether so that anyone could do it. There's a lot faster and better approaches to make ether successful. All right, you heard it. The other statement has spoken. All right. With that, we got to drop, but we'll be back live next week at Permissionless. And we got a really fun episode for you guys planned. Until then, thanks, everybody.