Unchained - Why EigenLayer Gave Away More Tokens After Widespread Criticism of Its Stakedrop - Ep. 640

Starting point is 00:00:00 Intersubjective work token is quite a big, or intersubjectivity is a pretty big word. For myself, I like to actually just think of it as shared belief, that you're able to actually mathematically agree on a shared belief. That's what the token allows you to do. Hi, everyone. Welcome to Unchained, your no hype resource for all things crypto. I'm your host, Laura Shin, author of The Cryptopians. I started covering crypto eight years ago, and as a senior editor of Forbes was the first matriam meter porter to cover cryptocurrency for, full-time. This is the May 3rd, 2024 episode of Unchained. Pocodod is the original and leading layer zero blockchain with over 2,000-plus developers, and the Pocodot 2.0 upgrade will be a massive

Starting point is 00:00:41 accelerator for the ecosystem. Join the community at Pocodot.network slash ecosystem slash community. With I trust capital, you can buy and sell crypto in a tax advantage retirement account. Enjoy significant tax advantages, 24-7 access, and the industry's lowest fees. Deploy custom crypto strategies and boost your yield with perpetual options on VaultCraft, the universal defy adapter for supercharging your crypto. Learn more on VaultCraft.io. Today's guests are Sri Ram Khanin, founder and CEO of EigenLayer and Robert Dross, CEO and executive director of the Eigen Foundation.

Starting point is 00:01:19 Welcome, Sri Rahm and Robert. Pleasure to be able to be able to. Hi. Thanks for having us. On Monday, the Igen Foundation announced a stake drop of its new Eigen token, with 15% of the Igen tokens going to the community. and the first third of those being available in what's being called season one to those who have so far accrued points in eigenlayer. What was interesting to me is that people were anticipating this so much, and yet actually your announcement was about so much more than the token.

Starting point is 00:01:47 So let's start with the white paper, which was titled Eigen, the universal intersubjective work token, which that's a whole rabbit hole to go down, super interesting. And then I don't want to forget this piece because this was also interesting. The header also said, towards the open, verifiable digital commons. So why don't you explain what all this is and why this is the direction you were trying to go? Strebeam, do you want to start? Absolutely. Thank you, Laura, for starting with that.

Starting point is 00:02:17 It is a whole complex concept. And I think we should have done some work in simplifying and writing some easy pieces, which will be coming up soon. The idea of eigenlayer is to promote more open innovation. More open innovation means if you're a builder, you come in and you should be able to build new decentralized protocols without having to bootstrap your own trust and community. And what Igen layer did is to enable ETH staking, you can stake ETH to allow any of these services, we call them actively validated services, to use the trust underneath EAT staking so that the eat stakers can run new.

Starting point is 00:02:57 services and provide decentralized trust to them. However, this trust is only fully transferred when applications are able to hold the stakers accountable for misbehavior. We call this slashing. So if somebody staked and actually created a violation of the core covenants of the ABS, then they should be slashed. And that's how eigenlayer works. The core slashing feature is for eigenlayer is not yet deployed on main net, but it is there

Starting point is 00:03:26 in the contracts. So that's the core idea, but each staking does not allow aviases to slash for faults, which are transparent to you and me and people outside the blockchain, but not to the blockchain itself. And there are many such faults. And a simple example is eigenDA, which is a data availability system that we built. The data availability system has two roles, to store data and to serve data. The storing of the data turns out you can actually create a proof that you stored the data and if you don't have the proof, you will be slashed for it. This is part of the eigen-dea roadmap. But the nodes are serving data to all the people who want the data. That's not

Starting point is 00:04:06 transparent on chain. But it is transparent off-chain because, you know, you go to an RPC node, try to download your chunk, you don't get it, you run a full node, you're not able to get the chunk, you run a light node, you're not able to get the chunk. Immediately you say, oh, data is not available. So data availability is externally observable, not internally observable. in the blockchain. How do you slash people for this? This was the kind of like a puzzle that we encountered and eigen as a token system was created to be able to slash for faults like this. And what we did is we took this thing and took it to the end run of what are all the possible category of faults which are externally observable, not inside the blockchain, but from the outside,

Starting point is 00:04:50 and impose crypto economic penalty in the blockchain. So how it works is, you know, outside of the scope, but that's what it is trying to achieve. And that's why we called it universal. You can use it for any application. Intersubjective, you know, basically a word for externally observable. People coordinating with each other can find out if there was a fault or not. Universal, intersubjective work token. You're using it to do work in the blockchain.

Starting point is 00:05:14 So that's the kind of like the big idea there. I think it got drowned with all the other things. But thank you for bringing it up here. Yeah. I mean, I really was amazed by this. because, you know, if you read my book, I went deep into what happened with the Dow, and I just kept thinking, what if this had been around during the Dow? So we'll get to that.

Starting point is 00:05:35 But I also want to then ask about this open, verifiable digital commons. I also saw you use the term shared security commons. So what do you mean by that? Yeah. The vision for eigenlayer is, you know, when people think about things like Layer 2, they say, oh, can we offload traffic from Ethereum and, you know, reduce the fees. I think the vision that we want to bring is you have digital platforms which mediate all of our life, but those platforms do not have user governance, native incentives, permissionless innovation,

Starting point is 00:06:09 for anybody, any builder to build things on top. And a digital commons, digital platform which is run in a decentralized permissionless manner, is what our vision is to transfer most of these digital platforms or all of them into this kind of like a credibly neutral, decentralized, permissionless substrate. So that's what the digital commons is. And when you think about the digital commons, there are really two foundational things that make it the commons have more power. And number one is open, which means anybody can participate as an equal.

Starting point is 00:06:44 And number two is verifiability, which means you know that the people who are interested with maintaining the commons are doing the thing they are supposed to be doing. So this verifiability and openness are the two properties that we want for this kind of a system. So that's the broad vision. And we wanted to articulate that this is a step. The reason we build eigen token is that you can use it to enforce this kind of a penalty on the workers who are maintaining the comments. So one model that I want to clarify here is a lot of people think that decentralized or like, you know, when you want to build the comments, means everybody should be able to participate. in the upkeep of the network as an equal.

Starting point is 00:07:25 We want to take a slightly different view. It's kind of like saying, you know, we would say the roads is commons because everybody can lay their own roads. That's not what we're saying. We're saying the roads is commons because anybody can access the roads equally and we know that the people building the roads

Starting point is 00:07:41 are held to account on standardized principles. That's exactly what we want to do for this. That's why we call it the open, verifiable digital comments. Yeah, although I actually feel like it could even be useful in situations where there's a legitimate debate about the action, whether or not it was malicious. Like, you know, the Dow was that perfect example where there were the people who said, oh, he was, you know, the hacker was just going along with what the code allowed.

Starting point is 00:08:09 It wasn't malicious. Obviously, the community at that time mostly chose otherwise. But, you know, there was that strong contention that broke off now or part of Ethereum classic. You know, your mind goes in many directions. Like, when I read about it, I thought, oh, wow, because basically, I mean, this has been such a big problem. It's like you have this application or smart contract on Ethereum, and, you know, it suddenly

Starting point is 00:08:31 poses some kind of existential risk to Ethereum, even though it's not related or it's not native to Ethereum itself. It's just a, some, an application. Yeah, exactly. And this was one of the things that we thought a lot about. And I think the reason that fork was very contentious. So in the thing that we explained, there is this two phases of intersubjective consensus, setup phase where we pre-agree to what the conditions are.

Starting point is 00:08:59 And there's an execution phase where it should be pretty much self-evident what the course of action is. And the Dow hack was, I think, due to an underspecified setup phase. Ethereum in its setup phase said code is law. Like that was kind of the vision. And then now, if you're like, oh, no, no, no, actually we realized, oh, code is law, but we don't want to hack us to take all the money. So that's what created this counterpressure, which made it not self-evident what the right course of action is.

Starting point is 00:09:28 And so a lot of the thinking towards, you know, how we build this intersubjective systems is to actually create very clear set-up phase so that in the execution phase, you would actually know precisely what you want to do. And it's not an easy problem, but it is an important enough problem to devote a lot of attention.

Starting point is 00:09:47 And that's a really good point that you're saying there because there could have been a different history. Knowing what we know now about hacks, there's a common shared belief that there should be a bounty. If you return the money from a hack, or in some cases you can even just prove you could have hacked, that you get 10%.

Starting point is 00:10:03 And maybe if it's a huge amount, maybe you can reduce or negotiate what that amount is. But imagine if in 2016, there wasn't two options, but there was like a third one. And they said, oh, the hacker did something really useful. He pointed out a bug.

Starting point is 00:10:16 The community could have at that point, but it was too early. Now I think we're there that we could have actually proposed an option where there would have been, oh, okay, that's useful. Let's do an X million bounty. If the hacker returns the money, they can be included in the canonical fork. So there could have actually been three choices. And that's important point on the forking is that, you know, ultimately crypto has to rely on individual choice and forks are the ultimate expression of that. You can, you know, ignore everything else in the protocol and go a different direction.

Starting point is 00:10:43 So it's good here that intersubjective token reintroduces that on the individual. token level inside of eigen layer that the community has the choice individually on what they would like to do. And, you know, intersubjective work token is quite a big, or intersubjectivity is a pretty big word. For myself, I like to actually just think of it as shared belief, that you're able to actually mathematically agree on a shared belief. That's what the token allows you to do. So, you know, as we've been discussing, you designed eigen, so it can be forked without requiring that Ethereum itself hard fork, but you didn't explain how that works on background. So can you talk a little bit about that? Yes. The high level idea is that instead of

Starting point is 00:11:24 forking a chain, which was the basic primitive that Ethereum had to express for the DAO hack, you fork a token. What does it mean to fork a token like? You could take a token as value only because of the Shad believe that that's the right token for that system. And anybody could say, oh, here is another token, which actually is the real token. It's a community kind of like can do that. But because tokens are not designed with this thought process in mind, this is, it leads to a lot of externalities. For example, this token is what is listed on Coinbase and, you know, other places and actually being used in DeFi and so on. Now you fork it. What happened to all those days? What happened to the traders? What happened to people who just were hodeling it in their hardware

Starting point is 00:12:06 wallet and went to the Himalayas? Like, we need to take care of that segment while also making sure that people have the ability to create this fork. There's another problem, which is what is each time the token forks, it's a massive social cost to evaluate the fork and to make sure people choose between these two. How do you account for the social costs? So the token has a design which is actually taking this into account. The idea of if there was a fork, the way the token works is there are two, there is an underlying token, we call backing eigen, and then an overlay token called eigen, which is what most users will ever touch. The underlying token can fork, and the overlay token, which is just called eigen, what users use, it doesn't have to fork,

Starting point is 00:12:55 and it gives you full redeemability across the forks. Whenever you create a fork, you have to burn some portion of eigens because that compensates for the social cost you're creating, for the community to evaluate, which is the right answer. Another thing is if people take Eigen and then they validated a service and the users got harmed because of malicious validation, Eigen has a mechanism to compensate them. It's not just your fork and burn the bad guys' tokens as a way to compensate it back to the harmed parties. So it has the, we call it four properties, universality, the ability to use across

Starting point is 00:13:35 a variety of different applications. It has the property of isolation that defy and holding and fork unaware applications can exist simultaneously with forking in the background. The third one is metering, which is that you actually know what the cost of social consensus is and make sure that people can't just like grieve by creating wrong forks. And then the fourth one is compensation. The harmed parties are compensations. for that bad behavior.

Starting point is 00:14:07 And I just want to ask about that. Is that literally where you're taking tokens from the malicious actors and moving that? Oh, okay. That's a core idea. Okay. Then the questions go to like, oh, I was taking and then there were multiple applications. How do you redistribute across these applications? How do you know a priori that, you know, I as an application have this much slash ability?

Starting point is 00:14:27 All of this is encoded into the structure. Okay. But in those instances where there is kind of contention around who was actually the bad actor, then the community just wouldn't decide to compensate or something? Is that, is that all just done off-chain? No, there is a protocol that specifies how the slash tokens should be reallocated. So if you create a fork, so this is why it's not like exposed social consensus. We meet in a discord or on a room and then decide. It's a priori social consensus, which is that we already agreed what we would do when socially. One of the things we have to make sure

Starting point is 00:15:03 is that the token is used for staking for applications which have broad social agreement, what we would call social truths. Who's the president of the United States? Or like, you know, this kind of thing, not like, oh, what might be the price of this token in two years? That's not, there is no clear consensus on what that is. Okay. And then one other question, obviously we saw with Bitcoin that it split off into Bitcoin cash and then it was Bitcoin Satoshi's vision and whatever. So in this instance, if something, were to have this kind of split, but then one of the factions wanted to split again,

Starting point is 00:15:38 would it allow for that? Yes, the token is like infinitely splitable, but each time you split you are paying off a cost. So, you know, you just have to burn more and more and more to actually create those forks. But if you were right that all of those folks were actually correct, then you're not losing anything because all value will re-concentrate

Starting point is 00:15:57 into the smaller number of tokens that remain alive through these forks. But also, we've designed the system so that forking is not a nominal path. It is a rare path, but it is built with this nuclear option in mind so that in the normal mode, nobody would even think of attacking the system. I think the right example here is nobody tries to attack Ethereum because I don't think that would ever be the case that Ethereum would have to fork because the validators all attack the Ethereum protocol because they know they're going to get slashed and forked. if they actually do it because it's known and pre-agree that that's what will happen.

Starting point is 00:16:36 Okay. Yeah, that's a really good point because that point of being able to fork, you know, nuclear option that gives people power, the ability at low friction, not zero friction, but low enough friction that they have the agency to be able to fork. You don't use it, but the threat of using it has, you know, a huge force multiplier, orders magnitude more. And, you know, you look at a community like Ethereum, which is mature,

Starting point is 00:16:59 and that's kind of the model of how we want the eigenlayer community, you know, with the foundation and with the later decentralized one as well on chain. The operate is this that you do listen to everybody because everybody has the ability to choose that they could fork out. And therefore, you have to collect all of that in. I mean, Ethereum is a great example. They don't even have a Dow. And yet they're extremely community driven because all of that feedback comes in through concentric shells to the very core devs. and the forks necessarily are non-contentious. You know, nothing makes it to a fork

Starting point is 00:17:32 if there's a big segment of the community that doesn't like it. So does all this mean that DAPS should be built as ABSs now? And like all ERC 20s should now be built in some way where no. So talk a little bit about, yeah. Yeah. I think the way that you think about the eigen token and what is it used for is people building ABSs. So I'm building an Oracle.

Starting point is 00:17:56 I'm building a data. availability system. I'm building a new chain. I'm building a thing that rewards people for doing something on Twitter. Any of these Avesses that are built on Eugenlayer has now optionality to say that I can use each staking to support my security and or I use eigenstaking to support my own security. Maybe I have my own token and I want my own token to be staked in addition. So all of these are options. Eigenleys principle is open innovation. So it's open for each of these AVS to choose between these options. The AVS themselves doesn't have to like, you know, build a new token system or anything

Starting point is 00:18:33 like that. The AVS just can have their own normal ERC20, which is application-specific token that they have for their purpose. But in addition, they can take advantage of the intersubjective flashing from EGELA. So the interface for AVS is, hey, I'm building an AVS. I want to avail this crypto-economic security on faults, which are not. not provable on chain, use eigenstaking. So that's all that it is.

Starting point is 00:19:00 Okay. So if I'm going to build a Dap on Ethereum, then that's basically the question that I used to decide whether or not to build it on eigen or on Ethereum's main layer is. So I actually wanted to simplify, I think, what Sri Ram said and actually answers what you were just asking. So that's great because that actually means I was thinking at the time, this may actually not, you know, exactly. Like, there's a question for ADAP, what are you doing, right? I'm a DAP. What am I going to do? Eigenlayer is adding to the Ethereum system. It is strictly adding. It is not,

Starting point is 00:19:34 it is not substituting or in any way replacing the Ethereum system. The Ethereum system allows a very specific crypto-economic system around the EVM to be the ultimate settlement for DAPs that are putting their truth onto the Ethereum system. So that's what exists right now. Igen layer also projects the truth of the Ethereum system, but it projects it into the shared security layer. When you're a DAP, you will build on the EVM in many cases and you will build on top of the AVSs that are in eigen layer.

Starting point is 00:20:10 And so it will actually be a new additional palette. And the AVS is in eigen layer do not have to settle on a 12 second block size 10 minute finality, the AVSs that are building on eigenlayer are full performance, millisecond speed, microsecond speed, even peer-to-peer networks that are able to use crypto-economic security. So this is strictly increasing from only using crypto-economic mechanisms for DAPs that are in the EVM to now being able to do it additionally with peer-to-peer networks. Okay, I don't know if I fully understood because at one point you said you could build on both Ethereum and EGEN at the same time.

Starting point is 00:20:50 So what does that mean? A final dapp at the top layer has a lot of off-chain code that does things. Obviously, you can RPC and use the on-chain portion directly, and there have been some. But realistically, if you're looking at end-user apps, if you're looking at things that have like a U.X and a usability, they have a front end and even a back-end and their back-end attaches to the crypto. The crypto portion right now is the EVM only. and eigenlayer is saying that there's now an expanded back end that still refers back to the same Ethereum security that the EVM does, but it expresses it into any possible other protocol other than a blockchain ledger. And so DAPs have a much wider breadth of, you know, if you want to call them middleware or services that they can be built on.

Starting point is 00:21:37 So this is an expansion. In some sense, we're actually building Web3 because in Web3 you have all of these, you know, middleware services. blockchain is the EVM is one of those middleware services, but there's many, many more. The AVSs that are coming out are amazing and their variety of new services that they provide for DAPs. Right, which is why what you're saying is now with this inner subjectivity ability, that that's what they're calling social consensus as a service. So that's sort of like a new ABS almost.

Starting point is 00:22:07 That is a feature that powers many ABSs that can now rely on social consensus as a service. If you think of what eigenlayer is, is decentralized trust as a service. And the way that we were doing it was getting it from each staking. We want to continue to get a lot of it from each staking because that's where, like, you know, the lot of capital, there's like value and it's non-volatile, all of that. But there are certain things that you can't get from that. So for those things, you rely on it. So it's like a two-legged stool.

Starting point is 00:22:36 Okay. Okay. I have to say, this is so fun. I will say this, that there is exactly. the question you had. If you look at the tweet that we put out the tweet thread from the foundation on April 29th, there was a very good graphic that we put in that kind of shows you the Ethereum token and it going into the eigenlayer system and basically adapt from the right side building on top of the EVM as well as the ABS is from eigenlayer. And that strictly is like the picture that I tried

Starting point is 00:23:07 to describe in those more complex terms before. The log that we talked, put out has a more complex one, but I'd recommend, you know, that's sort of useful to look at, but it starts actually including like how Ethereum consensus works, how the intersubjective token provides shared belief. But the simple one just basically shows just the tokens on the left side. Okay. So in a moment, we'll talk more about the launch of this token, but first a quick word from the sponsors who make this show possible. Did you know you can buy and sell crypto with tax benefits in an individual retirement account? I trust capital makes this possible. But what does this mean? When you buy crypto outside an IRA, like on an exchange, you face taxes on gains. But in an IRA, like a Roth IRA, gains can be tax-free. I-Trust Capital also has some of the lowest fees in the industry and 24-7 accessibility. Start now and maximize your retirement savings with I-Trust Capital.

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Starting point is 00:24:37 Join the community at Pocodot.network slash ecosystem slash community. Back to my conversation with Free Rom and Robert. With the launch of the Igen token token, you've also now established the Igen Foundation. What will be the purpose of the foundation versus eigenlabs? So the foundation, it's a different structure as foundations are. So it's a shareholderless entity. it is nonprofit, it is a non-U.S. entity. So it's structurally very different. And where is it based? Based in Cayman Islands. And its entire charter, its mission, is to, you know, grow the protocol and to help create a decentralized community to assist a decentralized community, first help create and then assist operationally to make successful a decentralized community so that the token is really owned in a decentralized sense, not really.

Starting point is 00:25:29 well, people do own the token, but the overall protocol in the direction is something that is effectively run by, you know, this kind of global community, similar to how Ethereum is run. So let's now talk about the stake drop because I'm sure you're aware that there was quite a bit of controversy around it. People took issue with the fact that many countries were blocked, including the U.S., Canada, the U.K., India, wide swaths of Asia and Africa. a number of people wondered why Eigenlier had let them participate in restaking if it was going to block them from receiving tokens. What do you have to say to those critics? So I think, you know, the sensitivity on putting the token out is if the token ends up running to tremendous regulatory

Starting point is 00:26:17 issues all over the place, then it doesn't serve the community well because it's not possible for it to kind of go on if it's mired in a lot of controversy and everything else. So there's always this tension of various tradeoffs. We have a number of things that we're doing right now to kind of address some of the later complaints you're going to talk about. This one, I think there's still some listening going on. And it's a really tough one to try to figure out how to kind of balance that because we can't go back and change what the restrictions were on going in and actually, you know, doing the staking originally. We have to kind of deal with it as it is now. The token air drops or stake drops in this case. They have very particular set of issues that come up with it. And we've seen

Starting point is 00:27:04 that in other air drops. There's, you know, actually geo-blocking and there's VPN blocking across many, many different air drops. They have gotten tighter over time and they've gotten a lot tighter more recently this year. People also criticize the fact that Eagan had what's known as a linear distribution model, which people believe benefits whales more since the number of points that users earn. eigen in tokens that they earned was directly correlated with the number of points that they had earned. So, you know, if you have these large restakers, then they're just getting huge amounts of coins. And I did see that Blockworks did some quick math, and they said that that indicated that the top 2% of all eigenstakers received about 90% of theirdrop.

Starting point is 00:27:55 So what do you say to that criticism? Yeah. So again, one of the good things about finally doing a stake drop is that we can be a lot more interactive with the community. The model, you know, it's very hard before doing that. And again, this goes back to regulatory issues. And you need to do these things carefully. There's this whole principle of like responsible decentralization. And for like we're building in our belief or we're trying to build something that's a foundational new crypto economic primitive. So in our mind, it's like as foundational as Ethereum and obviously, you know, our, you know, favorite original crypto community, which is Bitcoin. In this one, right, we have the shared security commons. We're trying to kind of expand crypto. I mean, the point of eigenlayer is that crypto, you know, is and should become bigger than crypto itself. So shared security is a way that crypto is able to kind of project itself out of like the blockchains into a construct that's available technologically everywhere. So we did the distribution and we've been looking and, you know, if we were going live, this would actually be

Starting point is 00:29:01 the announcement, but by the time you actually post this, this will be something that we put out today, May 2nd. We have been able to integrate a lot of great community input. You know, we've heard everything that's been out there in the community. We also have a lot of like community leaders that are already engaged with us who are very vocal and speak well and have great contact in various areas around the world. And so I'm happy to say, well, I'm not saying, it here. But I'm happy to talk about the fact that we decided that, you know, we had plans for a later additional decentralization to the broader community out there who had participated and supported us in this earlier time. We thought we were going to do it in the next season.

Starting point is 00:29:43 We've decided to accelerate into this season. So we're adding 100 additional Igens as a baseline to everyone who participated through not just March 15th, but actually through the airdrop date, April 29th. And that's on top of, you know, when you said before that the distribution was linear, it was not strictly linear. We actually did have a minimum floor of 10 icons. And so, you know, the sort of update for us is that we're, you know, we felt like there were various reasons. Some were about the distribution. And although linear is, you know, correct, when the protocol has payments and everything else in the protocol, of course, it's going to work in that sense, like a D-Fi situation, so things will be, you know, straight along those types of

Starting point is 00:30:28 mathematical equations. For right now, we have the freedom to actually stake drop in different configurations. So we did have this high non-linearity to boost people at the bottom end. We heard a lot of really good feedback from people that gas costs were a lot higher at various times, you know, and because of that, we wanted to make sure that everybody was properly accounted for, and we really recognized, you know, how much we appreciate the community supporting us. you know, in the early days. I mean, Eigenlayer, talking about the shared belief, eigenlayer is valuable because there, like, is a shared belief, the community is valuable because there's a shared belief that this is an important new protocol for crypto's future.

Starting point is 00:31:07 And we wanted to recognize that. So thanks for asking that question. Just to add a little bit on that, the main reason for doing a linear ad drop is to disincentivize industry-crate civil farming, which we all know. Right. There is a huge amount of like, you know, industrial. grade, like farmers who basically just run like thousands of bots. We don't want that to kind of take over the protocol. But what we did here is it was not, that was not the dominant portion. There were a lot of real people who actually participated in the protocol.

Starting point is 00:31:43 So, you know, as we all know, we are, you know, crypto is pseudonymous. So we cannot know whether somebody is a real person or just an ID created, you know, many IDs created by the same person. This is called the Sibyl problem. And hearing the stories of real people around the world that, hey, actually, you know, I stake with the belief that, you know, I'm participating in the Eugen layer protocol. And, you know, we were totally like, you know, it became clear that this is the right thing to do. So we're also including in the announcement that this will not be, we will not be able to extend this beyond the April 29th date because this is a recipe for the protocol being overrun. by industry-grade fonts.

Starting point is 00:32:25 Got it. And so this will be for people, because I think May 10th is when they can actually claim. Okay, so this applies for that. This applies for season one. The other thing I wanted to say is we have 280,000 wallets who participated, all of them are getting this 100 additional eigen. Oh, okay.

Starting point is 00:32:45 So there's no threshold. That's right. There's a, you know, there's uniform 100 additional Igens. It will be there for people who are claiming starting on May 10th, which we've referred to as phase one. And then there's a second phase, certain LRT users, who are going to be coming a little bit later. There's still some work that has to be done by the LRT protocols to figure out how their users should have the stake drop distributed to them. But this additional 100 Igens will fairly and uniformly apply to that distribution as well in phase two. Okay. And LRTs are liquid risk-taking tokens for people who may not know. So there's, I'm sure you're aware, another criticism, which had to do with the fact that stake drops for the community are initially not going to be transferable. And the date at which they will be is still undisclosed. Meanwhile, investors and early contributors actually have a clear vesting schedule starts at the time of the claim. It's locked for a year. No. No. So Robert can clarify. Actually, I can clarify too because, you know, it's.

Starting point is 00:33:50 part of the Lagan Labs too. I should say because it's ultimately, you know, I mean, I have to work with the labs on this. Well, this is actually, I mean, there is actually decisions solely on the lab side related to this. But we do want to clarify something, which is that the lock countdown for everyone in the team, for the team, as well as for investors, it starts after transferability. So people are not in a different camp. People are in the same camp. We've seen what happens with other, I don't want to name people. because I know other people tried to correct it when they made this mistake. There's no reason why the community should be having their time kind of delaying the point of having the one year unlock for insiders, you know, the team and investors. It's a shared belief by everybody that that's a fair thing to do so that the stake drops have this initial runway, which is community focused. So of course, that is what we are doing. So thank you for asking that as well.

Starting point is 00:34:49 it's just really important. You have to align the incentives. If you don't have this for protocols that make the mistake of not kind of, you know, doing this, it could cause an issue because, you know, the community is like taking the hit and other people are not. This is, you know, shared. Everyone's in the same vote here. Yeah. And, you know, just to put a name to it, I think, you know, you're probably referencing what happened with Starkware, where, you know, people were quite upset about the fact that the clock had begun earlier and it was only revealed after the clock for the clock for the team and investors, I guess, had started earlier and it was only revealed later. And people feel a little burned by that.

Starting point is 00:35:28 Robert can also talk a little bit more about the transfer restrictions. Yeah. There's one other really important one, which, well, we were very focused on getting the state drop out, obviously. And so it was very a big thing. Just really want to be very clear that we very much appreciate everybody who's been passionately engaged in part of the ecosystem. And, you know, there's a lot of trust that we, you know, have, you know, basically built up with people in trying to, you know, in them trying to help out

Starting point is 00:35:58 and be part of the protocol. So we weren't able to do this before the stake drop because we just were so focused on making sure that we were doing that from, you know, many different perspectives, you know, getting all of the infrastructure and everything else together for it. But we went ahead and, you know, listening to feedback from people that it is very, it can be difficult to not have a time frame. And we knew going into it the time frame is not something that's indefinite and going on in the future. But listening again to the community and wanting to make sure that we're able to share more, we lock down a commitment of, you know, the date that we really are targeting. And so we're announcing today May 2nd that the features in the

Starting point is 00:36:39 protocol, so additional technology that we're building, as well as steps that we're taking for further decentralization of the community control over the protocol that we're targeting those by September 30th. So it does not have to be an uncertainty for people and they can, you know, kind of think accordingly. Oh, okay. Okay. And I'm sorry, just that last bit, you said something about the community having some control over the protocol. What was that? Yeah. I mean, the, you know, the point on something that's as important is token unlocking, ultimately their community is going to have participation in having the power to do the unlock. So that's what we're referring to is that that's a really important step here.

Starting point is 00:37:23 The community can actually decide, oh, you know, we think it would be better to wait. Whatever they do, they're going to have the control in the end. So just a clarification on the transfer restrictions, it's so weird that it got like misinterpreted so wildly in the opposite direction. we believe that the transfer restrictions actually protect the community and the users, and we need to enable it when the community has more power, more say, more decentralization rather than, you know, and more tokens are distributed. So all of these factors together is what led us to saying this is non-transferable today.

Starting point is 00:38:04 Let's get these features, these, you know, more distribution. People say, oh, this is a low FDV, low float. It is non-transferable precisely because, you know, we're going through many seasons. Each season, we allow more tokens to come out. And only after that, you know, it does it unlock or, you know, transfer for anybody after the community has a say and participation. So I think this is just a chance for us to correct the record on communication here, which is that transfer restrictions are intended to empower users rather than any other.

Starting point is 00:38:40 other phenomenon. Yeah, and it's really important. It's always a tradeoff on, you know, making sure that, you know, everybody has the information that's needed. In our case, something like the intersubjective work token, it's a big new idea. It's firmly embedded in the token. And so, you know, we feel like it's, it's very important and responsible that, you know, the stake drop, the entire stake drop of 15%. Everybody in there has a chance to kind of understand it. There's no more questions. It's a bigger concept. There's going to be, I think, a lot of people who try to, you know, convey it in different places, in different forms, explain it much better. There's a shared understanding. You can't have a shared belief if there's not a shared understanding of the crypto economic principles. And this is a new one. And so new crypto economic mechanisms and then having a liquid token on the market just is not something. I mean, Sharia, you know, felt this strongly about it just as, you know, doing right by the community. So the intention here was non-finanical. It was the intention was to responsibly roll out decentralization in a way that people had the information necessary. So that's really important. And beyond even the work token, there's a payment that fundamental to eigenlayers, this idea of a shared security commons where different players can effectively have elastic security that people can contribute into and other people can rent effectively as an ABS.

Starting point is 00:40:02 And so the payment system is not live on chain. we wanted the shared security to already be live in the sense that there's intersubjective forking and eigenDA uses it, which we recently released on April 9th. As a, you know, eigen-D-A uses the eigen-intersubjective work token as a fundamental security primitive. And so we needed that to be live. But overall, the token and when we see the crypto-economic system for it, that actually, in our opinion, really requires payments to be live. Before that, it's a question of what will the marketplace look like?

Starting point is 00:40:38 What will those dynamics look like? So, yeah, you can, you know, people will read through the announcement and we've given some more information. But we're going to have, you know, a lot more ongoing now that the foundation is visible and out there, a lot more community engagement. And similar to Ethereum and other things, there'll be a lot more ways that the information can be coming back and forth. Okay. Well, since I have not looked at the announcement, is there anything else in it that you would want to mention? There's one smaller part. It doesn't apply to the whole. community, so not sure you might cut it out. But there's one other part of the announcement, thank you for asking, which is talking about test net operators. We had test net operators

Starting point is 00:41:17 who helped us stand up and test the network. And one other thing that we heard, certain test net operators were, you know, found that they were emitted from the claims. And so we're doing some more analysis to look through the data analysis, look through the restakers. And it's, you know, we'll make in details in the coming weeks, but those test net restakers will be added to the allocation as well. And that will be a separate amount. You know, everybody who's, you know, see numbers so forth, there's no numbers are only being added for other people. So there's a small extra allocation for them. Okay. Great. Well, as we mentioned, Eigenlayers now officially in season two. So do you want to give any hints what people can expect this season or what, you know,

Starting point is 00:42:01 whatever else is on the plate of both Egin Labs and the Igen Foundation. Maybe I can talk a little bit more about the features. So right now, what is on Mainnet? We have Stakers, can, you know, stake Keith, delegate to operators, and operators can opt into ABSs. All of this is live. We have seven or more AVS is live on Mainnet and many more coming up. The thing with the Igen token is because it's a stake drop.

Starting point is 00:42:28 The stake drop in the intention was that you can, can use the ad drop to go and stake, right, to stake the eigen token. So, eigen token will be stakeable, so you can stake the eigen token to support eigen DA and then over time other AVASs. The things that are not live right now are number one is payments, so which is Robert alluded to earlier, which is coming up. And then two kinds of slashing. One is the intersubjective slashing with eigen and the other one is the ETH slashing on chain on contracts. So both of them are coming up over time. So the core idea is that the ecosystem participates in all these different sides of the eigenlayer ecosystem, whether it's a staker as an operator. And if you're staking,

Starting point is 00:43:15 you delegate to operators. If you're an operator, you opt into Aveses and serve your security. This is the expectation that grows the protocol. That's what we can say about season. Okay. All right. Well, thank you to both of you. This has been truly fascinating. Thank you so much, Laura, for the opportunity. Thank you so much. Yeah, great to finally have a longer conversation. Now we can fully remember where we met before. Don't forget.

Starting point is 00:43:43 Next up is the weekly news recap. Today presented by Wondercraft AI. Stick around for this week in crypto after this short break. Deploy custom crypto strategies and boost your yield with perpetual options on VaultCraft, the universal defy adapter for supercharging your crypto. With version V1.5, users can now earn options on optimism and arbitram while also rebalancing multi-stratory yield products all-in-one, Mint Voltron, Waltcraft's NFT reward optimizer to earn even more in XP points.

Starting point is 00:44:13 From institutional service providers to defy DGens, anyone can deposit any asset into VaultCraft's products to instantly start earning yield on their crypto. Learn more on vaulcraft.io. Welcome to this week's Crypto Roundup. In today's recap, we delve into Chang Peng Zhao's sentencing, a dip in post-airdrop valuations, tether's record-breaking profits, Hong Kong spot Bitcoin and Ethereum ETFs, A16Z's major investment and optimism, and legal challenges facing figures like Roger Ver and the founders of privacy-centric crypto services. Let's begin. Binance founder Chang Peng Jo, sentenced to four months in prison.

Starting point is 00:44:57 Former Binance CEO Chang Peng Xi Ziao, has been sentenced to four months in prison by a federal judge in Seattle for failing to comply with the Bank Secrecy Act. During the sentencing, Judge Richard Jones emphasized the unprecedented nature of the case in terms of the volume, scale, and massiveness of the noncompliance. Despite the prosecution's push for a three-year sentence and the defense's argument for probation, Zhao was ordered to serve time in a low-security federal prison near Seattle. The sentence concludes a years-long Department of Justice Binance investigation, which found systemic anti-money laundering failures. Zhao and Binance reached a joint plea deal in November 2023, resulting in a hefty $4.3 billion in penalties for Binance. Zhao personally was on the hook for $50 million.

Starting point is 00:45:49 Justin Paperni, a former broker and advisor to white-collar criminals, noted that while the sentence is lenient, Zhao will face significant collateral consequences as a convicted felon. Steep decline in Renzo and Camino tokens post-airdrop. Recent airdrops from D-5 protocols Renzo and Camino resulted in sharp declines in their respective tokens, which traded far below their initial expectations. Following their debut on Tuesday, Rez plummeted 54%, trading at 16 cents, while Camino fell by 78% to just 4 cents, illustrating the challenge. facing newly launched tokens. These drops occurred amidst a broader crypto market downturn,

Starting point is 00:46:31 which declined almost 10% in April. Even so, Renzo's total value locked grew by over 37%, whereas Camino experienced a 25% reduction in its TVL. Experts point to a trend where air drop recipients quickly sell off their tokens, a strategy favored by short-term traders capitalizing on low initial supplies for quick gains. This behavior reflects broader market toward the sustainability of high valuations set during launches. Mark Weinstein, a partner at Digital Assets Investment Firm, Mechanism Capital, noted that investors don't believe there is upside potential if a project launches with an 11-figure valuation. Tether shatters records with 4.5 billion Q1 profit. Tether, the company behind Popular Stablecoin USDT, announced a record-breaking

Starting point is 00:47:20 net profit of $4.5 billion for the first quarter. This impressive financial performance, performance was primarily driven by its substantial holdings in U.S. treasuries, Bitcoin, and gold, according to an assurance opinion conducted by global accounting firm BDO. Tether's CEO highlighted the company's commitment to transparency, stability, liquidity, and responsible risk management, noting that Tether's financial strength and stability continue to set industry benchmarks. The company reported an increase in net equity, reaching $11.37 billion, March 31st, up from $7 billion at the end of 2023. Despite these gains, Tether has seen its market share on centralized exchanges declined to 69%, reflecting intense competition within the stable

Starting point is 00:48:08 coin sector. However, the firm maintains a strong liquidity position with 90% of Tether-issued tokens backed by cash and cash equivalents. Consensus alleges SEC shift on Ethereum. Consencies filed a complaint, alleging that the U.S. securities and exchange Commission reversed its previous position that Ethereum was not a security. According to the unredacted complaint, released Monday, the SEC had already begun investigating Ethereum as a potential security in March 2023. In a related development, Representative Patrick McKenry, chairman of the House Financial Services Committee, accused SEC Chair Gary Gensler of misleading Congress about the agency's view on Ethereum. McHenry highlighted that the SEC was actively

Starting point is 00:48:55 investigating Ethereum as a security days before Gensler's appearance in Congress, suggesting a deliberate attempt to avoid disclosure of the Commission's evolving stance. Hong Kong's spot Bitcoin and Ethereum ETFs launch with moderate success. Hong Kong's financial markets witnessed the debut of six new spot Bitcoin and Ethereum ETFs, recording over 80 million Hong Kong dollars or 10 million U.S. dollars in traded shares on their first day. This marks Hong Kong as the first market in Asia to allow trading of spot virtual asset ETFs. The trading volume in Hong Kong pales in comparison to the U.S. counterparts, which saw $4.5 billion on their inaugural day. However, the introduction of these ETFs still represents

Starting point is 00:49:40 a considerable achievement, outperforming the region's previous Bitcoin and Ethereum futures ETFs, which had an average daily turnover of $6.5 million in the first quarter of 2024. These ETFs, managed by Harvest Global Investments, China Asset Management, and a partnership between Bocera and Hashke, offer investors the unique feature of physical redemptions, aligning closely with the practices of traditional ETFs and allowing for direct investment from Bitcoin miners. A16Z invests $90 million in Optimism's OP token. Venture Capital Giant A16Z purchased approximately $90 million.

Starting point is 00:50:22 worth of Optimism's OP token. The purchase includes a two-year vesting period suggesting a long-term commitment from the VC firm to the Optimism Project. This move coincides with Optimism's increasing adoption, notably by CELO developers who recently selected Optimism's OP Tech Stack to develop their layer two blockchain solutions, and Coinbase's base, which also chose the OP Tech Stack. U.S. Stable Coin Regulation efforts stalled. efforts to pass U.S. Stable Coin Regulation encountered another setback as attempts to attach the bill to the Federal Aviation Administration reauthorization were blocked by congressional leaders. Advocates for the Stable Coin legislation, including House Financial Services Committee Chair Patrick McHenry and ranking Democrat Representative Maxine Waters, had hoped to expedite its passage by linking it with the must-pass FAA legislation.

Starting point is 00:51:18 Despite the setback, there is momentum to find another legislative vehicle for the stable coin regulations, possibly aligning it with high-profile marijuana legislation. Simultaneously, U.S. representatives introduced a separate bill aimed at clarifying the taxation of staking rewards. The providing tax clarity for Digital Assets Act seeks to ensure that taxes on these rewards are only applied at the time of sale, aiming to simplify the current complex taxation landscape and prevent double taxation. Roger Ver, known as Bitcoin Jesus, indicted for tax fraud. Roger Ver, an early Bitcoin investor and advocate, nicknamed Bitcoin Jesus, has been indicted for tax fraud by the U.S. Department of Justice.

Starting point is 00:51:59 The indictment alleges that Vair failed to file tax returns and did not pay taxes on capital gains from substantial Bitcoin sales in 2017, totaling about $240 million. Although no longer a U.S. citizen, Vair was still obligated to report and pay taxes on certain distributions from U.S. corporations. He was arrested in Spain with the U.S. seeking his extradition. FTX Estate concludes second sale of locked Salana tokens. The FTX Estate completed its second tranche of locked Salana token sales, with bids averaging around $100 each, following a large initial sale in March.

Starting point is 00:52:35 The recent auction saw the disposal of 1.8 million sole tokens valued at approximately $232 million. The bids ranged from $85 to $110, with most successful bids over $95, reflecting a discount of 15% to 25% from the current market price. Notable participants included Galaxy Trading and Pantara Capital, the latter securing additional tokens in this second round. The third auction began on Wednesday, targeting both U.S. accredited and non-U.S. investors. Samurai Wallet co-founder Kiyon Rodriguez pleads not guilty, released on $1 million bond. Kian Rodriguez, co-founder of the privacy-focused Samurai Wallet, pleaded not guilty on charges of money laundering and operating an unlicensed money-transmitting business. Arrested in Pennsylvania, Rodriguez was released on a $1 million bond and has been

Starting point is 00:53:31 confined to house arrest until his trial. The DOJ alleges that from 2015 until the recent seizure of Samurai Wallet servers, the app facilitated over 100. million dollars in illegal transactions from dark web markets. Rodriguez's next hearing is scheduled for May 14th in Manhattan. This case parallels the DOJ's actions against Tornado Cash, where developers face similar allegations of facilitating unlawful transactions through their crypto mixing service. Like Rodriguez, Tornado Cash developer Roman Storm is also contesting DOJ claims, arguing that Tornado Cash did not operate as a custodial financial institution. This week,

Starting point is 00:54:12 The DOJ challenged Storm's motion to dismiss charges, reaffirming the service's role in money laundering and unlicensed money transmission. Unchained is now a part of the Coin Desk Podcast Network. For the latest in digital assets, check out markets daily five days a week with host Noel Atchison. Follow the Coin Desk podcast network for some of the best shows in crypto.

Unchained - Why EigenLayer Gave Away More Tokens After Widespread Criticism of Its Stakedrop - Ep. 640

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