Eigenlayer overcomes drama with $11 billion in deposits and key role in Ethereum — Sreeram Kannan, what happens next — DL News

Within a year of its launch in June 2023, EigenLayer has taken off to the kind of start that any crypto project could have dreamed of.

The Ethereum reacquisition venture has raised about $20 billion in user deposits, and its parent company has secured a $100 million investment from VC powerhouse a16z.

Even better, the project quickly proved its worth. More than 100 companies have flocked to AigenLayer, including cryptocurrency exchange Kraken and bridge developer LayerZero Labs, according to founder Sreeram Kannan.

But the project may have gone too far, too quickly, as EigenLayer has dealt with a series of controversies, including an alleged attempt to buy two influential and often critical crypto researchers .

“Somehow it's at the heart of Ethereum,” said founder Sreeram Kannan. DL News In a wide range of interviews. “We were not prepared to be at the center of a major ecosystem.”

asymmetrical attention

EigenLayer currently has $11 billion in deposits. It may have originated in academia with the ambition to create a “free market for decentralized trust,” but its development has become a classic tale of the pitfalls of overnight success.

Taking a breather after a hot start to the project, Kannan discussed his first foray into starting a cryptocurrency company and his next plans for EigenLayer.

EigenLayer makes it easy to launch certain protocols on the computer running and securing Ethereum itself and piggybacking on the cryptocurrency Ether. This is a process called re-staking.

At a conference in Istanbul last year, Kannan likened the concept to a military alliance.

“Cities don't have armies, but nations do. Sometimes even many nation-states coordinate to build alliances that actually work together,” he said.

“It's exactly the same phenomenon. Shared security is much better.”

“I am appalled that EF researchers receive six- and seven-figure compensation packages from the protocol.”

— Lefteris Karapesas, Lotki

Some Ethereum researchers were quick to hail EigenLayer as a breakthrough. But some warn that having too many services relying on the same batch of Ether for security could destabilize the blockchain.

In other words, if one project built on EigenLayer fails, the re-staked Ether will be taken with it. Or, extending Cannan's analogy, if one city fails, the army can take its share.

In short, critics feared it could lead to cascading failures that could ultimately harm Ethereum itself.

To allay concerns, EigenLayer debuted features one at a time, spaced several months apart. Later this year, we plan to change our security model to limit infections if some applications fail.

However, attempts to emphasize security have not been very successful.

Earlier this year, it brought on prominent Ethereum Foundation researchers Justin Drake and Danclad Feist as advisors.

They were hired to resolve the risks that restaking poses to Ethereum. And they were well compensated — the payments to Drake could one day be worth millions of dollars, he said.

beneficial relationship

However, this lucrative relationship was not revealed until crypto influencers wrote about it on social media.

The lack of transparency wasn't just a violation of DeFi's values. It also sparked criticism that the Ethereum Foundation was turning a blind eye to conflicts of interest.

“I am appalled that the EF researchers who lead protocol development receive six- and seven-figure compensation packages from the protocol,” Rotki founder Lefteris Karapesas wrote to X.

“Even if you promise not to let this cloud your judgment, it is impossible to do that in your personal capacity.”

Main benefits

Both Mr. Drake and Mr. Feist said they were not willing to compromise on EigenLayer's funding.

Feist said EigenLayer could be a “huge benefit for Ethereum” if operated correctly.

“I believe the current leaders intend to do so, and I will hold them accountable for it,” he wrote to X. If longer. ”

Drake has promised to direct all proceeds from EigenLayer to other Ethereum projects in the form of grants and investments.

“I am also prepared to terminate my advisory role at any time, for example if EigenLayer moves in a direction that I believe is contrary to Ethereum's interests,” he wrote.

According to Kannan, EigenLayer delayed announcing the partnership at the request of the Ethereum Foundation, which wanted to clarify the relationship itself.

However, before naming EigenLayer, crypto influencer Jordan Fish, better known as Coby, said that Ethereum Foundation researchers had called the project “potentially inconsistent with Ethereum and incentives” to “change lives.” “I'm taking out a $ package like this,” he wrote to X, and forcibly reached out to him.

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

Feist did something similar, but he said only that his salary amounted to “a significant amount of token money.”

“Even if people think it's some kind of destructive thing, it's not,” Kannan said.

completely transparent

“In full transparency, we talked with the Ethereum Foundation, who asked us not to promote it. … They said, 'We'll promote it ourselves, in the right way.' I did.”

Ethereum Foundation did not return DL News'Requesting comments.

But the payment was also a thank you to two researchers who have already made significant contributions to shaping EigenLayer's direction, Kannan said.

“We want to give back to the people who actually invested and created the ideas.”

— Sreeram Kannan, EigenLayer

“EigenDA is a protocol built on the ideas of Dankrad and Justin,” Kannan said of the actively tested service built by Eigen Labs (EigenLayer's term for projects built on top of it). I mentioned it.

“We want to give back to the people who actually invested and created the ideas.”

No sooner had the issue cooled down than another controversy boiled over.

Vesting of tokens

a coin desk An article in August reported that Eigen Labs pressured its partner companies to send a portion of their newly minted tokens to their employees.

Eigen Institute denied this claim. And in September, some critics worried that it was evidence that EigenLayer's early, deep-pocketed investors could avoid token vesting, a concern the company said was overblown.

“Being right about cryptocurrencies is not enough. In general, when you want to build trust, you need to be clearly right, which is a very high bar,” Kannan said. “It's really difficult and it's not easy. And for a project of our size, we get asymmetrical attention.”

To address this challenge, Kannan said the company is dedicating more resources to improving its transparency standards.

“If we want to become humanity's regulating engine, humanity needs to be able to withstand this situation.” [scrutiny]” he said.

trifecta

Once a skeptic of cryptocurrencies, calling them a speculative bubble, he now frequently uses soaring rhetoric and speaks like a true believer.

“I was at a dinner with a U.S. congressman, and he asked, 'Can you tell me why you're doing cryptocurrencies?'” Kannan recalled.

“Many DeFi protocol founders all say, ‘Improve the financial system and make it more resilient to inflation,’ and these are all things we know and love. “This is the greatest advance in human civilization since the Constitution.''

Passionate about peer-to-peer networks, Kannan got serious about cryptocurrencies in 2018.

He wrote an academic paper on the subject and eventually set out to create his own blockchain, called “Trifecta.”

But he was unable to raise funds.

If he had succeeded in convincing VCs, launching blockchain would have been easier. But it would also be easier if the new blockchain didn't require its own decentralized network of computers. That is if he could use a computer that was already running Ethereum.

“EigenLayer was conceived as a mechanism to solve my own problems,” he said.

Aleks Gilbert is our next DeFi correspondent. DL News. you can contact him aleks@dlnews.com.