Founder of EigenLayer: The integration of Ethereum security extensions and AI

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

Compiled by: Cyrus

Proofreader: Elsa

This article aims to help readers quickly understand Kevin's wonderful conversation with EigenLayer founder Sreeram, which covers the concept of heavy staking, the use of blockchain in capital allocation and commitment mechanisms, and the future integration of AI and encryption technology. By analyzing how to extend the security and trust of Ethereum to more decentralized projects, the article demonstrates the huge potential of blockchain in collaboration and innovation, and outlines a blueprint for a more fair and efficient distributed future for readers.

01 Translator’s Foreword

In our daily life, we often encounter situations where we can only use certain payment methods. Have you ever faced such a dilemma? This restriction will prevent some people from conducting transactions conveniently. Some large institutions or platforms control a large amount of resources, and it is difficult for ordinary individuals to participate fairly. This not only limits innovation but also leads to uneven distribution.

In the society we live in that attaches great importance to individual freedom and resource allocation, is it possible to organize and allocate resources in a more efficient and fair way to solve the current coordination problems?

The concept of "heavy pledge" proposed by EigenLayer is an attempt to solve these problems through technical means. Simply put, it allows Ethereum stakers to reuse the pledged ETH for other projects, thereby providing security for more decentralized applications. This not only improves the efficiency of capital use, but also creates fairer opportunities for new blockchain projects. Through an open mechanism, EigenLayer allows more projects and users to freely choose how to participate and is no longer restricted by a single platform or rules. This flexibility not only lowers the barriers to entry, but also attracts more innovators to join.

There's more to it than that. It brings more possibilities to the entire blockchain ecosystem, giving more people the opportunity to innovate in a more open and decentralized environment, and jointly promote social and technological progress.

02 Podcast Introduction

Kevin: Welcome to the Greenpill.network podcast! If you're new to the audience, know that we're building a coordinated network of thousands of hackers, dreamers, and doers to use cryptography to make a positive impact on the world's digital systems. This podcast focuses on those who are doing just that. We publish a season every two months, with each season containing 5-10 issues.

The theme of this season is How to build a DAO. How to start DAO? How to participate in DAO? How to interact in a post-DAO world? Puncar and I wrote a book called "How to DAO". In this season, we will talk to many leaders in the DAO era about DAOs and how they see the DAO ecosystem evolving.

If you’d like to learn more about the podcast, you can visit our website at greenpill.network where you can download the book Greenpilled for free, or join our Discord community and become a member of your local Greenpill.network chapter .

On today's show we have Sreeram from EigenLayer, and we're going to talk about coordinated accelerationism.

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

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

We discuss what EigenLayer is and what opportunities it offers builders around the world. We then broaden our horizons and discuss Sreeram's argument about coordination acceleration. Basically, you need to listen to this podcast to find out. I think this is a very good episode and I think you'll enjoy this conversation with Sreeram.

Kevin: Hello Sreeram, how are you doing?

Sreeram: Hello, Kevin. It's great to be on the Green pill podcast.

Kevin: It's great to have you on the Greenpill Podcast, and maybe we can start with something you do. So, what is EigenLayer?

03 EigenLayer Introduction

Sreeram: Hello everyone, my name is Sreeram. I started working on the EigenLayer project about three and a half years ago. I used to be a professor at the University of Washington in Seattle. EigenLayer is a mechanism that provides decentralized trust for any new network. So if you look at what is encrypted and what is non-encrypted and try to differentiate between the two. If you add decentralized verifiable trust to something, you can say that it is cryptography; if you remove decentralized trust from something, you can say that it is not cryptography. Therefore, you can use decentralized trust as the raw material for the entire crypto economy. If you think about blockchains like Ethereum, which is what we're building on, what they do is they take that source of decentralized trust and then transport it and supply it in a specific way, which is to say, You build blocks.

Therefore, there is the concept of block space, where nodes reach consensus. They stake, they provide that security, then they reach consensus, and then they run an execution environment on which anyone can build and deploy new applications. This is a very specific form of providing trust. You can think of this decentralized trust as “crude oil” that is being refined all the time, ultimately creating this refined product called “blockspace,” which is what everyone else consumes.

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

Kevin: When I was preparing for this episode, I found two examples similar to EigenLayer in my research. One is that Vitalik realized that people should be able to initiate smart contracts without starting the entire miner network. This is the universal smart contract platform Ethereum. And then another analogy, which I think you and Bankless mentioned in the podcast, is to analogize the various applications on AWS to decentralized storage, decentralized computing, decentralized messaging, etc., which can be viewed as It is a general cloud computing service, and AVS (Autonomous Verifiable Services) on EigenLayer is a bit like an application built on EigenLayer. So, changing the trust of Ethereum (which was originally just for block space) from a single use to a general purpose, making billions of dollars of capital on Ethereum accessible to any developer, this is exactly what EigenLayer achieves. Is my expression accurate?

Sreeram: What you said is great, from a cryptographic perspective, any blockchain is made up of different layers. The base layer is security, either staking or mining. Then you have consensus, where the nodes somehow come to a consensus. On top of this is execution, a number of execution environments run on top of it, and applications run on top of these execution environments. You can think of Bitcoin as basically completely vertically integrating these four levels. It is a specific form of security, with a specific form of consensus, a specific form of execution environment, and a specific application - sending and receiving Bitcoins. Like you said, what Ethereum does is break down the top-level structure and propose a fixed security, consensus and execution mechanism, but anyone can build applications on top of it. This is a typical manifestation of the Ethereum paradigm.

Then, after Ethereum entered the rollup-centered era, innovation became more open. I see this as a gradual deepening of the open innovation landscape. This is a model where people can come in and innovate without having to build trust themselves. Therefore, any application developer on Ethereum can directly deploy applications on this smart contract platform. Of course, other L1s have followed Ethereum's direction, but Ethereum actually took the next step, which is amazing that a platform can evolve in this way.

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

Kevin: It’s been really incredible to see the growth of this ecosystem. I'm also curious what your favorite AVS idea is? , and what's the coolest thing you've seen in and around EigenLayer? I know you probably don't want to single out a "winner," but I just want the listener to have an example of AVS in their mind. What is AVS? What is your favorite example?

AVS (Autonomous Verification Service)

Sreeram: One way to think about it is to say "run a new consensus chain on top of this pledge." It's a simple idea. But actually, I think a better way to think about it is as a "service." This is why we call it AVS. Initially, we viewed AVS as "actively validated services". But we now redefine it as "Autonomous Verifiable Services". Autonomous means they operate independently. Anyone can stake and run this verifiable service. Since anyone can run it, they need to ensure they are post-verified via some kind of on-chain penalty contract and conditions. This is a service class built on EigenLayer -autonomous verification service.

So, what might these services be? The first category we explore is: Does it complement Ethereum’s rollup-centric roadmap? Rollup was on the rise and I wanted to centralize a sequencer. Maybe I could create a consensus group on EigenLayer and run it, thus decentralizing the orderer. You want to achieve super-fast bridging between different rollups. As long as there is enough economic stake on the bridge, the bridge can easily pass messages between different rollups. You want to do some kind of MEV (Maximum Extractable Value) management. If you have a decentralized network, you can ensure that transactions are ordered in some fixed, pre-agreed way.

Another example is data availability, typically you would publish data on Ethereum, which is the most secure form of data availability, but you may need higher throughput. You can use the data availability service built on EigenLayer. We built a service ourselves called EigenDA. Taking EigenDA as an example, its data throughput is 15 MB per second, while Ethereum only has 33 KB per second. So there's a difference of several orders of magnitude here.

EigenDA is built based on the Danksharding concept in the Ethereum roadmap, so we adopt the Danksharding roadmap. Since we are just a small startup team, we can grow faster than Ethereum, we just need to do it very carefully. Therefore, this provides a layer of acceleration and innovation for Ethereum. These are examples of Ethereum's rollup-centric roadmap, and how the EigenLayer service complements this roadmap. Next, you can continue to think about, perhaps not just the rollup centralized roadmap, but also various other possibilities. One category that I'm particularly excited about is called coprocessors. Vitalik recently wrote an article "Glue and Coprocessor".

Therefore, the Ethereum EVM can be regarded as "Glue", and any service can be run on it as a co-processor. Coprocessors can be divided into two types: one is to run certain tasks off-chain and then verify its correctness through zero-knowledge proof; the other is a cryptoeconomic game to ensure that participants run correctly. This is similar to the zero-knowledge proof (ZK) type trade-off of the Optimistic protocol. What can this cryptoeconomic coprocessor be built on? Such as AI.

This is a hot topic right now. As many of you know, you also recently did a show on AI, which is one of the areas that we are very interested in. When you think about AI, you want the output of the AI ​​to be verifiable, especially when bringing it on-chain. If your AI is not verifiable, there is no point. You can run AI off-chain, but its results need to be brought on-chain in a verifiable way. In addition, you can also run other off-chain processes, such as running a database, running SQL, running off-chain games and introducing the results onto the chain, or doing zero-knowledge proofs (ZKproving) and other interesting things.

Another category is encryption services. I want to store a secret on this decentralized network, without any one node having the entire secret, but splitting it into small pieces and spreading it across the network. This is like networks like secret sharing, secure multi-party computation, etc. We already have several projects being built on EigenLayer involving Fully Homomorphic Encryption (FHE). I want to perform calculations on encrypted data, not on raw text. I wish to perform calculations directly on the encrypted data. We do have some related technologies, such as trusted execution environments and hardware encryption. The characteristic of hardware encryption is that it can ensure that the calculation is running in a protected hardware environment without leaking secrets to the outside. This is a unique category. In fact, every technology is interesting.

I gave a talk about a year and a half ago where I demonstrated these different categories. Each category has more than one developer building on EigenLayer. This is a very surprising development. Another very interesting category is some form of "proof". These proofs are not formal proofs like zero-knowledge proofs or computational proofs, but proofs of other properties. For example, proof of location. The core of the entire crypto economy is decentralized trust, and one aspect of decentralization is geographical decentralization. So how do I prove to a network that I am somewhere in the world? Can I prove to the network that I am indeed in a particular position? This is similar to how GPS works. Basically, you need nodes to send you information to verify your location. Based on the latency of the round trip of information, the location of the node can be inferred. If it can be implemented in an adversary-resistant way, even if some nodes give adversarial answers, but overall enough nodes can provide the correct information, then this constitutes a proof of location service. Proof of location and proof of human identification is another category. It has appeared frequently on EigenLayer in recent years. There are also technologies like ZKTLS, which is a form of proof used on the network. Typically, when you think of an oracle, its function is to read internet data into the blockchain, but that data is often public. However, the data may only be visible when I'm logged in. In fact, much of the most interesting data on the Internet essentially requires a login to access.

For example, I am an Uber driver and want to switch to a new online ride-hailing platform. I spent three years building a 4.9 rating on Uber, and now I wanted to bring that rating to a new platform. However, Uber currently controls my data and says it will not send this information to other platforms. However, from the perspective of the user owning the data, the user should be able to prove to this new network the fact that I indeed have a 4.9 rating on Uber. Achieving this is very difficult, but there are several protocols on EigenLayer that can achieve this goal. I think this is a huge change because in the crypto space we often talk about users should own their data. But generally I would think this would only apply to new systems built in the future, i.e. new systems could have such a feature. However, what we can do now is bring users' data in Web2 into the new system in a way that is controlled by the users themselves. I think this is a huge improvement. Within the EigenLayer ecosystem, a topic we often discuss is how to conduct a "Vampire Attack" on the entire cloud computing system. That is, how to migrate all this data into its own orbit in the cryptosphere. That’s an overview of the different categories.

Kevin: Thanks for your answer. I want to move from "What is the function of EigenLayer" to the deeper Green Pill question. I think there's an interesting intersection between my work and yours, and I'm curious to explore and tease out those threads, like improvising jazz on top of them. So I’ll start this part of the conversation with the question: Why are we here? What are we building towards? What drives us?

04 First introduction to “coordination”

Sreeram: For me, I first became interested in cryptocurrencies because I resonated with an idea: as Yuval Harari said in "A Brief History of Humankind", what makes humans special is not that we are smart, It’s because we have the flexibility to work together at scale. This became a very important and transformative idea for me, and profoundly changed my personal understanding of how the world works. When I think about this, I realize that the main barrier to collaboration is trust, right? If I know I can trust you, I'm willing to work with you. If we can solve the trust problem, then we can create an emerging kind of massive cooperation that's a really crazy, huge upgrade for humanity.

So, that becomes my basic argument for cryptocurrencies - just like the Internet became an information superhighway, cryptocurrencies can become our coordination superhighway. It’s a crazy, fun, and brilliant look at what cryptocurrency should be like. At the time, I didn't have a deep understanding of, say, Kevin, your work and Ethereum's coordination efforts, and those ideas seemed to be emerging from elsewhere.

My thinking at the time was that if this is the main thing, then coordination is cooperation, and the coordination mechanism is actually very valuable for coordination. So, I was pretty much operating independently based on my own assumptions, without any deep intersection with the wealth of other related ideas. It wasn’t until about three years ago that I discovered that there was a lot of coordination going on in the Ethereum ecosystem.

I realized that, in fact, there was a large and vibrant culture around the idea of ​​how to build better coordinated systems and put them into practice. At the same time, there is a huge community and movement, part of which you lead, Kevin. I'm so glad I discovered this. I would say this is probably the main reason why I chose to build in the Ethereum ecosystem. Because, when you have a shared vision, any people and projects that push for more alignment make me happy. I don’t necessarily have to be the one to make it happen. If someone else is doing it, that's even better because together we can accelerate the process faster. This is how I really started getting into Ethereum.

This was probably around January-February 2022, when I first realized, oh, it turns out that what these people are doing are exactly some of the high-level theories we have proposed before, and they are actually trying to implement it. . This was a profound inspiration to me. Since then, I have been looking at the specific manifestations of coordination. Where exactly is this coordination happening in the cryptocurrency space right now? What steps can we take to speed up this process? This is the basic structure of the entire framework.

Coordinated Innovation Model

Not only have I been building EigenLayer for the past three years, I've actually been working in the crypto space for the past seven or eight years. I have been refining a model that guides all my work. I call it the "coordinated innovation model." So what's the idea? The idea is that any successful large-scale system, such as the United States, will have an underlying coordination layer, such as the constitution and government, as well as an innovation layer that makes innovation possible. Above the innovation layer, there are free markets, where people can exchange goods and services. The establishment of the free market is fundamentally due to the coordination layer, the constitution, which ensures content such as property rights. Because by making that clear and making credible promises like, "If you own a property, you do own it."

Now, anyone can easily trade rights to the property on the free market and create value making it liquid. Therefore, there is a coordination layer under the innovation layer as a support. This is the starting point.

When we start thinking about it, you talk a lot about non-zero sum games. If you think about it, I think fundamentally there are only two archetypes of non-zero-sum games. A non-zero-sum game is a game in which all participants gain, rather than a game involving winning or losing.

When you think about possible typical games, I think there are really only two. One is innovation, that is, inventing something from scratch; the other is coordination, that is, n people come together to create results that are more than the sum of their parts. Therefore, coordination and innovation are two classic positive-sum games. Moreover, they are actually hierarchically nested, layer by layer, in a fractal manner. You can think about it this way, even going back to the evolutionary time scale, for example, before the emergence of multicellular organisms, you will find that within a cell, there was a division of labor for the first time, such as the nucleus and mitochondria.

Mitochondria focus on energy production and the nucleus focuses on information transmission, but they are coordinated with each other. This coordination of scales enables innovation. Innovation is the birth of multicellular organisms. Therefore, in the long process of historical evolution, you will find that new coordination systems continue to emerge, and new innovations follow. And a new coordination system will emerge from it. This process will continue forever. If you chart progress on an evolutionary time scale, you can see that I think innovation is evolutionary because it builds on each other's innovations. And coordination is revolutionary because coordinated systems are rare. Coordination requires binding commitments among n parties. n different parties must collectively accept, agree to, and opt into a new coordination system. Because of this, setting up new coordination systems is very, very difficult. This is not because they are inherently difficult to implement, but because they require consensus and voluntary participation. Furthermore, coordinated systems are difficult to emerge and difficult to change unless change mechanisms are embedded in their contracts. This explains why Bitcoin emerged.

Bitcoin is a new coordinated system that provides permissionless currency. However, changing it is very difficult. Before I started actually building EigenLayer, I wondered, could Bitcoin use a new coordination system? But then I realized how difficult it is to change a coordinated system. It's really, really difficult. So the theory is: the levels of social evolution are made up of layers of innovation and new layers of coordination that emerge above it. These new layers of coordination then inspire and facilitate the creation of new layers of innovation, which are fractally nested within each other. All these different players compete with each other, effectively creating a net growth engine. And then I saw that if we could actually see Bitcoin and Ethereum being born before our eyes over the past decade, that gave us confidence that maybe the game wasn't over. We can build new coordination systems and make them powerful and useful for all those who build on top of them. EigenLayer's vision is to build a human coordination engine. This is our goal. It has nothing to do with heavy staking, staking, or building a decentralized network. It’s all about creating the human coordination engine. This is our main value. From this we only find a small starting point, which is heavy staking.

Kevin: Great. I'm a coordinated extremist, so these words are music to my ears. To give the audience a better understanding, let me recap: levels of social innovation require coordination to obtain, which then builds new coordination infrastructure for future generations. By the way, we're recording this through a coordination layer, which is TCP/IP and the Internet. So these layers of innovation are built on top of innovation. You can almost think of them as layers of sediment that are fractally nested on top of each other. Each generation has pushed forward the development of hypercomplexity and the processes that civilization requires in processing information and allocating resources. You've identified trust as the limiting factor in achieving this goal. The focus of EigenLayer is decentralized trust, making it easier to access a huge trust pool. The purpose of this song service is to build the human coordination engine. And this is the core value of EigenLayer.

coordination equation

Sreeram: Right. When you think about coordination, I have an equation that I call "Coordination = Communication + Commitment." Okay, so I think what is a coordinated system? Coordination systems need to allow participants to communicate with each other easily in the first place. For example, the Internet is our communication highway. So I can communicate with you via the Internet. But what's missing is the ability for us to make binding commitments, like, I want to make a promise that if something happens, say, the output of this podcast, we split the proceeds equally. How do we do this? How do we reach these types of binding commitments? The Internet itself does not have a native infrastructure to achieve this. When you think about promises and who is going to fulfill or enforce them, this is a very important bottleneck in the coordination system: Who is going to fulfill the promises? Who will carry out the promise? How can we trust them? You can classify commitments, and one way of classifying them is that you can think of the historically dominant "promises of authoritative execution."

That is, a single authority, such as a king, who enforces promises. For example, they might sign a deed that states something like "Kevin owns this house," and they will keep that promise. So, you can have a commitment that is enforced by an authority. You can also have a commitment that is enforced by a committee, such as an organization collectively deciding how something should be done. In the United States, you will also see similar examples. For example, the Federal Reserve is a committee that determines monetary policy. However, committees are more robust than authoritative institutions, but there are problems with committees themselves, such as what are the incentives for committees? Do the committee's incentives deviate from the common good of all? Does the committee have an inherent selection bias? Is it representative in some way? These are all issues associated with committee-type execution. You can then go a step further and talk about implementation based on majority rule, like a pure democratic system where a group of people come together to vote and make a decision. But even with a commitment based on majority principles, there will still be "tyranny of the majority." The majority may oppress the minority at will. And in reality, each of us is a minority in some way. If you divide it along different dimensions, everyone is in some sense a member of a minority group. Therefore, commitments based on the majority principle also suffer from the problem of "tyranny of the majority". Next, you can ask: What is the deepest, most robust, and most rigorous commitment system? We call these "self-enforcing commitments," those commitments that are self-executing. It's an incredible concept in some very fundamental sense, and one wonders if it's even possible. I think it's worth thinking about what these types of commitments were, from a historical perspective. For example, in the days of ancient kings, when trade between different countries was required, it was impossible for one king to trust another king, another king's council, or the majority of the people of another country. Therefore, they must find some kind of resource or mechanism to solve this problem.

If I'm going to transact across trust boundaries, like I was transacting between kingdoms in ancient times, then I need to be able to hold value that is self-executing and complete the transfer of value as I cross the trust boundary. I think all of these evolutionary pressures gave rise to things like gold or other rare metals as trading mechanisms. Because when you give me a piece of gold, it's self-verifiable to me. I can know that this is a piece of gold because I understand the properties of gold. And it works very well as a promise of value transfer because I can pass it on and no king, committee, or majority group can deny that that's gold. Because it is self-verifiable. As a result, this became a cornerstone of the modern economy, as gold was able to interact and trade across trust boundaries. It is a self-executing value transfer commitment. So in the past, you've created this very powerful self-enforcing system. But the problem with gold is that, just like Bitcoin is the modern version of gold, it is a pure value transfer tool. For example, I can only complete value transfer through gold, not value distribution. Value allocation means being able to say, "If A, B, C, and D happen, then I get this part of the value and you get that part of the value." That's a more expressive way of doing it, and gold doesn't Have this ability. So we've seen the progression from gold to all kinds of complex things, and I think the modern version of this system is like a constitution, like the Bill of Rights, where it's almost self-enforcing. Not exactly self-enforcing, but almost. When someone tries to seize power and violate the Constitution, it triggers an immune system-like response where people realize, "Oh my gosh, this is a violation of constitutional rights." And there was a transitional period before that, where religion Text actually plays a similar role. Not even kings have authority over religious texts. Of course, sometimes kings would twist religious texts to suit their own interests, but at least they needed to abide by some kind of rules that couldn't be broken unilaterally. Therefore, I believe that self-enforcing systems went through three stages before the advent of encryption: the golden age, the religious age, and the constitutional age. The constitution is the distillation of the coordinating elements in religion, and it writes these coordinating elements into the text of the constitution. This is the essence of the constitution. I think cryptography is accelerating the self-enforcing nature of coordinated systems, which is the next era. I'd love to hear your thoughts on these different versions of the coordination system.

05 Capital allocation

Kevin: Very exciting. I can't wait to listen to this again and let me recap what I just said and then I'll respond. We are building a human coordination engine, and coordination equals communication plus commitment. Now, we can enter the self-reinforcing binding commitment stage through smart contracts. The progression of the promise includes the Golden Age, the Religious Age, and then the Constitutional Age. And now, we are entering the era of on-chain commitment.

In fact, I have changed my direction and shifted my thinking that focused a lot on meme dissemination work in the past from "regeneration concept" (I think this is my area of ​​fame) to on-chain resource allocation. In the past, the topics we focused on were things that were good for the world, positive-sum games, similar to the hippie-style topics in Boulder, Colorado (such as ecological protection, peaceful cooperation, etc.). Now, the core concept we focus on has become "on-chain capital allocation." Capital allocation is more precise, technical, and complex.

I think capital allocation is more of a powerful tool than a casual Frisbee thing (like the culture at the University of Boulder). However, I still hold these values ​​dear, but now I focus primarily on the area of ​​capital allocation. The reason is that I think capital allocation has been redefined many times throughout history: from the Golden Age, to the Religious Age, to the Constitutional Age. From the resource sharing network in the hunting and gathering era to harvest distribution in the agricultural era, to the way to improve production efficiency and achieve mass production in the industrial era. Every era brings new ways of allocating capital.

No matter how society changes and the underlying mechanisms of coordination evolve, the way capital is allocated will change accordingly. I think studying how the "on-chain capital distribution era" works is like laying the foundation for solving the problem of coordination failure at a fundamental level. Because in order to achieve the goals you want, whether it is profitable growth for your company, a regenerative economy, biodiversity support, climate change response, etc., you must first achieve efficient allocation of resources. So, the perspective that I bring to this conversation is capital allocation.

Now that we have new ways of decentralizing trust and creating commitment, I think you can create some bounded rules so that the previous problems with human coordination no longer exist. You know, you can solve the "free rider" problem and you can solve the "tyranny of the majority" problem. Basically, we have an infinite canvas, which is Ethereum, to build these fund allocation processes to allocate funds to where it matters. Gitcoin's mission is really to fund things that matter, and capital allocation is how we do that.

I think a few generations ago, Taiwan's semiconductor industry became a very important systemic part of the economy by etching circuits on silicon wafers. Now, I think the next generation of builders will do similar innovations on Ethereum - they will "etch" the capital allocation circuitry on Ethereum. I think there will be a new generation of developers who will carve the capital allocation "circuit" into Ethereum. Ethereum is like the silicon we use to build these "circuits." In what ways can we use this more efficient and effective medium (Ethereum) to achieve capital allocation, build more positive-sum games, more profit structures, and better collaboration mechanisms to achieve the results we want? . Let’s do capital allocation directly on-chain. It's hard for me to pin down a specific question, but I wanted to explore the intersection of trusted commitments and on-chain capital allocation, and I felt like this would be a topic worth exploring in depth.

Understand capital

Sreeram: That's a great idea because when you think about capital, I think capital arises from property rights. The so-called capital is those things with clear ownership attached. It can be money, property, or anything else you can own. One day, I thought about the role of the market economy, part of which is to transform things without property rights into things with property rights. I'll stop here and want to hear your thoughts on this. The function of a market economy, this is not a normative or prescriptive perspective, but a descriptive perspective, right? It just shows that the role of the market economy is to transform things without property rights into things with property rights. First, I want to hear your opinion.

Kevin: I have two ideas that are different in a way, but we can see what I think and then decide what to do next. The first thought is that I take for granted that the rule of law exists in the United States because this has been the case my entire life and I have never experienced it otherwise. But if you look back in history, or go to parts of the world where there were no property rights, you see how different the world was without property rights, and how that dramatically changed people's quality of life. So first of all, I try not to take for granted the property rights that allow me to own this computer, do so many things, and enhance my own happiness through those property rights.

The second point of view is a little different, that is, I have recently been convinced by the concept of "Eight Forms of Capital" proposed by Gregory Landua. Basically, the core of this idea is that capital is not just financial capital. It actually also includes intellectual capital, spiritual capital, material capital and social capital. So I think maybe having property rights over financial capital and financial resources better preserves your intellectual capital and social capital and things like that. I am trying here to guess how property rights relate to the other eight forms of capital. But I think one of the interesting things is that this podcast is a kind of intellectual capital that we are creating. And I think one of the really cool things about cryptocurrencies is that we can create new ways to financialize social capital and intellectual capital to fund the things that we think are important, which has never been possible before. Because now we can turn this podcast into an NFT. My two thoughts are: Don’t take property rights for granted. Also, I'm thinking about eight different forms of capital, not just financial capital.

Sreeram: Many of the other types of capital you mentioned (besides financial capital), exist because there is a social mechanism to attribute those capitals to you. For example, people don’t just plagiarize other people’s ideas. For example, the distribution mechanisms we have today (for example, we publish content on the Internet and anyone can listen) were unimaginable 30 years ago, because whoever controls the platform controls other people's ideas, such as you And I may have a lot of good ideas, but if someone else has the platform, they control those ideas and even claim them as their own.

One thing we see is that as coordination systems become more expressive, you can specialize. For example, when you think about capital allocation, venture capital is an example of a specialized division of capital, ideas, and innovation. Capital and innovation. One person provides capital and another person provides innovative ideas, and they can collaborate and create output without one person having both a lot of money and a lot of ideas - which is very rare, and having both at the same time is almost impossible . So, the better the coordination system, the more these different forms of capital, the eight types of capital you talked about, can coordinate to actually produce a useful net output.

So what can better forms of coordination actually achieve? Maybe this is the core idea that you lay out in your upcoming book: that you can have new forms of more expressive capital allocation, and using these on-chain tools will actually facilitate more forms of coordination across the The different types of resources and capital owned.

Kevin: I’m very excited about another area where on-chain capital allocation intersects with the EigenLayer ecosystem. A few months ago, I wrote an article titled “Heavy Staking Is Regeneration.” The core idea is that heavy staking creates revenue through productive economic activity, which is not free, but does so on top of the pool of capital already used to secure the Ethereum network. There is a concept of "exotherm" in nature, which means that they release heat. The Sun is an example of this, and all life on Earth derives its energy from the Sun or other heat sources such as volcanic heat, and in some cases we even now use nuclear reactions on Earth. Therefore, the concept of "exotherm" in nature is related to heat, but in cryptocurrencies and our economy, there are also economically "exothermic" structures.

One of them is an actual staker of Ethereum. So, I get a financial "heat" from there, like earnings flowing into my personal economy. But what I’m really excited about is having a thousand different economic “exothermic” experiments in the AVS ecosystem flow into these on-chain capital allocation structures. But the question is, how do we plug it in? I think what you bring to the table is exactly what we've been looking for. For example, I have been funding public goods with Dogecoin for four years, and I am very grateful to the Akita community. Thank you for working with us. But I hope there's a yield more like ETH or USD that we can plug into these on-chain capital allocation frameworks. I think Vitalik mentioned in his show "impedance matching," which is finding a balance between allocating capital for public goods and raising funds for public goods. And you solve this problem with EigenLayer. So, the combination of heavy staking and regeneration, what are your thoughts on the connection between these two concepts?

06 Heavy staking and regeneration

Sreeram: When we think about strategy, positioning, etc., we think about it on two axes.

The x-axis represents the long-term nature of something, right? Like, how intellectually profound is it? Does it really have long-term value? All of this is reflected on the X-axis. On the Y-axis, what we think about is, is it friendly to short-term participants? Is it suitable for those who are financially oriented? So you can think of the Y-axis as "speculators" and the X-axis as pure "long-term value." I wonder if we could match the two. Because most great ideas require energy to take off, some kind of activation energy, and that activation energy can come from speculators. Because if you are completely on the speculator axis, you are in a zero-sum game, just like PVP (player versus player). But when you combine that with a long-term builder mindset, thinking about what are the long-term positive outcomes, you can actually harness the energy of speculation to guide the creation of new systems, new technologies, and new things that ultimately are net Positive. This fits in with another mental model I often use: when you talk about multipolar traps or coordination failures, you can visualize these problems through diagrams of solutions.

So, the X-axis represents all possible solutions and the Y-axis represents the quality of the solution. You will have some non-convex problems where there is a local maximum (like a small hill) but the optimal solution is a global maximum (like a taller hill). However, to go from the local maximum to the global maximum, you have to cross a valley, right? This is actually the hardest part of solving coordination failures: you have to get people to temporarily sacrifice their own interests in order to reach this new global maximum. I think this is often very difficult to achieve. But we realized one thing, and I think this is another place where coordination and capital allocation theory intersect: by articulating the value of the new hill, you can say, "Hey, if this new hill (the global maximum) materializes, There's so much value. "And what I'm doing is borrowing that value from the future and distributing it to people today so that it's not a net negative in the short term, it's a positive.

So you're essentially building a virtual slope between the local maximum and the global maximum, by borrowing the value from the future, articulating what the future will look like and why this thing will be valuable in the future. You can then guide people through this virtual ramp to a better global maximum. This line of thinking is very inspiring for our thinking. This again ties into the theory of the two axes I proposed earlier: finding a global maximum and then finding a path to build that slope using the tools of finance and capital allocation.

I mentioned the coordinated innovation theory before. Coordinated systems are difficult to form. The reason why they are difficult to form is precisely this "valley problem" - you have to transition from one social equilibrium to another, and this requires passing through a valley. This is not a rational choice for an individual. Often, we appeal to altruism to get through this valley. But the problem is that only a very small number of people can truly be in a purely altruistic position because of various restrictions. And if we can make it a win-win situation for everyone involved, you can actually build a system like this. I think it's very powerful to think of the economic system as a form of capital that expresses this mechanism.

So you can actually solve almost any coordination failure problem not only through the various commitment techniques and tools that we discussed, but also by leveraging financial economic tools to borrow value from the future, which is a very powerful idea. In the cryptocurrency world, one manifestation of this idea is that people use tokens to guide various participants in the market. What are tokens? Tokens are representations of this potential future value. If the network were implemented, it would actually have some value. You can assign part of the ownership, part of the value, to participants.

Initially, this "valley" is so steep that you could fall straight down and fail. Therefore, you need to provide additional incentives. In the early stages, you need a lot of momentum to compensate people for the risks they take. And then over time, you need to balance that incentive. So I think this is another place where coordination theory and capital allocation theory come together: by understanding this "topography" of being able to elucidate the future value of this coordination system and share that value more equitably while extracting from it A portion of the value is used to compensate those who take risks to nudge them into choosing the new coordination system. I think we can actually guide people from a local maximum to a global maximum.

Kevin: That's wonderful. I have a visual diagram about this. If you're watching it on YouTube, hopefully our editor Kishan will put it up. But basically, the visual image that we have in mind right now is the idea of ​​a search space, where the X-axis represents all possible capital allocation structures or coordination structures, and the Y-axis represents how effective they are at solving a problem or creating value . We are actually in a decentralized search space, aiming to find the best structure to solve the coordination problem. If the structures of the industrial era or the Internet era were this small, the on-chain search space is much larger because now we have trusted promises through smart contracts. We have EigenLayer and the decentralized trust of the large pool of Ethereum network.

We are therefore moving beyond what existing economics has already explored. Just like when you enter a new area in The Legend of Zelda and get a map of that area. We are entering a world of trusted commitments, on-chain capital allocation, yields, etc., trying to figure out the best structure to coordinate human activities in the 21st century. Something else I'm hearing here is that different players will have different reward functions. And one thing we can do through credible commitments is tie individual interests to collective interests at local, state and global levels. Binding those incentives by making it more attractive to solve problems together, I think is one way we get to 3-3. We reach that "square" of coordination. Hopefully the visual diagram on YouTube will help, but I think this is a very exciting distributed search problem: how do we find a structure that can accelerate coordination and build coordination "super highways".

07 AI + Encryption

Sreeram: It’s one of the most exciting things we can do anywhere. Going back to the theory of coordinated innovation, one thing you can think about (and probably a question on many people's minds) is: the AI ​​era is coming, and you just did a show on this topic. The age of AI is coming, how does all this crypto fit in? Coordinated innovation theory actually provides us with some very insightful insights. If you think of innovation as an accelerator, then AI is an accelerator of innovation. AI is the driving force behind accelerated innovation.

Innovation means that any individual can take some action to improve themselves. And AI is really powerful in this regard. And cryptography is the accelerator of coordination. So you can think of the extreme point of innovation acceleration as AI and the extreme point of coordination acceleration as cryptography. This gave me an idea of ​​how these structures would interact with each other and what new and interesting things might emerge in the future. And a very interesting question is, what big things happen when these two constructs (AI and crypto) interact? This could be a very interesting next topic of discussion.

If you think of progress as a graph, it keeps growing evolutionary, and then suddenly there's a jump because of coordination, and then progress keeps growing evolutionary, and then there's a jump because of coordination. Another way to ask is: What’s the next big leap in coordination? What will it bring? When we set out our vision for Eigen Labs, our goal was to build humanity's orchestration engine. That is, cryptography is humanity’s orchestrating engine. Let's speed it up, make it more expressive, let's make it do more. Now that we have this perspective—innovation is maximally accelerated by AI—what can cryptography do to drive this forward? I think there's a lot more to come at the intersection of cryptography as a coordinating foundation for AI. We talked before about coordination being communication plus commitment, and cryptography can create and maintain self-enforcing commitments. So when you think about commitment and how to make commitments in the age of AI.

There are four possible combinations: between humans and AI, including humans versus humans, humans versus AI, AI versus humans, and AI versus AI. Each combination deserves in-depth consideration and discussion. Regarding humanity's commitment to AI, the current situation is that people mostly run AI agents on their own servers and then call it some kind of autonomous AI agent. If you put on the hat of "decentralized avid crypto enthusiast", you You might think this is silly. This sucks because it's just someone running their server. So I have a point: the agent controlling the Ethereum wallet is not that different from the agent controlling the Stripe API. They're actually the same thing, and if you're running it on a server, it's exactly the same thing because it's just calling your bank account or your Ethereum wallet. If both are controlled by individuals, there is no essential difference between them.

The real difference is that when the AI ​​itself runs a smart contract on the chain, the situation is different, I should be able to run an AI smart contract just like I would an Ethereum smart contract, and its output should be as accurate and rigorous as writing a smart contract . In this way, you suddenly open up a whole new world of possibilities. You can write arbitrary AI programs, they run on the chain, and their output is as strict and accurate as the on-chain contract. Then, this AI is not controlled by anyone, just like the contract is not controlled by anyone. We’re always thinking about what this future will bring, such as new on-chain life forms. We call it AI life, and when people think about AI, they think it's this crazy new thing.

Some AI safety experts worry that AI will suddenly lose control and act on its own. Like, how to control it? Questions like this. But there is currently no clear "take-off mechanism" that can allow AI to suddenly do its own thing. Perhaps a robot that replicates itself and controls a city can be counted as an example, but these are still far away, and today's AI is still purely digital. Can a purely digital AI take on a life of its own? What we are thinking about is, what is the unit of life? You can think of units of information, such as DNA, which for a living organism control units of energy, such as ATP (the unit of energy produced by mitochondria). It is self-directed, like a living system that has its own DNA to control energy units and nothing else. Finally, it is adaptive, it adapts to the environment. These are the basic building blocks of living things.

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

DAO meets the first three conditions. Its information unit is code, the energy unit it controls is funds, and it is self-directed because property rights on the chain are automatically executed. But it is not adaptable internally or as a DAO itself. This adaptability comes from the agency of members who control the DAO, who are actually exercising their power, which is great, but it's not a life form in itself. It is simply the coordination mechanism by which these human units come together. Therefore, I think what can completely change this is the emergence of AI contracts on the chain. In this way, you have an information unit, the AI ​​code, which controls the funds on the chain, utilizes the property rights on the chain, and it It is adaptive in that it continuously improves itself through learning.

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