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    Bell Curve

    How AVSs Enable Scalable, Secure and Customizable Execution | S8 E4 | Ludwig & Muto

    Tue Jun 11 2024
    blockchainAVSliquidity managementcrypto economicssecurityDeFi

    Description

    The episode covers various topics related to AVS (Application-Specific Chains) on Ethereum. It discusses the importance of preconfirmations in blockchain applications, building solutions for efficient on-chain liquidity management, restaked ETH for cheaper and more programmatic solutions, attributable security for designing systems correctly, attention and value in the AVS ecosystem, validator sets and consensus design in Eigenlayer, restaked ETH for securing decentralized sequencers in rollups, determining stake and asset mix for security, attributable security and insurance in AVSs, efficiency and interoperability in the future of DeFi, benefits and design decisions of AVS on Ethereum, staying on Ethereum with shared liquidity and L1 benefits, economic security and incentives in Eigenlayer, and the future of Eigen.

    Insights

    Preconfirmations play a crucial role in blockchain applications.

    The discussion focuses on the importance of preconfirmations in blockchain applications.

    Building solutions for efficient on-chain liquidity management and addressing profitability challenges in AMMs is important.

    The podcast guests discuss building solutions for efficient on-chain liquidity management and addressing profitability challenges in AMMs.

    Auction systems can improve LP profitability in decentralized exchanges like Uniswap.

    Auction systems are proposed to address arbitrage issues and improve LP profitability in decentralized exchanges like Uniswap.

    Restaking is a key component in selecting a quorum for running batch auctions to optimize liquidity clearing.

    Restaking is highlighted as a key component in selecting a quorum for running batch auctions to optimize liquidity clearing.

    The process involves receiving user orders, relaying them among nodes, merging different views into a globally optimal view, and submitting it on-chain.

    The process involves receiving user orders, relaying them among nodes, merging different views into a globally optimal view, and submitting it on-chain.

    Eigenlayer provides economic security allowing for an optimistic model with higher minimum stake requirements.

    Eigenlayer provides economic security allowing for an optimistic model with higher minimum stake requirements.

    Higher staking security per validator reduces the risk of theft and enables waiting to verify after execution.

    Higher staking security per validator reduces the risk of theft and enables waiting to verify after execution.

    Ethos is a marketplace for commitments backed by Restaked ETH, aiming for programmatic access to security and decentralization.

    Ethos is a marketplace for commitments backed by Restaked ETH, aiming for programmatic access to security and decentralization.

    Focus on stateful AVSAs allows ecosystems to have their own execution environment while maintaining uniform economic security.

    Focus on stateful AVSAs allows ecosystems to have their own execution environment while maintaining uniform economic security.

    ETH is considered a credible neutral asset for building chains, with restaked ETH being a way to achieve cheaper and more programmatic solutions.

    ETH is considered a credible neutral asset for building chains, with restaked ETH being a way to achieve cheaper and more programmatic solutions.

    Chapters

    1. Importance of Preconfirmations in Blockchain Applications
    2. Building Solutions for Efficient On-Chain Liquidity Management
    3. Restaked ETH for Cheaper and More Programmatic Solutions
    4. Attributable Security for Designing Systems Correctly
    5. Attention and Value in the AVS Ecosystem
    6. Building on AVSs and Core Business Strategies
    7. Validator Sets and Consensus Design in Eigenlayer
    8. Restaked ETH for Securing Decentralized Sequencers in Rollups
    9. Determining Stake and Asset Mix for Security
    10. Attributable Security and Insurance in AVSs
    11. Efficiency and Interoperability in the Future of DeFi
    12. Benefits and Design Decisions of AVS on Ethereum
    13. Staying on Ethereum with Shared Liquidity and L1 Benefits
    14. Economic Security and Incentives in Eigenlayer
    15. Multiple Ag Layers and the Future of Eigen
    Summary
    Transcript

    Importance of Preconfirmations in Blockchain Applications

    00:00 - 07:19

    • Preconfirmations play a crucial role in blockchain applications.
    • Building solutions for efficient on-chain liquidity management and addressing profitability challenges in AMMs is important.
    • Auction systems can improve LP profitability in decentralized exchanges like Uniswap.
    • Restaking is a key component in selecting a quorum for running batch auctions to optimize liquidity clearing.

    Building Solutions for Efficient On-Chain Liquidity Management

    06:57 - 14:13

    • The process involves receiving user orders, relaying them among nodes, merging different views into a globally optimal view, and submitting it on-chain.
    • Eigenlayer provides economic security allowing for an optimistic model with higher minimum stake requirements.
    • Higher staking security per validator reduces the risk of theft and enables waiting to verify after execution.
    • Ethos is a marketplace for commitments backed by Restaked ETH, aiming for programmatic access to security and decentralization.
    • Focus on stateful AVSAs allows ecosystems to have their own execution environment while maintaining uniform economic security.

    Restaked ETH for Cheaper and More Programmatic Solutions

    13:54 - 20:52

    • ETH is considered a credible neutral asset for building chains, with restaked ETH being a way to achieve cheaper and more programmatic solutions.
    • Focus has shifted towards extending possibilities in crypto economic systems using restaked ETH, such as creating commitment layers and coprocessors coordinated through Agilare.
    • Eigenlayer provides security for commitments by ensuring enough bond or economic security, while also offering a neutral space for making credible commitments.
    • Having a single mechanism like the E-cell chain to verify commitments across multiple chains onto one chain and then onto eigenlayer is crucial for scalability and security.
    • Stake Share plays a significant role in enhancing security by redistributing slashed assets to harmed users, which is essential for disincentivizing malicious activities and protecting users.

    Attributable Security for Designing Systems Correctly

    20:35 - 26:48

    • The challenge of extracting value from ABSs due to the lack of awareness and coordination among different ABSs is highlighted.
    • Attributable security is discussed as an elegant solution to address the challenges in designing systems correctly.
    • A comparison between optimistic models and cryptoeconomic models, particularly in terms of UX perspective, is presented.
    • The importance of having a sufficient bond to prevent fraud in crypto economic models is emphasized.
    • Attributable security allows for a larger bond that can circumvent fraud-proof windows and ensure users' security.

    Attention and Value in the AVS Ecosystem

    26:24 - 33:12

    • There is a significant amount of attention and value in the AVS ecosystem, with $20 billion in TVL.
    • Some projects prioritize narrative alignment when choosing a staking provider, but there are concerns about becoming too focused on narratives and being perceived as mercenary.
    • Switching between shared security providers is feasible due to low switching costs.
    • It's important for projects to build their own brand and be somewhat independent from staking providers like Eigenlayer.
    • Being labeled as an AVS may have both short-term narrative benefits and long-term branding implications that some projects may want to avoid.

    Building on AVSs and Core Business Strategies

    32:44 - 39:40

    • The debate on whether being an AVS detracts value is ongoing, with some believing it's true for top chains but not for others.
    • Projects may not necessarily label themselves as AVSs despite underlying principles, focusing more on strategy and core business.
    • The marketplace view offers an efficient pricing mechanism for security compared to operating solely on one's own chain.
    • Eigenlayer allows users to allocate more time and resources towards building their core product without the limitations of being directly built on Ethereum.
    • Considerations for designing a stateful ABS include quorum design and consensus model, with different chains optimizing for various dimensions like validator set size.

    Validator Sets and Consensus Design in Eigenlayer

    39:11 - 46:28

    • Different chains have varying approaches to validator sets, with some preferring larger sets while others opt for smaller and more powerful validators.
    • The focus is on having smaller and more powerful validators for specific applications, while maintaining decentralization and censorship resistance.
    • Eigenlayer's design involves a neutral standpoint initially, aiming for an equal distribution of quorum weight based on restaked assets.
    • Agonair aims to abstract where stake comes from and provide observability on the distribution of strategies for better network effects.
    • Eigenlayer's consensus design differs significantly from traditional blockchain applications, prioritizing maximal throughput and low latency for optimal user experience.

    Restaked ETH for Securing Decentralized Sequencers in Rollups

    46:01 - 53:06

    • Companies like Espresso are working towards decentralizing sequencer sets for big rollups.
    • Roll-ups can be viewed as an AVS, especially with a focus on regulatory concerns and decentralized systems.
    • Having a stateless operator set can be beneficial for certain products, inheriting security from a larger network.
    • Restaked ETH is seen as a good way to secure decentralized sequencers in rollups.
    • Dual staking mechanisms may emerge with native tokens and restaked ETH for different types of slashing.

    Determining Stake and Asset Mix for Security

    52:36 - 59:01

    • There are challenges in determining how much stake to procure and the appropriate mix of assets for security.
    • Building tools like MEV tracing systems can help analyze potential losses and determine minimum stake requirements per validator.
    • Modeling out potential profits from corruption or application value is crucial for determining security needs.
    • Having a layer of abstraction for buying security based on total value at risk could be beneficial.
    • Consideration of asset liquidity and risk exposures is important when selecting assets for security purposes.
    • Tools are needed to facilitate capital flow for security needs and determine pricing effectively.

    Attributable Security and Insurance in AVSs

    58:41 - 1:05:37

    • AVSs may end up paying more for attributable security despite the small amount of security needed.
    • High-quality ABSs generating revenue can negotiate for specific tranches of risk with stakers.
    • The market for attributable security is currently subsidized but expected to become more costly as it matures.
    • Different AVSs will have varying levels of risk correlation, especially crucial for Oracle AVSs.
    • Applications like commitment layers may heavily rely on attributable security for insurance and protection against attacks.
    • Introduction of AVSs is expected to revolutionize the world of DeFi by offering easier and more secure mechanisms for executing arbitrary logic.

    Efficiency and Interoperability in the Future of DeFi

    1:05:12 - 1:12:21

    • Improvements in tooling and computational resources are expected to enhance DeFi applications' efficiency and user experience.
    • The future of DeFi involves interoperability between different chains, facilitated by a neutral asset for commitments.
    • There is a debate between global pre-confirmations at the base layer versus application-specific pre-confirmations, with a focus on ease of implementation for the latter.
    • Ethos Vision includes building applications on their own chains with customizable and enforceable commitments.
    • There is a trend towards intent abstraction to manage commitments across various applications and chains.

    Benefits and Design Decisions of AVS on Ethereum

    1:11:55 - 1:18:50

    • The discussion revolves around the value of application-specific pre-consumers in Ethereum state.
    • There is a concern about how to ensure that commitments made by applications will be honored, especially in the face of potential censorship by sophisticated actors.
    • The guests emphasize the importance of guaranteeing immediate inclusion of transactions in applications, not just eventual inclusion.
    • The episode features forward-thinking builders discussing the benefits and design decisions related to AVS (Application-Specific Chains) on Ethereum.
    • Builders highlight the cost benefits, speed, and security advantages of using AVS for developing products on Ethereum.
    • The conversation delves into the differences between building on AVS versus rollups, with a focus on statefulness and cost considerations.

    Staying on Ethereum with Shared Liquidity and L1 Benefits

    1:18:31 - 1:25:35

    • Ludwig's solution allows users to stay on Ethereum without moving to layer two, maintaining shared liquidity and L1 benefits.
    • Similar solutions could work on chains like Solana by running extra side chains for specific subsets of activities.
    • Ethos aims to extend benefits beyond Ethereum by enabling commitments between different chains in a neutral platform.
    • There is a shift towards app-specific pre-comps for generating more value from L1 activities.
    • Implementing app-specific vs. global pre-comps may take years and play a crucial role in the future path of development.
    • Both Ludwig and Muto emphasize the importance of stake sure insurance over gold security, indicating a potential divergence among restaking providers in the future.

    Economic Security and Incentives in Eigenlayer

    1:25:17 - 1:32:37

    • Discussion on the importance of economic security and asset redistribution in case of slashing in V1
    • Exploration of building a sticky product through ecosystem network effects similar to Apple's ecosystem
    • Strategies for Eigenlayer to incentivize customers to use multiple AVSs and launch first-party AVSs for added benefits
    • Consideration of tooling development on Eigenlayer platform for security and decision-making processes
    • Debate on design decisions in crypto, such as being flat and neutral versus solving complex problems

    Multiple Ag Layers and the Future of Eigen

    1:32:10 - 1:33:25

    • Multiple ag layers are emerging to solve similar problems in the space.
    • There is a desire for an enshrined ZK ag layer built by Ethereum, despite potential trade-offs.
    • Eigen is leaning towards being neutral and thin, leaving room for more opinionated alternatives.
    • The discussion ends with a mention of looking forward to the next week.
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