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Renzo Jito (re)staking NCN Series: TipRouter
Recorded: Nov. 21, 2024 Duration: 0:41:33Space Recording
Full Transcription
Good morning, everybody.
We're just waiting on Andrew and the GITO team to join.
So just give us another minute here and we'll get started.
Andrew, can you hear me?
Andrew, can you hear me?
Can you hear me a speaker now?
Can you try again or signal?
No, I think I'm good to go.
All right.
Awesome.
Let's get started.
Is any of the GITO handles going to be joining?
I believe we're trying to get official handle joining, but I can double.
I can double.
Okay, cool.
Okay, cool.
So we can get started.
Welcome everybody to the Renzo GITO Resaken NCN series.
We've scheduled.
We've scheduled three Twitter spaces over the next few days.
We're taking off with the TIP router and the GITO Foundation team speaking today.
Tomorrow we're going to be doing Switchboard and on Tuesday we're going to be talking with
Twilight.
And really the goal of this small series that we're doing is to help educate our community.
The biggest question I get whenever I'm talking to anybody about restaking and specifically restaking on Solana.
They always want to know is restaking needed on Solana given that restaking kind of started on Ethereum.
Everybody thinks about restaking in the sense of the problems that need to get solved on Ethereum.
They want to know if there's actual real use cases for NCNs and they want to know is there going to actually be rewards.
So the goal is to really help shed some light, give the projects that Renzo is working with an opportunity to talk about their projects and for us to also learn.
So this is more like a fireside conversation.
Andrew and I talk about this stuff with the GITO Foundation occasionally, but I think just having an open conversation with the community is going to be extremely beneficial.
So we'll get started here now.
Renzo, just to introduce Renzo to you, Renzo is a year and a half old.
We're restaking protocol.
First started building on Ethereum with Eigenlayer and Symbiotic.
And earlier this summer we started building on Solana.
So Renzo is natively built on top of Solana now.
And we've been building for a few months.
We've been hiring up engineers on the Solana side and the team.
And as of today, if you go to the Renzo DAP, EZ Sol is the LRT or the VRT that we've launched.
We've had two caps open.
The second caps, there is, I think, like a million dollars left before the caps are closed out.
And then part of the call today, we'll talk about kind of next steps.
As far as restaking, just to introduce restaking, if you're hearing about it for the first time.
Restaking essentially at a very high level is a way to use staked Solana or SPL tokens like GITO Sol to also secure other services.
And those other services on GITO are called NCNs.
If you're familiar with restaking on Ethereum, it's very similar to AVSs.
NCNs stand for node consensus networks.
And everybody essentially is launching VRTs.
So VRTs stand for vault restaking tokens, very similar to liquid restaking tokens on Eigenlayer.
So that's a quick intro.
And today we're talking to Andrew from the GITO Foundation specifically about the tip router, which is GITO proposal number eight.
Andrew, you want to introduce yourself?
And I have a bunch of questions.
We could just go back and forth and talk about the tip router NCN.
Yeah, sounds great.
And thanks for having me on, Lucas.
I think it's really cool that you're putting this series together.
It's, I think, underappreciated.
Everybody asks, is restaking needed on Solana?
You know, I think there's probably going to be faster pickup over in this ecosystem than elsewhere.
But yeah, I'm over at the GITO Foundation.
The GITO network does a lot of core infrastructure for Solana.
The GITO Solana block engine, which we'll be talking a little bit about today.
I think we're roughly at this point building about 60% of every block.
It introduces a parallel auction mechanism for block space that allows for higher inclusion rate guarantees relative to the normal gas auction mechanism on Solana.
This is referred to as MEV tips, largely used by decentralized applications and protocols to allow for better user experience, as well as arbitrage bots.
These aggregated tips now account for a pretty significant portion of the total earnings for Solana validators.
And the way that those tips are distributed is, I guess, what we're here to talk about today.
So excited to get into it.
Yeah, thank you, Andrew.
The first piece that really got the Renzo team excited about building on top of GITO was historically, when you look at Eigenlayer or Symbiotic, and some of the other restaking ecosystems, essentially, the way these ecosystems have gone to market is you have a deposit campaign that runs, you know, on Eigenlayer, ran for almost a year,
and then operators started securing the network.
And just a month or two ago, we saw EigenDA actually launch on Eigenlayer.
And the first distribution of rewards on the Ethereum side has been in the Eigenlayer native token.
And what I've been trying to educate everybody on is that now that we have these playbooks and Eigenlayer really did pave the road for a lot of this.
Other ecosystems are able to iterate much faster.
So when we look at GITO, we started building, I think, in August on top of GITO alongside the GITO team.
Deposits were first opened three weeks ago, I believe now.
And we're all working towards starting to onboard operators.
So what took a year on top of Eigenlayer, I think the GITO team has been able to accomplish in about a month.
And as we're starting to onboard these operators, we're going to see NCNs launch.
And the first NCN is that we're anticipating launched is this tip router.
So, Andrew, can you explain to us, you did a nice job explaining what that engine does today.
Why is restaking so important for the tip router?
And, you know, when I look at the proposal, I think it does a really nice job summarizing what the motivation is.
Can you tell us a little bit about what the motivation is to move the tip router over to restaking?
Yeah, sure. I think, you know, when you think about why did GITO get into restaking?
I think the simplest answer is because the GITO network itself actually needed the product for internal reasons.
Right now, all of this MEV revenue that the block engine helps produce is distributed in a relatively centralized way.
It's a kind of hidden point of centralization, not just for the GITO network, but the broader Solana network itself,
now that the MEV tips account for such a significant portion of Solana's total fee generation.
So, building this restaking product allowed the GITO network to introduce economic security for the distribution and management of this fee generation.
I think that one way to think about, you know, for a very long time, people would talk about GITO and Solana as this really significant sort of economic force and infrastructure layer for the blockchain.
But there wasn't necessarily a way for the kind of average participant of the GITO community to benefit from that aside from, you know, using tools like the liquid staking token GITO Sol.
So, by transferring the management of the MEV fees over to the Dow, now that's much more in the hands of the broader community.
And people are going to be able to stake their assets for underlying that economic security to decentralize and harden the process,
in addition to allowing a way for the average participant to sort of get more actively involved in the process of distributing those rewards.
So, I think the, to actually answer your question, the motivation was twofold.
We wanted to, the network wanted to make sure that, you know, the process for distributing this, you know, rapidly expanding source of fee generation was actually fully secure.
But also, it introduces a new way for the community to play a part in actually securing that process as well.
All right. So, what I hear you saying is GITO right now runs and operates this process of distributing tips and MEV rewards every epoch.
And to progressively decentralize the protocol, restaking could actually be used and incentivize third party and community members to actually do that on behalf of the GITO network and actually get compensated for doing different actions on chain.
Is that the right way to think about it?
Yeah, I think that's accurate.
There is a sort of interesting flywheel in terms of like total activity and MEV revenue.
And so, that last point you made is an interesting one.
But yeah, I think that's a fair assessment.
So, from the Renzo side, what that actually means, and to better explain how funds are being used and like the fund flows.
So, you could come to Renzo today, you're able to deposit GITO Sol.
We are going to be activating Sol deposits here any day as well.
So, you'll be able to deposit Sol and GITO Sol.
And then once those deposits come into Renzo, there's a new token, a BRT token, that's issued called Easy Sol.
And then behind the scenes, essentially what's happening is there's this vault.
And this vault is going to be operated by node operators.
So, we announced Figment yesterday and we have a few more we'll be announcing over the next few days.
And those operators are going to be responsible for running these processes to help determine every epoch where MEV tips kind of get distributed to who.
And for performing that action, the stakers that are securing the network and the operators that are doing these calculations are actually going to get rewarded.
And that's where the restaking rewards actually come from.
Is that correct?
Or maybe give us a perspective from your side, Andrew.
We're kind of coming into the process.
You guys are kind of trying to incentivize people to secure the network, right?
Yeah.
Again, I think that's a fair assessment.
You know, like any sort of blockchain network, the key is aligning incentives in order to perform a service.
When you look at something like Bitcoin, it's, you know, the way it practically functions is a worldwide network of nodes validates transactions and are rewarded for doing so with, you know, Bitcoin block emissions and inflation.
Similarly here, there is a core service being performed, which is calculating where MEV revenue should flow relative to validator performance.
And in exchange for securing that computational process, anybody who restakes in this network is rewarded with additional fees.
And so this is, you know, just a classic sort of crypto use case.
I think sometimes restaking gets overly complicated.
But really, it just boils down to the same key principles as a lot of other crypto systems.
And that's exactly what we've built here.
Yeah, and the piece really excites me and I try to, you know, share what we have been building alongside the JITO team is this is actually going to be the first time that we see this full flywheel come into effect with proper supply and demand.
So when we, or when you hear me say supply and demand, what we're talking about is having economic security in the form of deposits in SVL tokens and JITO SOL looking for different opportunities to use that capital to earn additional rewards.
And, but that's highly dependent on there being some kind of service that one needs to be decentralized and needs to be secured.
And two actually has economic value that they can incentivize and pay out rewards.
So even on Ethereum, this hasn't fully come into play yet.
Yeah, like I mentioned earlier, Eigenlayer and EigenDA has started to pay out rewards, but EigenDA is slowly starting to mature and bring on clients and those clients are going to be paying for those services in ETH.
So in the short term, Eigenlayer is subsidizing the demand side of the equation with their governance token.
But what's actually happening here is the JITO team and the JITO network already has a service that is being performed that is generating rewards and fees.
And now those rewards and fees are going to get passed back to users in the form of JITO SOL.
Is that correct?
That the rewards are going to get paid in JITO SOL, Andrew?
That's correct.
Yes.
Right.
So I'm going through JIP eight.
And in the initial proposal, 2.85% of MEB tips generated for the tip router will be routed to the JITO Dow treasury.
And then an additional 0.15% will go to the NCN networks.
Now, this is getting a little bit more into speculatory stuff.
So, Andrew, I understand, like, I'm just reading through the proposal and there were some assumptions made about a month ago.
But essentially that 0.15% based on the price of SOL and the tips that were paid out at the beginning of October would equate to roughly a 1% APY increase, a 1.13% APY increase at 100 million TVL.
Given where the price of SOL is now, I think it's at, like, 250.
And we've seen a huge spike in MEB tips that are being paid out to JITO.
Those numbers can potentially be much higher.
I haven't run the numbers myself.
But the point that I'm trying to make is that based on, like, $100 to $500 million of TVL that's going to be used to secure the SIP router, we do expect to see at least 1% of additional rewards get auto-compounded with EasySol.
So, that's exciting.
I know that I get excited about the tech, Andrew, but a lot of users and people that are secure and they want to know, hey, if I deposit my money here, like, what am I actually getting, right?
So, I know you probably can't get into that anymore.
What are other things, though, that you think is really important for the community to understand about this first NCN and specifically about the tip router?
Yeah, I mean, I think you're right on the money.
I would encourage people to check out JIP-8 and a lot of the economic assumptions that are made in there because they were very much based on the level of Solana economic activity from a month ago, which, you know, in our current sort of market regime, we know things can change very quickly.
And a lot of those assumptions now seem a little stale.
So, it's worth people taking a look at that.
But I think one thing I'm excited about is the way in which the sort of economic assumptions for that were based on a certain cap.
My suspicion is that we have yet to modify the JIP to reflect this, but the cap is probably going to be lifted and we're going to be letting the market determine what the appropriate rate is for taking on the additional smart contract risk associated with restaking.
I think sort of right now, you know, Eigenlayer did a great job of attracting a lot of TVL in their initial campaign.
And right now, there's just not a lot to do with that TVL.
There just simply aren't enough users for restaking on the Ethereum side.
And I think that's a problem that, to a certain extent, Jito's going to share.
There's sort of perverse incentives for teams in terms of, you know, restaking has a much larger total addressable market than people think.
There's, you know, hundreds of teams that could be decentralizing some core process of their functionality using restaking, but they don't necessarily know that or it's not the highest on their list of development priorities.
Bringing in an actual functioning NCN, a system that is going to pay out rewards in exchange for performing a core service and in the process, generate real yield, generate real fees.
I think that's really exciting.
I think that letting the market sort of figure out what this process and what these networks are worth, how much TVL should a system like this actually attract, given the amount of fees that it pays out, is a sort of very interesting open question and something I'm going to be following very closely.
Yeah, this is something that I got really excited about when we first started when we first launched Renzo on top of Eigenlayer.
A lot of people might have heard about like the restaking wars.
It was really a deposit and a TVL game with anticipation and speculation around what kind of rewards and yield that restaking might generate.
And it does create certain incentives and a culture and that ecosystem that I appreciate what the Gito Foundation and the team are doing with launching their restaking network because it's very different.
It's not a TVL game, in my opinion, it's more making sure that there's actual services and NCNs that can launch that need the economic security.
And then to your point, you know, in the initial JIP, there's a hundred million cap in there, but letting the market figure out how to be able to price that economic security and letting the TVL determine that is going to be really important.
Yesterday, I was just doing some marketing and planning, and I came across, and this shows my age a little bit, but there's, especially in U.S. politics, there's a term called, it's the economy stupid.
And the reason I bring that up, I do think it's going to come down to, it's the yield stupid when it comes to restaking on Gito and the market and the TVL is going to be solely based on the supply and demand side finding each other.
But the supply side on the NCN side is going to come first, and you guys have done a really nice job in keeping the deposit caps very low to not overshoot that and let the market find what that actual risk-reward premium is when the NCN launches in a few weeks.
Yeah, I mean, it's sort of funny how long restaking has been sort of out in the ether as a concept relative to understanding of what these systems and networks might look like in actual implementation.
The idea that we're actually just a few months away from, you know, finally seeing one of these networks out in the wild and seeing how the market reacts to it, I'm absolutely thrilled by that.
Yeah, and just to add to that, Andrew, like, before Eigenlayer, there was Cosmos Zones, and I previously was a contributing founder to a project named Moonwall and Polkadot,
so we went through the Polkadot parachain auctions three years ago that tried to also, it was a model for shared security, right?
So there's a lot more history, I think, that meets the eye, and to actually be able to see the demand and the supply side of a marketplace around shared security happen, we're not, I mean, our focus isn't on the TVL side.
It's making sure that, one, from a security standpoint, we're building out Rails that are secure, that are open source, so all of Renzo's smart contracts are open source, we have a bug bounty,
and that we're working with operators and NCNs to make sure we're building a product that helps them achieve the goals that they need, and if we do a good job with that, we know that EasySoul will do extremely well.
Another question for you, Andrew, this was a conversation that we've had internally with the foundation over the last couple weeks.
So this first NCN that's going to be launching, it's interesting because it's a JITO NCN, but JITO is also building a marketplace for other NCNs to launch, other SPL tokens to be able to secure networks.
But with this first NCN, how do you guys think about JITO SOL versus other SPL tokens being used, and incentives kind of around that?
You know, I think one of the long-term goals of the JITO network as it evolves is to make sure that all of the component protocols are synergistic and work in tandem with one another,
and ultimately, you know, allow people to interact with Solana in an extremely efficient way.
And so using JITO SOL as the core source of economic security for TipRouter makes a lot of sense to us to the extent that it integrates the JITO network's LST, JITO SOL,
which is the largest DeFi protocol currently on Solana, with the distribution of the block engine's fee and tip generation.
There's a lot of interesting ways that these various protocols can create nice flywheel effects and work well in harmony with one another,
and that's just one example that we're extremely excited about.
So, the initial goal, I think, for this first NCN is to get the network effects going for JITO SOL stakers.
But I think, is there going to be any additional updates to JIP-8 based on community feedback around other SPL tokens
and whether they're going to be capped or how they might be incentivized differently to still allow a marketplace to flourish,
but really prioritize JITO SOL?
Yeah, I mean, a lot of this is very much still in the works, right?
We, you know, the folks over at MetaDAO just put out a JIP proposal to include JTO.
JTO, the JITO Network's governance token, as a source of economic security in the tip router NCN.
So, that's one example of a potential change to the network or something the community can do to tweak the parameters.
Additionally, though, I think that there's interesting things you can do with the fees generated.
You know, the DAO is going to be accumulating a lot of JITO SOL and figuring out what to do with that is also an open question.
And so, I think there's a lot the community can do to get involved and sort of shape the future of this protocol.
This is still very much the early days.
It's not live yet, and I think seeing it go from JIP 8, which in some ways it's, you know, very comprehensive proposal,
but really just lays out a skeleton for what this network could look like and future additions to it or tweaks to it,
I think are going to be really interesting to follow as well.
So, speaking on JIP 10, when you say it came out, literally it came out as we started the Twitter space.
So, I haven't even fully read through it, but I did see reading through the summary that there's a proposal with JIP 10
to be able to use the JTO token to be able to restake it and also provide economic security to NCN's launching.
Is that correct?
That's right.
I think it's, well, the proposal, from my understanding, I only saw a sort of earlier draft of it yesterday.
So, we both have some reading to do, Lucas.
But my understanding is that it is going to signal approval for MetaDAO to set up a few Tarky marketplace
to determine whether or not including JTO would add value to the network as a source of economic security.
And if that passes, that would set in motion the process of actually adding it to the network.
That's, you know, the total DAO timeline for passing these things is 35 days.
So, there's a way to go in that proposal.
And, you know, we've got some ground to run there before we figure that out.
Yeah, but I think that the exciting piece, yes, this proposal that just come out like 25 minutes ago.
But the exciting thing when I think about the JITO network as a whole,
the JITO Foundation and the community members that are actively contributing to the network,
what you guys are doing a really nice job with is finding different value from different places
to be able to add to whether it's JITO sole stakers or, in this case, JITO token holders,
where those tokens could be used for other things and an exchange could potentially earn additional rewards.
So, that's exciting.
I know we've talked about this a few months ago, and I kind of put it on the side burner.
So, when I saw this pop up as we started the call, I was like, hey, we talked about this in August.
I didn't realize it was coming so soon.
So, that's exciting as well.
Okay.
We've been talking for about half an hour.
I do want to keep these a little bit short.
Is there anything else that, Andrew, maybe a question I didn't ask or something that you think is important
or you're excited about to share with the community before we close it out here?
Not at the moment.
I think I would just encourage folks to look at the other roster of forthcoming NCNs.
You know, in addition to TipRouter, we have some really top-tier Solana teams,
as well as really ambitious emerging products that are going to be building using the core infrastructure.
I think the long-term vision for JITO restaking is that, much like the JITO Solana block engine,
it's working in the background.
Maybe even people aren't aware of it functioning, of the fact that, you know,
it's undergirding a lot of Solana core infrastructure.
We want to really deeply integrate with these projects.
We want to make sure that their systems are as hard and as economically secured as possible
and that all component parties are properly incentivized to participate in these networks.
And already there's a lot of other teams that sort of see this vision.
And I'm excited to tune in for the next few weeks as you're talking to some of them.
Appreciate it, Andrew.
And to that point, tomorrow we are going to be talking to Switchboard, which is another NCN.
You could go to the JITO restaking website, click on NCNs,
and see some of the other NCNs that have been announced.
But we'll be talking to Switchboard tomorrow and Twilight on Tuesday.
And essentially, just to kind of frame how that conversations go,
instead of setting up calls with these teams and getting to know each other kind of in a silo,
this time around, I decided to just kind of bring that to the community.
So some of these conversations are going to be the first time we're actually talking with these teams.
So you guys are going to get the raw, unedited conversation as we learn about each other
and how we could help each other out.
And then maybe, Andrew, one last question.
As far as kind of next steps, so the caps were increased on Monday.
They're mostly closed at this point, I believe, with EasySold.
There's about a million dollars left in deposits, and then they're going to close.
What are our next steps?
Are we going to see, do you guys anticipate caps increasing again?
Are caps just going to be lifted and the tip router is going to launch?
Maybe give a little bit of alpha to the community before we drop off.
What to anticipate?
Yeah, I think the goal is always is progressive decentralization,
and Gito doesn't want to be an arbiter in how these networks function.
And so something like an artificially placed cap on protocol deposits,
that's something that we're hoping to get ourselves out of the way eventually.
I think I can say that.
Awesome.
Well, appreciate your time again this morning.
Maybe we'll do this in a couple months as things get more interesting.
And please tune in to our space tomorrow with Switchboard.
Yeah.
Thanks for having me, Lucas.
It's always a pleasure to catch up on these things.
Appreciate it.
Have a good day, guys.
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