Introduction

Staking is the process of locking up your crypto assets to earn rewards and, at the same time, boost the security of the network. Eigenlayer, a protocol built on Ethereum, has added a new way for users to make use of their already-staked assets. This new concept is called “Restaking,” and in this article, we are going to look at just what EigenLayer is all about, how it works, and its peculiar features.

What is EigenLayer?

Source: Official website

EigenLayer is an Ethereum-based protocol with a new concept called Restaking. Restaking allows stakers to use their already staked ETH to secure other decentralized services and projects. This means Layer-2 projects that make use of EigenLayer do not spend money on gathering new validators; instead, they can make use of the security EIgenLayer provides.

With EigenLayer, security infrastructures are enhanced across the Ethereum network without requiring stakers to invest more funds. What this means is that dapps can now apply their already staked tokens when using the EigenLayer, rather than having to stake fresh assets. This method eliminates fragmentation and leads to a more unified and secure ecosystem. With this, EgenLayer has successfully come up with a way to secure and unite the ecosystem.

History of EigenLayer

EigenLayer was launched by EigenLabs on June 14th, 2023. EigenLabs was founded in 2021 by Sreeram Kannan, a professor at the University of Washington after he began working in the University’s research lab in 2017.

Recently, the protocol was able to raise $50 million in funding from Blockchain Capital in addition to the $14.5 million previously raised in its seed round, which Polychain Capital and Ethereal Ventures led. Since then, it has undergone three expansions of its staking capacity and has a total staked amount of over 177,000 ETH.

How Does EigenLayer Work?

EigenLayer’s architecture consists of key components that ensure the smooth flow of its services. They include:

• Restakers: They provide shared security through Ethereum and function as the pillar of EigenLayer.
• AVS: Actively Validated Services make use of the restaked ETH to power their functionality.
• Rollups: These rely on the services rendered by the AVS, such as hyperscale data availability powered by the EigenLayer ecosystem.
• Operators: These provide validation services, which are the foundation of the AVS.

EigenLayer’s new mechanism, “Restaking,” solves the issues challenging the security of the cryptocurrency industry. Restaking serves as a set of smart contracts in which users who stake their $ETH can reuse their locked $ETH to provide crypto-economic security to other dApps built on the Ethereum network.

Users can unlock staking via the EigenLayer website when they stake their ETH or Liquid staking tokens used to represent the staked amount of tokens on a Proof-of-stake (PoS) blockchain. This is done through the use of smart contracts, a mechanism that allows staked assets to be reused, raising the security for other dApps and services within the Ethereum ecosystem. By placing the existing stake, you contribute to enhanced network security and gain additional rewards.

There are two major pillars involved in EigenLayer: pooled security through staking and an open marketplace.

Pooled Security Through Restaking

EigenLayer’s pooled security allows users and validators to restake their ETH, thus gathering security for the protocol and services. Validators will have to choose which services (AVS) they wish to secure, which earns them additional rewards in return. However, if they fail to carry out their duties properly, then the AVS can slash their staked ETH. This keeps both parties honest and diligent in their task. This part of operations is taken care of by the second pillar, the open marketplace, where validators and AVS can select each other without restrictions.

Open Marketplace

On the EigenLayer protocol, users and validators are given a free market for security. Validators can search for an AVS (a validation service provider for application chains) that possesses the most attractive rewards. Still, they have to consider the slashing risks involved and the earning opportunities.

On the other hand, AVS can set a series of entry criteria to attract top-tier validators, making sure they get the highest quality of service. This freedom to choose keeps both parties on their toes, leading to a dynamic ecosystem where everyone secures the perfect fit for them.

Features of EigenLayer: Custom Decentralization, Custom Slashing and Data Availability

For EigenLayer to provide various services to their users, they have equipped themselves with several features to guarantee their success. Some of these features include:

Custom Decentralization

EigenLayer allows native stakers (users who have previously staked ETH) to opt in to secure services that require high decentralization. They can do this by specifying that only native stakers can take part. For services that value decentralization, keeping their staking software requirements low is essential as this opens up the door for more people to participate without having to upgrade their equipment.

Custom Slashing

EigenLayer provides a secure way for staking Ethereum and earning rewards in the process. It does this by imposing slashes to discourage parties from acting in a malicious way. What this means is for parties that act maliciously, a portion of their stake is taken away. It also gives services the chance to create a slashing contract with their terms and conditions for slashing. This contract specifies the actions that result in the slashing of staked ETH, and whenever stakers choose the service, they agree to its slashing terms and conditions.

EigenLayer also grants additional rewards to stakers aside from their regular staking income, and validators earn fees for providing validating services. Whenever a dispute arises on the platform, EigenLayer makes use of the contract to determine the party that is actually at fault and slashes the party according to the rules stated in the contract.

Data Availability

With restaking, EigenLayer can provide a hyper-scale Data Availability (DA) layer with a high DA rate at a lowered cost. EigenLabs built the first DA layer on EigenLayer, called EigenDA.

Light Node Bridges

Light nodes are able to verify the integrity of bridge inputs off-chain, ensuring they are accurate before acceptance. Once a super-majority of relayer signatures confirm that data, the inputs are accepted. However, if someone challenges it, a much slower on-chain verification process begins where the EigenLayer operator can be slashed if found to be acting maliciously.

Fast-Mode Bridges

Users conduct off-chain verification before reporting the final confirmation on the main chain. In the case of incorrect proofs, a slower verification process starts with potential slash consequences for parties found to act maliciously. In optimistic rollups, EigenLayer facilitates larger collateral pools for stateroot certification.

Oracles

EienLayer allows the creation of oracles that help securely integrate the off-chain data into Ethereum. The oracles rely on several validators to first commit their Eth through staking, making it more secure and trustworthy.

Opt-In Event-Driven Activation

Trusted validators who propose blocks can guarantee certain actions will occur on EigenLayer based on real-world events. However, there are consequences in situations where they fail to do so. In such cases, they face the penalty of getting their staked ETH slashed.

The Participants of EigenLayer

EigenLayer is designed to render special services to different users in its ecosystem, namely Restakers, Operators, and Developers.

Restakers

Restakers are the users who supply shared security from the Ethereum network. Restaking allows users to stake their already staked ETH to be used as crypto-economic security for other protocols for rewards and protocol fees.

Operators

Operators provide validation services to new protocols. These validation services are built to aid the protocol’s existing Ethereum validation operations. Operators also optimize use across the user’s different nodes, increasing capital efficiency without a hike in price.

Operator Delegation

EigenLayer allows you to earn rewards on staked ETH, but sometimes, running the software and managing the services yourself might be difficult. Hence, the protocol allows this process to be delegated to operators. Operators are in charge of the software and manage the participation of the user in services. Delegating operations lifts the burden off operators since they do not need to actively manage their services or learn complex software. They also earn more depending on the abilities of the operator.

Before an operator is selected, the following factors need to be considered:

• Trustworthiness of Operator: Before selecting an operator, the staker has to make sure the operator is credible and will be able to fulfill its obligations on the staker’s behalf properly. This ensures that the staker’s ETH is not going to be slashed due to the operator’s inability to fulfill its obligations.
• Rewards: Stakers usually weigh the amount of rewards they ought to receive on their delegated stake and choose the best option with the highest offer.
• Service Preference: Stakers may choose services based on different interests and will decide which operator to delegate their staked assets to based on whether or not the operator is interested in the same service.

Developers

EigenLayer gives developers access to the Ethereum staked capital base and decentralized validator set. With this access, developers can now build mechanism designs that once seemed impossible.

EigenLayer Project Ecosystem

The EigenLayer project ecosystem, also known as EigenDA, is a high-throughput, secure, decentralized data availability service that is centered around the EigenLayer restaking primitive. It is currently the first Actively Validated Service (AVS) to function on EigenLayer. It allows Restakers to delegate stake to node operators who validate tasks in exchange for service payments.

Rollups are also able to post data to EigenDA, which gives them access to cheaper transactions, higher transaction throughput, and secure composability across the EigenLayer ecosystem. The system is designed with the security and throughput needed to scale horizontally the amount of restake and operators making use of the protocol’s service.

How Does EigenDA Work?

The Roll-up Sequencer develops blocks housing transactions and sends a request to the Disperser, which makes use of erasure encoding to break the data blobs into smaller pieces, ensuring that the complete data set can be reconstructed even if some chunks are lost. The Disperser generates a KZG commitment to the data blob and KZG multi-proofs for each piece. These proofs allow data verification without having to reveal the entire blob, which boosts privacy and security.

The data pieces, proofs, and commitment are then sent to the operator nodes running the EigenDA software. The nodes verify the data gotten and compare it to the commitment using the KZG multi-reveal proofs, ensuring the data stays credible and has not been tampered with while being dispersed. Each operator node locally verifies the data, leading to the overall data availability and redundancy.

Once several nodes have verified the stored data, each node generates a signature confirming its existence. The signature is then compiled back into one compact proof of availability by the Disperser.

With EigenDA, Rollups can decide which dispersal service to make use of. They could decide to use their own Disperser, which gives them control over the data availability process, or they could use a third party like EigenLabs, which offers more convenience and reduces the cost needed to verify signatures. The rollup can decide to use the dispersal service optimistically, meaning if the third-party disperser becomes unresponsive, they could fall and make use of their Disperser.

Benefits of EigenLayer

EigenLayer aims to be a force in the crypto industry and to breach the security gap in the industry. The protocol provides the restaking service to stakers and provides the following benefits as well:

Enhanced Protocol Security

EigenLayer will provide an added layer of security by giving other protocols access to the Ethereum network’s security, helping the protocol gain access to a larger set of validators and enhance their security.

Flexibility

Protocols that build on EIgenLayer will be able to remain sovereign over the affairs of the protocol, giving them the freedom to customize their consensus mechanism, slashing conditions, and many more.

Capital Efficiency

EigenLayer gives stakers more ways to utilize their capital through staking. These stakers can now earn rewards on several protocols with their initial capital by allowing them to stake their ETH across several other protocols and earn different rewards that are peculiar to each protocol.

Is EigenLayer A Good Investment?

EigenLayer is a revolutionary protocol introducing stakers to the world of “restaking,” adding an extra level of security to the existing staking infrastructure. Its approach means both the Ethereum ecosystem and private stakers. It still faces some challenges but has garnered attention and funding, showing how promising it is for the Ethereum ecosystem.

News On EigenLayer

EigenLayer recently added six LSTs, garnering over 15k ETH in support in the recently concluded LST election contest. They will immediately become restaking assets on the EigenLayer protocol on December 18th, followed by an increase in the restaking caps for current LSTs. Some of the LSTs include:

• osETH (StakeWise)
• swETH (SWELL)
• oETH (Origin)
• ETHx (Stader)
• WBETH (Binance)
• ankrETH (Ankr)