Sirwin
Sirwin

EigenLayer Is Live! So, What Can You Do With It??

By Michael @ CryptoEQ | CryptoEQ | 16 Apr 2024


You are reading an excerpt from our free but shortened abridged report! While still packed with incredible research and data, for just $40/month you can upgrade to our FULL library of 60+ reports (including this one) and complete industry-leading analysis on the top crypto assets. 

67cbbf4723857b85c151585aa280e6d940346c501cef75bafd7dea02b44b24c9.png

Becoming a Premium member means enjoying all the perks of a Basic membership PLUS:

  • Full-length CORE Reports: More technical, in-depth research, actionable insights, and potential market alpha for serious crypto users
  • Early access to future CORE ratings: Being early is sometimes just as important as being right!
  • Premium Member CORE+ Reports: Coverage on the top issues pertaining to crypto users like bridge security, layer two solutions, DeFi plays, and more
  • CORE report Audio playback: Don’t want to read? No problem! Listen on the go.

 

Use Case

EigenLayer introduces itself as a restaking collective for Ethereum, enabling Ethereum validators (ETH stakers) to extend their staking capabilities to validate new software modules built on top of the Ethereum ecosystem. This is facilitated through smart contracts that allow for additional slashing conditions on validators’ staked ETH, thereby extending Ethereum's cryptoeconomic security to these new modules.

It enables the validation of various types of modules beyond traditional dApps, including but not limited to:

  • Consensus Protocols
  • Data Availability Layers
  • Virtual Machines
  • Keeper Networks
  • Oracle Networks
  • Bridges
  • Threshold Cryptography Schemes
  • Trusted Execution Environments 

This vast support transforms the Ethereum ecosystem into a more versatile and secure platform for decentralized applications and services.

By allowing new Application Validation Services (AVS) to bootstrap security from Ethereum’s large validator set, EigenLayer addresses the bootstrapping problem faced by new AVS. It also enables trust aggregation, significantly improving the trust model for dApps by increasing the pooled capital (and thus security) available to them.

EigenLayer aims to solve the fragmentation of security in the blockchain space by aggregating Ethereum's security across a multitude of modules. This not only elevates the security of decentralized applications that rely on these modules but also presents ETH holders with additional value and fee-generating opportunities through participation in this expanded security network.

Aggregated Security with EigenLayer

In the traditional Ethereum staking model, validators stake their ETH to secure the Ethereum blockchain itself—validating transactions and maintaining the integrity of the main network. This staking and the associated security benefits are directly tied to the main Ethereum blockchain and are not inherently extendible to other applications or services built on or interacting with Ethereum. 

Thus, each new application or service must develop its own mechanisms for establishing trust and security, leading to fragmented and isolated security models across the ecosystem. This not only complicates the landscape for users and developers but also means that the security and trust established by Ethereum's validator set do not automatically benefit the broader ecosystem.

New applications and services built on Ethereum face the challenge of bootstrapping their security, particularly if they require their own consensus mechanisms or validator sets. This often involves significant resources and time to attract a sufficient number of validators to ensure robust security, during which these applications are more vulnerable to attacks.

However, through EigenLayer, new startups on Ethereum can leverage aggregated security and avoid the high upfront costs associated with building their own security models and tokenomics structures from the ground up. Theoretically, this should lead to a greater boom in the Operator-to-AVS bridge marketplace and fuel economic growth over Ethereum.

Additionally, new innovations or improvements to Ethereum's infrastructure (e.g., consensus mechanisms, scaling solutions) often require extensive testing and validation before they can be integrated into the main network. Without a mechanism like EigenLayer, these innovations are either tested in isolated environments that may not fully replicate real-world conditions or must be deployed cautiously, potentially slowing down the pace of innovation and the adoption of new technologies that could benefit the entire ecosystem. Thus, EigenLayer can also serve as a more effective launchpad for Ethereum Improvement Proposals (EIPs).

c0f948af8675cfb85dce1de8d3c46d2be740780e0ccdcf908e64dc6265db63ec.png

Application Validation Services (AVS)

AVS are specialized services or protocols that require validation work—similar to that performed by Ethereum validators—but for specific applications or across different layers and domains within the blockchain ecosystem. These could include data availability layers, consensus mechanisms for new blockchains, oracle networks, and various other decentralized services that benefit from secure and trustworthy validation.

Ethereum validators can opt to restake a portion of their staked ETH to secure AVS. This restaking is facilitated through EigenLayer's smart contracts, which define the terms, rewards, and potential penalties (slashing conditions) for validators who choose to support AVS.  By allowing AVS to leverage the staked ETH of Ethereum validators, EigenLayer significantly enhances the security of these services. Validators' commitment of their staked ETH to AVS introduces a robust layer of cryptoeconomic security, making it expensive and risky for validators to act maliciously.

Validators are incentivized to restake their ETH to support AVS through the potential for additional rewards. These rewards can come from the fees generated by the AVS or other incentive mechanisms designed by the services themselves. This creates a mutually beneficial relationship between validators and AVS, enhancing the ecosystem's overall value.

EigenLayer facilitates a more decentralized and trust-aggregated ecosystem. By allowing multiple AVS to draw security from the same pool of Ethereum validators, it aggregates trust across the ecosystem, reducing the need for each AVS to establish a robust validator set independently. This aggregation can lower barriers to entry for new services and strengthen the trustworthiness of the entire ecosystem.

Operators

Operators can specialize in managing the participation in various AVS, handling the specific requirements, challenges, and opportunities each AVS presents. This specialization allows for more efficient and effective management of the restaked ETH, potentially optimizing returns for validators and ensuring better security for AVS.

By delegating to Operators, validators can participate in multiple AVS without needing to manage the complexities and operational requirements of each service directly. This scalability is essential for expanding the reach and impact of Ethereum's security through restaking.

The Operator mechanic introduces flexibility for validators in how they engage with the restaking ecosystem. Validators can choose Operators based on performance, reputation, the AVS they support, and their management strategies, tailoring their restaking activities to align with their preferences and risk tolerance.

The introduction of Operators opens up Validators to a type of service marketplace where management duties for each AVS can be outsourced in a three-step process:

  • Delegation: Validators delegate a portion of their staked ETH to Operators, authorizing them to use this capital to participate in specific AVS on their behalf.
  • Management: Operators manage the day-to-day participation in AVS, including meeting the validation requirements, optimizing strategies for reward maximization, and adhering to the governance and operational standards of each AVS.
  • Rewards and Penalties: Operators are responsible for distributing rewards earned from AVS back to the validators and are also accountable for any penalties (such as slashing) that may occur due to mismanagement or failure to meet AVS requirements.

How do you rate this article?

50


Michael @ CryptoEQ
Michael @ CryptoEQ

I am a Co-Founder and Lead Analyst at CryptoEQ. Gain the market insights you need to grow your cryptocurrency portfolio. Our team's supportive and interactive approach helps you refine your crypto investing and trading strategies.


CryptoEQ
CryptoEQ

Gain the market insights you need to grow your cryptocurrency portfolio. Our team's supportive and interactive approach helps you refine your crypto investing and trading strategies.

Send a $0.01 microtip in crypto to the author, and earn yourself as you read!

20% to author / 80% to me.
We pay the tips from our rewards pool.