What Is EigenLayer? Ethereum’s Restaking Solution

Imagine a technology that bridges Ethereum's renowned security with emerging blockchain innovations. That's EigenLayer for you! It's a cutting-edge middleware designed on the Ethereum network, enhancing security and scalability by allowing ETH stakers to restake their assets on various decentralized applications (dApps). This breakthrough leverages Ethereum's established trust network across multiple protocols without additional capital investment.

 

Validators are pivotal in the Ethereum ecosystem. By staking their ETH, they participate in consensus activities like proposing and validating blocks, thus securing the network and maintaining blockchain integrity. As a reward, validators earn transaction fees and block rewards, motivating them to uphold network performance and security. EigenLayer taps into this robust system, enabling protocols to access Ethereum's trust without the hefty costs of setting up independent validator sets. This integration significantly reduces barriers for new protocols, paving the way for faster and cost-effective launches.

 

EigenLayer TVL | Source: DefiLlama 

 

 

EigenLayer has seen tremendous growth, surpassing a TVL (total value locked) of over $12.5 billion by August 2024, making it the second-largest DeFi protocol behind Lido. This growth was driven by increased deposits and rising Ether prices, reflecting the strong interest in restaking solutions. EigenLayer’s model allows protocols to leverage Ethereum’s existing security infrastructure, enabling faster and more cost-effective launches. As of August 2024, EigenLayer’s TVL is largely dominated by wrapped ETH, which accounts for about 70% of its locked assets. The platform has seen rapid growth, achieving a near 10x increase in TVL since the beginning of 2024. Key factors driving this growth include the removal of staking caps and strategic acquisitions, like the Rio Network, which enhanced EigenLayer’s liquid restaking capabilities​  

 

EigenLayer's rapid adoption highlights its ability to tap into Ethereum's robust validator set, offering smaller projects affordable access to high-level security. Since launching its mainnet in April 2024, EigenLayer has integrated with various dApps and liquid restaking protocols, including Ether.fi and Puffer. These integrations allow you to secure additional networks and services, such as rollups and oracles, using your staked ETH or liquid staking tokens (LSTs). Furthermore, EigenLayer has partnered with the AI platform Ritual to create AI-enabled dApps, leveraging Ethereum’s security for advanced computational tasks. Other partnerships include entities like Sofamon NFTs, Silence Laboratories, Polyhedra Network, Fhenix, De.Fi, AltLayer, Nethermind, NEAR Foundation, and Google Cloud. The recent $50 million Series A funding round underscores the blockchain community’s confidence in EigenLayer’s potential to transform Ethereum's scalability and security, promising accelerated development and expansion of its capabilities.

 

Learn more about the EigenLayer airdrop and how to participate. 

 

EigenLayer’s native token, EIGEN, plays a critical role in securing its decentralized restaking protocol and supporting actively validated services (AVS) like EigenDA. The EIGEN token was launched in May 2024 with an initial supply of 1.67 billion tokens. The token’s primary utility includes staking for securing various services and governance within the EigenLayer ecosystem.

 

The EIGEN token’s initial release was marked by a "stakedrop" airdrop that targeted participants who actively restaked liquid staking tokens (LSTs) before a March 15, 2024 snapshot. The first phase of the airdrop, which started on May 10, 2024, allowed 90% of the tokens to be claimed over a 120-day window, with the remaining 10% available after one month. However, these tokens were initially non-transferable, a move designed to promote community consensus and stabilization during the early stages of the protocol. 

 

Due to community feedback, the Eigen Foundation later adjusted the airdrop scheme, adding 100 more EIGEN tokens per eligible wallet and extending the claim window to September 7, 2024. The update also included more details on token vesting and transferability, which are expected to begin after September 30, 2024. The foundation is also preparing for Season 2 of the airdrop, focusing on expanding participation and introducing new features like intersubjective forking. 

 

You can trade EigenLayer (EIGEN) on the KuCoin pre-market trading platform before its official launch in the spot market. 

 

EigenLayer’s architecture | EigenLayer Docs 

 

• Simplified Security for dApps and Protocols: EigenLayer offers a streamlined approach to securing decentralized services. By leveraging Ethereum’s established validator network, protocols can reduce the significant costs associated with setting up independent validator sets, making robust security accessible even to smaller projects.

• Actively Validated Services (AVS): EigenLayer’s AVS marketplace allows Ethereum stakers to use their ETH to secure additional applications. Operators manage AVS validation, enabling protocols to benefit from Ethereum’s shared security without having to develop custom security systems. 

• Staking Options: EigenLayer supports multiple staking strategies. Stakers can participate using native ETH or liquid staking tokens (LSTs) such as stETH from Lido or rETH from Rocket Pool. Additionally, liquidity provider (LP) tokens can be restaked, broadening the range of assets that can secure the network. 

• Flexible Governance Model: EigenLayer introduces a flexible governance structure where both protocols and validators determine security requirements based on their risk preferences. This decentralized security marketplace fosters competition and incentivizes high-quality service across the ecosystem. 

• Enhanced Architecture with EigenDA: EigenDA, a decentralized data availability layer, is a key component of EigenLayer’s infrastructure. It boosts Ethereum’s scalability by separating data availability from execution, significantly lowering gas fees and improving throughput. Projects like Mantle and Celo already leverage EigenDA to reduce transaction costs by up to 80%

EigenDA: Decentralized Data Availability Layer 

EigenDA, a key innovation by EigenLayer, serves as a decentralized data availability layer that significantly enhances Ethereum’s Layer 2 scalability solutions. Since its launch on the Ethereum mainnet in Q2 2024, EigenDA has been central to improving transaction throughput and reducing costs for rollups by offering a highly scalable and secure data storage solution.

 

How EigenDA - EigenLayer’s data availability layer, works | Source: EigenLayer Docs 

 

EigenDA leverages Ethereum's consensus layer by restaking ETH, allowing rollups to achieve higher throughput and reduce gas fees without relying on separate validator networks. This alignment with Ethereum’s architecture ensures decentralized security, enabling rollups to scale without compromising on data availability. By using techniques like erasure coding, EigenDA breaks down data into smaller chunks, significantly lowering the cost of storage and increasing network efficiency. Additionally, the system’s unique proof-of-custody mechanism ensures that operators genuinely store the data, providing enhanced security against malicious behavior. 

 

EigenDA’s modular design supports a wide range of use cases, from decentralized finance (DeFi) applications to gaming and social platforms. This flexibility allows developers to choose between reserved and on-demand bandwidth options, optimizing costs based on their specific throughput needs. Projects like Mantle, Caldera, and Celo are already utilizing EigenDA to power their rollups, highlighting its effectiveness in delivering scalable, cost-efficient solutions across Ethereum’s ecosystem. 

 

With the ability to scale throughput to potentially 1 GBps in future upgrades, EigenDA is poised to support data-intensive applications like multiplayer gaming and high-speed financial trading, driving innovation across the broader blockchain landscape. 

 

EigenLayer offers several ways to restake your ETH, providing flexible options for both individual stakers and those using liquid staking tokens (LSTs). This process supports the network's strength and brings new capabilities to different decentralized applications (dApps). You have a few ways to restake your ETH:

 

• Native Restaking: This option is ideal if you operate your own Ethereum validator. You can point your validator's withdrawal credentials to an EigenPod, which is a smart contract you control, enabling you to restake your ETH. The setup involves creating an EigenPod, which manages your balance and withdrawal permissions. Multiple validators can be pointed to a single EigenPod, but once set, the withdrawal address cannot be changed. Native restaking remains uncapped, offering high flexibility for advanced users with the necessary technical skills. 

• Liquid Staking Tokens (LST) Restaking: EigenLayer supports various LSTs, including popular options like stETH (Lido), rETH (Rocket Pool), and newer additions like mETH (Mantle Staked Ether) and sfrxETH (Frax). By depositing these tokens into EigenLayer, you can secure multiple protocols beyond Ethereum while earning additional rewards. Recent updates also include the removal of individual caps for LSTs, signaling increased confidence in EigenLayer’s decentralized security model. 

• LP Token Restaking: For those actively participating in decentralized finance (DeFi), restaking liquidity provider (LP) tokens offers an efficient way to enhance the security of multiple layers in the network. By restaking LP tokens, you can improve liquidity while still benefiting from trading fees and other rewards.

Each restaking approach uses your capital more effectively by safeguarding different network layers, which can increase your rewards. However, remember that restaking also carries risks, including a higher chance of losing your staked ETH if the secured protocols are compromised.

 

Explore the top liquid restaking protocols on Ethereum. 

 

EigenLayer introduces several risks and challenges that are inherent in its design and functionality, especially as its ecosystem expands over time:

 

• Slashing Risks: Restaking ETH through EigenLayer introduces heightened slashing risks. A significant concern is the potential for cascading slashing events if large validators or operators make critical errors. Although slashing is uncommon on Ethereum (only 431 validators have ever been slashed), EigenLayer’s more complex ecosystem could expose stakers to higher risks, especially as AVS slashing rules become more defined. Slashing typically results from human error or prolonged unaddressed issues, posing potential threats to the security of stakers' assets.

• Centralization Concerns: Centralization remains a prominent issue as AVSs are likely to favor large, well-established operators with significant pooled security. This preference could lead to market dominance by a few major players, further concentrating power and heightening systemic risks for Ethereum. The potential for higher yields offered by large operators could also exacerbate this imbalance, creating further centralization pressure and diminishing the decentralization goals of EigenLayer.

• Governance and Social Consensus: Governance on EigenLayer presents unique challenges, especially as it integrates Ethereum’s social consensus mechanisms. The introduction of veto committees aims to mitigate governance risks, offering a way to protect against unwarranted slashing or misaligned protocol decisions. However, as governance evolves towards a more decentralized, permissionless model, there may be increased complexity in aligning stakeholders and managing high-stakes decisions during critical moments.

• Potential Yield Crisis: As EigenLayer scales and more AVSs enter the ecosystem, there is concern that the yield from restaking could diminish. AVSs might not need a substantial portion of the protocol’s TVL for security, potentially leading to over-subscription without corresponding rewards. This could trigger a yield reduction crisis, particularly if the protocol removes limits on LSTs, amplifying the mismatch between staked value and actual security needs.

• AVS Security Concerns: The balance between staked ETH and security needs for AVSs remains a critical issue. As AVSs gain adoption, there’s a risk that they may be over-securitized relative to their actual requirements. This disconnect could destabilize both EigenLayer and the protocols built on it, especially if there is a failure to adjust staked assets based on real-time security demands.

EigenLayer continues to be a driving force in enhancing Ethereum's scalability and security. The protocol is gaining traction as it improves the efficient use of staked capital and extends its security framework across multiple protocols, ultimately contributing to a more robust and scalable blockchain infrastructure.

 

EigenDA, the decentralized data availability layer built on top of EigenLayer, plays a crucial role in this vision. By offering high throughput and lower transaction fees compared to Ethereum’s base layer, EigenDA is expected to become a cornerstone of Layer 2 solutions. With a flexible pricing model and reservation-based bandwidth, it allows rollups like Mantle and Arbitrum Orbit to scale efficiently while maintaining security. These integrations enable lower transaction costs and higher throughput, which are essential for applications such as decentralized finance, gaming, and cross-chain interoperability. 

 

In addition, EigenDA’s scalability is future-proof by design, with plans to support 1,000x more transactions and diverse applications such as on-chain order books, real-time gaming, and atomic data swaps. The integration of EigenDA with leading rollup infrastructures, such as Arbitrum and Optimism, highlights its growing importance in the Ethereum ecosystem, ensuring broad adoption and fostering new innovations. EigenLayer’s continued focus on expanding its operator set and integrating with more Layer 2 networks reinforces its position as a pivotal technology in blockchain scalability, making it well-positioned to drive further advancements in the space. 

 

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