Research

EigenLayer, a marketplace for decentralization.

EigenLayer's mission focuses on advancing appchains on Ethereum, innovating secure, decentralized blockchain ecosystems through restaking solutions.

Author

Imperator

Date

Sep 18, 2023

EigenLayer logo set against a stark background, representing their mission to propel appchains on Ethereum and their commitment to creating secure, decentralized blockchain ecosystems with innovative restaking solutions.
EigenLayer logo set against a stark background, representing their mission to propel appchains on Ethereum and their commitment to creating secure, decentralized blockchain ecosystems with innovative restaking solutions.
EigenLayer logo set against a stark background, representing their mission to propel appchains on Ethereum and their commitment to creating secure, decentralized blockchain ecosystems with innovative restaking solutions.

A bit of context to understand the mission of EigenLayer:

EigenLayer believes that application-specific blockchains (appchain) offer the best path for innovation in the crypto space. In the context of Ethereum, smart contracts are forced to align with its infrastructure. This infrastructure has a limited and shared block space, resulting in high and unpredictable fees, non-instant transactions, lack of privacy, and a consensus that neither knows nor wants to know about the applications it validates.

The challenge lies in creating appchains, as this would require a complete rebuild of the decentralized trust infrastructure that Ethereum has already established. (We will then define the three elements of decentralization and how EigenLayer integrates them into appchains.)

EigenLayer offers a restaking solution to bring the appchain vision of the cosmos back to the security of Ethereum.

This vision was not created by Eigen Layer; they simply advanced it.

Looking back several years, the Ethereum community, particularly Vitalik Buterin in his article "End Game", unveiled a new roadmap that would change Ethereum's fate. He talks about abandoning the execution of applications at the "Layer 2" level to focus on security, "the anti-fraud and anti-censorship armor necessary to guarantee the security of high-capacity domains". Thus, Ethereum specialized in decentralization and benefited from the second-largest economic security during its transition to proof of stake.

(https://vitalik.ca/general/2021/12/06/endgame.html)

Ethereum, in turn, becomes a specific blockchain dedicated to securing other chains, initially Layer 2, but Eigen Layer enhances this vision by allowing the security of other blockchains adopting the Proof of Stake consensus.

"Eigen" comes from German, meaning "your own".

Eigen Layer translates to "your own layer", allowing anyone to build on top of a decentralized trust network. EigenLayer can be summarized as a marketplace for decentralized trust, offering three elements of decentralized trust that restaking can provide:

  1. Economic Security:

typical of PoS validation. You can reinvest your crypto to secure another blockchain (for example, stETH restaked with Axelar). No matter the crypto, it's the dollar amount that counts. In the event of misbehavior by restakers, economic sanctions (slashing) will be applied. It doesn't matter if one person staked $1 billion or a million people staked $1,000 each.

  1. Decentralized Operators:

You're looking to have many distributed nodes to make collusion difficult (diversity of validators and stakes).

Security by All, for All:

Note that "economic security" and "decentralization" are not exclusive to Ethereum's restakers. They can be found elsewhere, such as in cosmos blockchains, layer 2, or even in LP tokens, as seen in Osmosis.

Indeed, Osmosis is actually the first blockchain to use a token other than its native token as a source of security. They have implemented what they call "superfluid staking", which stakes LP tokens taking into account only the portion corresponding to the amount of osmosis in the pool. A portion of the LP tokens is therefore subject to slashing conditions.

Similarly, with Eigen Layer, blockchains will have the choice to determine which source of security they accept and the slashing conditions. For instance, we might see Chainlink being secured by the tokens of the applications using it, or Ethereum's security being boosted by its application tokens like Uniswap, Aave, and Curve. Or, of course, ETH could be restaked to secure cosmos blockchains. EigenLayer aims to be the most neutral possible marketplace for decentralized trust, letting the free market decide what best suits everyone.

For Eigen Layer, this specific relationship mainly stems from the fact that Ethereum holds the largest number of liquid stake assets, making it easier to use. If I have stETH pending, you probably won't have to convince me to restake them. A delegate can take my money, use it to validate an Actively Validated Service (AVS = protocol secured by EigenLayer's restakers), and thus increase my earnings. If you're considering raising capital to secure your AVS, this can be achieved quite easily.

Pooling security is often seen as beneficial. The argument is that it's much harder to attack a committee with $100 billion at stake than one with $50 billion.

Liquid Staked ETH Restaking: A Victim of its Success?

Although restaking can contribute to activating staked assets, its impact on facilitating decentralized operators is less clear. As a delegate with a certain amount of stETH, my concerns are mainly capital costs. If I already own stETH, my additional capital cost is $0. However, the operator's overhead remains unchanged.

Regarding restaking with a 32 ETH validator, integrating new AVS requires as much work as if the application was launched as a self-secured application chain. Responsibilities include team upgrades, software management, continuous monitoring, etc. The actual overhead and the constant work that ensues are the same, whether it's a reimplementation or self-security. In the end, it doesn't significantly affect their operational load.

The simple act of restaking with stETH will be by far the most common due to its ease of integration and lack of fees. This could almost encourage the use of liquid staking, although it compromises Ethereum's decentralization, part of which security relies on players like Lido, who are market leaders in liquid staking.

Ethereum: The Programmed Programmer.

The third element of decentralized trust is under development at EigenLayer, called Protocol-enforced proposer commitments (PEPC).

This third point is now unique to Ethereum. Restaking is clearly useful when looking for a credible commitment from a chain's proposer. For instance, you could buy N% of Ethereum's next block to trigger liquidations in a lending protocol on the Ethereum blockchain.

Instead of letting Ethereum validators opt for off-protocol commitments (via EigenLayer), the idea is to create a mechanism allowing proposers to do so natively. Proposers could force the Ethereum blockchain to run a specific protocol.

The key difference between PEPC and restaking is in the first part of this acronym: proposer commitments, which would be enforced by the protocol. Validators would reject a block as invalid if a proposer fails to adhere to a commitment they agreed to. This offers a much more robust approach compared to an off-protocol solution where the only option is to dismiss the proposer. The validity of an Ethereum block wouldn't solely depend on the proposer's commitment with the PEPC solution.

ELI5 Eigen Layer:

Is Eigen Layer a slashing machine?

Programmable security = Programmable slashing

Eigen Layer is a massive destruction machine! But be careful; it only serves to defend.

If we were to explain Eigen Layer to a 5-year-old, we'd say it's a slashing machine. It's simply a contract that adds slashing capacity for capital. It adds obstacles to your obstacle course and rewards you for your bravery.

If the best of fighters stumble?

If he doesn't respect the timer because it's a rainy day and mud slows him down... It's up to the commander who was watching him to judge if his mistake was malicious and if he indeed deserves to be slashed. This commander today is a group of individuals who founded the EigenLayer project and will be the EigenLayer DAO tomorrow.

Recently, we experienced a similar situation in the Cosmos Hub and its version 1 of restaking called replicated security (ICSv1). It's different from EigenLayer since the consumer chain already inherits the three types of security that EigenLayer is trying to bring, by replicating the validator set of the Gaia chain. But the validator slashing voting issue remains the same. A validator who had added slashing conditions for the Neutron chain did his job poorly and had his "restaked" ATOMs slashed. An on-chain proposal (818) was launched to refund this validator who was apparently not malicious. Let us tell you that even for a chain with one of the most active and involved DAOs in all of crypto, the discomfort and everyone's political interests were felt. With EigenLayer, it's better not to imagine how it will go if it's a DAO or a multisig, outside the involved chains, that will vote. This is a loss of sovereignty that many serious projects will have a hard time accepting.

The power of restaking:

Restaking is implemented for several strategic reasons. First, it establishes an effective mutualized security system. Staked ETH, which secures Ethereum, is reused to guarantee the security of other protocols. This process occurs via acceptance on EigenLayer. Once registered, users agree to new pledge conditions in exchange for rewards. EigenLayer obtains withdrawal rights from the staked ETH. Similarly, validators allow the imposition of new slashing conditions on their pledge. Thus, stakers who opt for EigenLayer generate additional income through "Actively Validated Services".

Validators can choose their risk and reward parameters before serving a protocol. This leads them to select the most promising protocols, thus stimulating competition and avoiding less interesting projects. This system creates an open market where protocols can buy mutualized security from ETH validators. It strengthens crypto-economic security by consolidating resources in one place over time, making the model more resistant to financial attacks. Value accumulates through restaking, as ETH stakers who choose EigenLayer enhance security for revenues, thereby increasing the value of ETH and strengthening the ecosystem as a whole.

The weak point of restaking:

As observed earlier, ETH restaking does not sufficiently take into account the sovereignty of consumer chains (AVS). This lack of consideration for what's around Ethereum is culturally unfavorable and will encourage "mercenary" behavior. Some projects use Ethereum's security to attract users and capital, thus benefiting from the Ethereum ecosystem as a powerful marketing tool. For restakers, it will be like bringing mercenaries to war: useful in many scenarios, but in the end, they are only there to survive and profit. If a protocol relies solely on restaked ETH for its security and doesn't achieve a sufficient restaked value, it becomes vulnerable to attacks by whales or coalitions. It's easy to advocate the use of Ethereum's security commitments, but the reality is that most applications won't achieve a critical mass of revenue or users to attract restakers in a competitive economy. Restakers are paid to provide a decentralized trust service, and EigenLayer acts as a marketplace for this. As in other markets, such as DEX with tokens or Opensea with NFTs, competition and supply and demand will regulate the selection of projects to restake.

Who are EigenLayer's competitors?

  • ICS is similar to restaking but with closed governance. The hub's governance currently acts as a risk manager by monitoring the load and quality of the "leverage" (# of ICS chains). In doing so, some consumer chains, such as Duality and Neutron, have seen their blockchains merge to avoid overheads for validators and unnecessary "leverage".

  • Mesh Security is very similar to EigenLayer, but with a different compromise for greater blockchain sovereignty. Mesh Security is also a smart contract, but it has to be implemented in all mesh chains, each having its restaking market. While EigenLayer is a marketplace for everyone. Additionally, Mesh Security allows a free market for bilateral chain securing.

  • Also, there's Babylon. It's said to allow Bitcoin restaking, but it's more than that. It unlocks Bitcoin staking entirely because, on its proof of work blockchain, the Bitcoin token has no securing capability; the miners have it. It would be up to the miners to be able to mine other PoW cryptos in addition to BTC. If we were to talk about an equivalent to restaking, we would call it "remining". Babylon will use economic security to add a slashing power, in addition to the decentralization power with Bitcoin's timestamping protocol. Imagine bounty hunters shooting laser-eyed Bitcoin maximalist.

In terms of marketing, don't you think being a blockchain secured by BTC is cooler than being secured by ETH? The choice will certainly depend on the product of the appchain. For degenerative DeFi, it will probably be more appealing to the Ethereum community than a monetary market respecting a certain financial balance for a stable and lasting return on its BTC.

Conclusion:

EigenLayer opens up possibilities and innovates in the direction of decentralization for all. However, in our opinion, its actual use will be limited to rare but impactful use cases. Most existing applications are smart contracts that only have to scale on their rollup (rollapp). That said, EigenLayer will play a major role in all applications that innovate at their infrastructure level. Like Sei (Twin-turbo), Osmosis (superfluid staking / Encrypted mempools), DYDX (decentralized order book), and Chainlink for example, all of which require consensus different from Ethereum.

EigenLayer is also necessary to unify the security of parts that Ethereum users need. Bridges or the Chainlink oracle have so far independent security from Ethereum. If the security of one part is compromised, it's the security of all parts, including Ethereum, that is understood, so restaking is necessary for the Ethereum ecosystem.

Real use cases for restaking, for Ethereum:

Economic Security - As you can probably imagine based on my previous arguments, we believe this economic security point gets too much attention. Not many AVSs really care about this aspect. You can also pledge any asset, not just ETH.

Decentralized Operators - This is clearly valuable, but as described above, it has nothing to do with Ethereum. You can enlist any set of decentralized operators without them committing to also be Ethereum players. Ethereum is again a natural place to find a group of operators.

Proposer Commitments - This is clearly a valuable concept, as evidenced by the exploration of the PEPC. Without a mechanism in the protocol, it makes a lot of sense for restaking.

So, the real use cases for ETH restaking actually boil down to two elements:

Technical Element (proposer commitments) - If you want a credible commitment to ordering an Ethereum block, it must come from Ethereum validators. "MEV-Boost++" is a hypothetical application example that could come from this element.

Social Element - I see aligning with Ethereum as a primary use case for most replay applications, not pooling economic security.

It's basically saying, "Look, we are an Ethereum project!" It's about the same reason why chains continue to be called Ethereum L2, regardless of the architecture: validium, rollup, sovereign rollup (ETH DA), bridge… All L2! All Ethereum!

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Dive into blockchain governance with Imperator. Join our staking program for up-to-the-minute updates and take an active role in shaping the future of decentralized finance.

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