After Ethereum 2.0, the consensus mechanism directly transitioned from POW to POS, meaning that proof of work has been replaced by proof of stake. This indicates that the Ethereum ecosystem no longer requires physical mining machines to provide security; instead, it ensures security directly through the staking of ETH assets, which incurs high capital costs to maintain stable security. For instance, to maintain the current staking volume on the Ethereum beacon chain, it must provide a 3.9% APY to staking users. What EigenLayer aims to do is facilitate the re-staking of funds, allowing users to stake not only ETH in PoS but also to re-stake funds into middleware, oracles, application chains, etc., thereby improving capital efficiency while ensuring the security of the Ethereum network and various protocols.
(1) Project Overview
EigenLayer is a re-staking protocol built on Ethereum, allowing Ethereum nodes to perform secondary staking of their staked ETH to earn additional rewards. Externally, it also allows users to stake ETH, LSD ETH, and LP Tokens on other public chains, oracles, middleware, etc., acting as nodes and receiving validation rewards. Additionally, third-party projects can leverage the security of the ETH mainnet, releasing the security of the ETH consensus layer.
Although Rollup is an important direction for Ethereum's performance expansion, and this expansion method is based on trust in L2, ultimately, without using EVM to execute transactions, it still has to return to Ethereum for settlement.
In other words, Ethereum only provides trust at the block generation level; any modules not deployed or proven on EVM cannot utilize the security of Ethereum's trusted underlying layer. The only way is to build an independent AVS actively validated node system (Actively Validated Services, which has its own distributed validation nodes) to be responsible for the security of its own system.
For example, middleware such as side chains based on new consensus protocols, data availability layers (DA), new virtual machines, oracles, and trusted execution environments cannot utilize Ethereum's trust mechanism to create broader decentralized services. Therefore, they can leverage the AVS actively validated node system to build their own trust network.
However, AVS also encounters several issues. First, developers need to introduce a new trust network to gain security; second, users need to pay AVS fees outside of Ethereum; third, for most AVS currently operating, the capital cost of staking far exceeds any operational costs. For instance, a data availability layer with $10 billion staked would need to repay at least $500 million annually to stakers to offset the capital cost of staking, assuming a 5% expected annual percentage return (APR).
Lastly, all dApps within AVS operate on a low-trust model. This means that even if Ethereum provides strong security guarantees, it is meaningless because dApps will rely on both Ethereum and middleware, with middleware being the weaker link in terms of attack cost.
Thus, EigenLayer introduces two new concepts to help extend Ethereum's security to any system through "re-staking" and "free market governance," eliminating the inefficiencies of existing rigid governance structures.
Re-staking: EigenLayer provides a new security mechanism that allows modules to be protected through user re-staking of ETH. According to the white paper, EigenLayer also plans to re-stake ETH extracted from the beacon chain after the Shapella upgrade.
"Ethereum validators can set their beacon chain withdrawal credentials to EigenLayer smart contracts and choose to join new modules built on EigenLayer."
Free Market: EigenLayer offers an open market mechanism that allows validators to freely choose which modules to participate in based on their risk preferences, but the premise for validators to earn profits is to ensure security. This governance model has two benefits: first, it integrates robust underlying blockchains with fast and efficient elements; second, the optional validator model allows new modules to compete for other resources among validators, thus better balancing security and performance.
By combining these approaches, AVS on EigenLayer can rent the security services of Ethereum validators to address the various issues emphasized in the AVS system. First, AVS can enhance economic security through Ethereum validators; second, the security model of EigenLayer increases the cost of disruption ($13 billion); third, ETH stakers can earn returns within AVS.
Competitive Advantages#
Next, from the perspective of features and advantages, it can be differentiated for ETH holders and application protocols. First, for ETH holders, EigenLayer can bring more returns to users through re-staking, allowing them to earn staking rewards on the Ethereum mainnet as well as additional returns on the secondary staking protocol.
For application protocols, EigenLayer brings more governance security to protocols. In blockchains adopting PoS protocols, staking is the core mechanism; the more assets staked, the lower the likelihood of the protocol being attacked in governance, as the cost of attack becomes higher. Finally, it provides economic benefits to the protocol; EigenLayer offers blockchain node validation services through re-staking, allowing protocols to directly use the staking validation platform provided by EigenLayer, eliminating the need to establish their own validation platforms and pools, enabling them to focus more on developing core functionalities and enhancing user experience.
Various Application Scenarios#
EigenLayer supports many types of protocols through AVS services, including: data availability layers, decentralized sequencers, light node bridges connecting to Ethereum, faster bridges between Rollups, oracles, event-driven activation functions, MEV management, low-latency side chains, and helping Ethereum achieve single-slot finality, etc.
Utilizing the heterogeneity of stakers to significantly expand block space
Moreover, Ethereum nodes also exhibit heterogeneity in computing power, risk-return preferences, and characteristics, allowing for significant expansion of block space by leveraging "staker heterogeneity." In simple terms, to achieve decentralization, blockchains set block limits based on the performance of the weakest nodes, while more powerful nodes can provide excess resources to other protocols through EigenLayer. Therefore, nodes with higher risk preferences can choose protocols with higher risks, lower liquidity, but higher returns for validation.
This means that by combining verifiable credentials, SBT, and other technologies, different protocols can select more suitable nodes for validation based on node characteristics.
Advancing the decentralization process of Ethereum stakers
EigenLayer provides AVS with a market that monetizes decentralization. AVS can specify that only individual Ethereum nodes (home validators) can participate in tasks, helping AVS maintain decentralization. At the same time, individual nodes can earn additional returns, incentivizing more users to run individual Ethereum nodes and increasing the decentralization of the mainnet.
Supporting multi-token node groups
EigenLayer allows the AVS of protocols to specify their own node groups (quorums) to operate alongside the node groups re-staking ETH. For example, protocol A can choose to use two node groups: one group needs to re-stake ETH, while the other group needs to stake the protocol token $A. When both node groups agree on the validity of a matter, protocol A ultimately agrees to the matter's effectiveness. This mechanism can help the protocol token $A gain utility and accumulate value.
EigenLayer Supports Multiple Staking Modes#
Providing various staking methods similar to Lido's liquid staking and superfluid staking, where superfluid staking allows for LP pair staking.
Direct Staking: Directly staking ETH on EigenLayer that is staked on Ethereum, equivalent to L1 → EigenLayer yield staking.
LSD Re-staking: Assets already staked in Lido or Rocket Pool are re-staked on EigenLayer, equivalent to DeFi → EigenLayer yield staking.
LSD LP Staking: For example, Curve's stETH-ETH LP Token is re-staked on EigenLayer, equivalent to L1 → DeFi → Ethereum Execution Layer (EL) yield staking.
ETH LP Staking: LP Tokens staked in DeFi protocols are re-staked on EigenLayer, equivalent to DeFi → Ethereum Execution Layer (EL) yield staking.
(2) Business Model (Target User Groups, Main Revenue Sources)
The business models that protocols using EigenLayer can adopt include:
Pure Wallet Model: In this model, the protocol deploys AVS on EigenLayer as a commercial service. Users of AVS need to pay fees, part of which goes into the protocol's wallet to pay for their services, while the remaining fees go to EigenLayer and ETH re-stakers within EigenLayer. This achieves a purely company-based business model and allows AVS to build a SaaS economy on-chain.
Tokenized Fee Model: In this model, the protocol deploys AVS on EigenLayer as a protocol operation (rather than as a commercial service). Users of AVS need to pay fees, part of which goes to the node groups of AVS token holders (the native token of AVS), while the remaining fees go to EigenLayer and ETH re-stakers within the EigenLayer protocol.
Using Native Token Payment Model: In this model, AVS operates as a protocol, and users need to pay fees using a specific token issued by AVS. The value of this token depends on the expected future profitability of AVS. A portion of the fees goes to the node groups of token holders specified by the protocol, while the remaining fees go to EigenLayer and ETH re-stakers within the EigenLayer protocol.
Dual Staking Model: In this model, the protocol specifies two node groups for the protocol token and ETH to operate together. The first node group consists of ETH re-stakers, while the second node group consists of AVS stakers. In the dual node group model, security is better in one of the node groups, while activity is the worst among both node groups, and anyone holding ETH or AVS can provide security for AVS through EigenLayer by re-staking ETH or staking AVS in their respective node groups.
EigenLayer Internal Risk Management Mechanism#
First, EigenLayer has established a governance committee composed of prominent figures from the Ethereum and EigenLayer communities. This committee is responsible for upgrading EigenLayer contracts, reviewing and vetoing slashing events, and allowing new AVS to enter the slashing review process.
AVS can leverage this committee to assure re-stakers within EigenLayer that they will not be subject to malicious or erroneous slashing. At the same time, AVS developers can conduct practical testing on the codebase related to AVS, and once mature and trusted by re-stakers, AVS can stop using the committee as a backup. Additionally, AVS may also require the committee for security audits and other investigations when created on EigenLayer, including checking the system requirements for validators serving AVS.
The aforementioned slashing mechanism design aims to increase the cost of disruption (when the cost of disruption exceeds the potential benefits of disruption, the system can achieve strong security) and make the crypto network more secure.
There are also a few points to note regarding the slashing mechanism:
Unlike other crypto projects, EigenLayer does not use homogenized warrants. Since each user can choose different delegated staking methods, the slashing risks also differ. Homogenized tokens may cause conflicts between position holders and node operators, hence the decision not to use them.
The re-staking concept of EigenLayer is similar to the merged mining concept of Bitcoin, Namecoin, etc., but there are differences. When validators validate across multiple chains simultaneously, in the event of an attack, EigenLayer can protect economic security by punishing malicious validators on the main chain. For PoW public chains, even if all miners on the main chain choose to merge mine on another chain, there is no significant cryptoeconomic security. The main reason is that the option to slash cannot be taken—failure to slash would lead to the mining hardware of malicious miners becoming ineffective or being removed, but the miners' hardware would still retain value.
Finally, EigenLayer aims to maximize security while minimizing the risks of centralized management:
When all ETH re-staked using EigenLayer is used to protect an AVS, that AVS can achieve maximum security. However, two questions arise: "Will the expected income from AVS to operators exceed operational costs?" and "Do operators have enough computing resources to participate in AVS validation?" To address this, EigenLayer proposes two possible module design patterns.
First, Hyperscale AVS: In hyperscale AVS, the total computational workload is distributed among all N participating operators, thus reducing storage costs and node throughput requirements, while the system itself can achieve high throughput by aggregating the performance of multiple nodes.
Second, Lightweight AVS: Some tasks have very low costs and require minimal computational infrastructure, and tasks can be redundantly executed by operators, such as validating zk-proofs, etc.
(3) Operational Status
According to EigenLayer's latest announcement on 4/7, the first phase of the testnet has been launched, built on the Ethereum Goerli network, currently supporting only liquidity re-staking and native re-staking.
EigenLayer will be divided into three phases:
Phase 1: Stakers – Stakers will join EigenLayer for re-staking.
Phase 2: Operators – Open node operators will join and accept delegations from re-stakers.
Phase 3: Services – The first verified service on EigenLayer will be enabled.
Currently, the first phase testnet offers two re-staking methods for staking users: LSD re-staking (for users staking through LSD protocols like Lido, Rocket Pool) and Native re-staking (for users who stake ETH themselves without using LSD protocols).
Finally, as of 4/30, the total number of EigenLayer addresses is 120,799 (as shown in the image). The official website also mentions that the TVL of the liquid staking token Rocket Pool ETH (rETH) in the Rocket Pool protocol is 50,939.46. Since Q1 2023, rETH has 2,224 node operators, with each running an average of 6 validators. Therefore, to re-stake rETH, users can deposit tokens into the EigenLayer contract.
The TVL of Lido Staked Ether is 135,791.13. As of Q1 2023, stETH has 30 node operators, with each node running an average of 5,885 validators. Therefore, to re-stake stETH, users can deposit tokens into the EigenLayer contract.
However, the EigenLayer team emphasizes that the current testnet is in its early stages and non-incentivized, so participants will not receive any rewards, yet many still do not want to miss the opportunity for airdrops.
(4) Team and Investment Institutions
The team behind EigenLayer, EigenLabs, completed a $14.5 million seed round led by Polychain Capital and Ethereal Ventures last year. At the end of March this year, EigenLayer completed a $50 million Series A funding round led by Blockchain Capital, with participation from Coinbase Ventures, Polychain Capital, Hack VC, Electric Capital, IOSG Ventures, and others.
Founder Sreeram Kannan, who served as an associate professor of artificial intelligence and blockchain applications at the University of Washington for over eight years, stated that EigenLabs' mission is to build protocols and infrastructure that promote open innovation. Sreeram Kannan's research focus at the university is on distributed computing theories related to blockchain systems, and he is also the head of the University of Washington Blockchain Lab (UW-Blockchain-Lab), having published over 20 papers related to blockchain.
Other team members include Soubhik Deb, a PhD student and researcher at the University of Washington Blockchain Lab; Robert Raynor, a PhD student in the Department of Electrical and Computer Engineering at the University of Washington; Bowen Xue, a master's student in electrical engineering at the University of Washington and an assistant researcher; Jeffrey Commons, a smart contract architect at the University of Washington; Gautham Anant, a developer in computer science at the University of Washington; and Vyas Krishnan, a full-stack software developer from the University of Illinois.
EigenLayer Development Roadmap#
In April 2022, EigenLayer began internal testnet testing, participated in the Ethereum DevConnect developer conference roadshow and ZK summit roadshow in May of the following year, and registered a Twitter account in July. In February 2023, the project white paper was released, and in April of this year, the first phase testnet was launched.
(5) Potential Issues and Risks
Internal Risks#
There are two types of risks within EigenLayer. First, many operators may collude to attack a group of AVS simultaneously; second, AVS may have unintended slashing vulnerabilities, such as honest nodes being slashed.
First, regarding the first type of risk, in reality, only a portion of operators will choose to join a given AVS, and some of these operators may collude to steal funds from one of the AVS groups, leading to complex attack events. There are several solutions to this. First, limit the potential disruption gains of any specific AVS.
For example, oracles can limit the total value of transactions within that period; second, EigenLayer can actively increase the disruption costs of AVS, meaning EigenLayer can create an open-source dashboard that allows AVS built on EigenLayer to monitor whether any group of operators participating in its validation tasks is also re-staking in other AVS, and then AVS can establish regulations in its contracts to incentivize EigenLayer operators participating in only a few AVS.
External Risks or Future Potential Risks#
Centralization Risk: If EigenLayer develops into a major re-staking platform in the future, it may raise concerns similar to those currently surrounding Lido, as ETH staked on Lido accounts for 32% of ETH in the Ethereum beacon chain, raising worries about excessive centralization.
Other Vulnerability Security Risks: Secondary staking increases the risks exposed by staked assets; in addition to the risks of primary staking, they are also subject to the security of the re-staking protocols, including data availability layers, middleware, side chains, oracles, various bridges, etc. If these protocols have security vulnerabilities, it will lead to losses for secondary stakers.
Over-reliance Risk: If protocols adopt EigenLayer's staking platform, the independence and security of the protocols themselves will be influenced by EigenLayer, leading to a high dependency on EigenLayer.
Native Token Value Dilution Risk: Leveraging the staking validators provided by EigenLayer may dilute the value of the protocol's native token, as part of the token's value comes from its role in the staking network, which may be weakened when introducing ETH staking.