Eigenlayer — Redefining Restaking Primitives
The Shanghai unlock is on the horizon; with the unlock comes uncertainty regarding how much might be restaked or sold to seek better investment opportunities and the overall impact on price. One key reason for the uncertainty is that Ethereum staked could previously only be re-used via liquid staking protocols like Lido, Rocketpool, Frax Finance, and others. However, Eigenlayer brings a new and essential feature to the Ethereum staking network — the ability to rehypothecate staked Ethereum tokens via native restaking.
“Eigenlayer brings a new and essential feature to the Ethereum staking network — the ability to rehypothecate staked Ethereum tokens via native restaking.”
In essence, Eigenlayer is a marketplace for proof of stake validators that reuses staked capital and established validator infrastructure.
To secure and safeguard the Ethereum network, you can stake ETH and then stake it somewhere (without unstaking). Because the staked collateral secures both Ethereum and the protocol, protocols profit from the security of the Ethereum blockchain. The user receives two returns from staking: the first from Ethereum and a second from the additional secured protocol.
Eigenlayer is a mechanism for leveraging an existing trust infrastructure, such as the Ethereum network, to achieve goals besides block production that were not originally intended.
EigenLayer aims to alter the current situation and better align the goals of dApps, middleware services, and Ethereum. It accomplishes this by using two concepts: pooled security and free-market governance. The goal is for any protocol, including non-EVM-compatible protocols, to be still able to use Ethereum's security, thereby improving the system's efficiency and robustness.
How does it work?
As said earlier EigenLayer allows for efficient native restaking of Ethereum tokens. With this, users can ensure the Ethereum network's security and put the ETH to good use elsewhere, earning yields; this makes it a suitable protocol to implement pooled security, where several participants can deposit ETH tokens to ensure the network’s security. On the other hand, Eigenlayer can identify idle network resources like validator nodes and unused block capacity and sell them in a free-market setting.
Some benefits of EigenLayer
Eigenlayer allows for the maximization of block space. Since most nodes on the network typically have a capacity to princess a higher block limit, EigenLayer pools the excess capacity together to be re-used on the network.
Eigenlayer also allows the Ethereum network to become more flexible and agile in supporting a modular stack. In our article on Celestia, we examined how expensive it can be to start a modular blockchain. With Eigenlayer, the Ethereum network could support modular blockchain development and make the bootstrapping of validators far less costly than it is today.
EigenLayer also has a product named EIgenDA that provides oracles and bridges with services like data availability within the same network. EigenDA, a data availability layer for Ethereum, has recently been released. It enables lower data availability costs and higher bandwidth than the Ethereum blockchain: EigenLayer will allow up to 15 megabytes per second, a significant leap from the 80KB/s currently processed by the Ethereum network. Furthermore, this EigenDA Data combines slashing with no node collusion and has a double quorum of ETH and RocketPool stakers. Eigenlayer projects that soon, the EigenDA should push throughput to more than 1 GB/s.
The Risks
Slashing Risks: While it may already be obvious, one of the immediate risks of native restaking is a higher risk of slashing. Slashing refers to penalties imposed on a validator when there is malicious behavior. With slashing, the total staked tokens are reduced and forfeited to the staking network or distributed to other upright validators laid out in the guide of the network. Since, native restaking exposes staked eth to different projects with their own slashing parameters, the risk for slashing is heightened. On the reverse, we could also see decentralized applications attempt to minimize their slashing parameters to attract stakers and make the Dapp vulnerable to malicious attacks.
Risk of a Single Point of Failure: All participants in the Eigenlayer native restaking network defer their withdrawal credentials to Eigenlayer. Hence if Eigenlayer is ever exploited, depositors could lose a lot of ETH tokens.
Final Words
There is a constant wave of innovation in the crypto space. At Fifty Finney, we believe Eigenlayer can help reposition Ethereum as one of the preferred modular infrastructure architectures rivaling that of Celestia, Fuel, and other brilliant modular architectures.
While Eigenlayer has not fully launched, the implementation of the ideas and plans proposed by the team can radically leap-frog Ethereum and ensure a more sustainable ecosystem.
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