Eigen Layer Quick Bites

• Eigen Layer is a middleware and restaking protocol developed on the Ethereum network. It allows software modules to utilize Ethereum's highly secure trust network without the need for their own validator set.

• Eigen Layer offers several benefits, including free-market governance, shared security, and accelerated ecosystem development. Ultimately, this results in increased value (and risks too) for Ethereum.

• Although restaking is advantageous, it also entails risks. When a protocol is built on staked Ethereum, it becomes more intricate and has a greater chance of a single point of failure.

• There is a growing trend of Actively Validated Services (AVS) being developed and integrated. Additionally, efforts are being made to enhance the utilization and liquidity of restaking tokens.

Read This First!

Before we continue, we suggest that you read references below first. It will give you the details and explain how Eigen Layer works

Understanding Eigen Layer Complexity

What is Eigen Layer?

• Eigen Layer is an Ethereum protocol that introduces restaking features. Restaking enables users to repurpose their ETH on the consensus layer.

• Users who stake ETH directly or with a liquid staking token (LST) can choose to restake their ETH or LST using Eigen Layer smart contracts.

Actively Validated Services (AVS)

• Protocols that require their own distributed validation, known as Actively Validated Services (AVS), can access Eigen Layer's pooled security layer. AVS includes:

  - Sidechains

  - Data availability layers

  - New virtual machines

  - Keeper networks

  - Oracle networks

  - Bridges

  - Threshold cryptography schemes

  - Trusted execution environment

• Previously, these AVS protocols were required to establish their own trust network and create smaller fragmented pools. This made them vulnerable targets for security breaches, as they had to shoulder the responsibility themselves.

• With Eigen Layer Pooled security, AVS protocols can rely on the trust network provided by the Ethereum network without having to create their own validators. This is made possible through the mechanism of free-market governance which offers very high degree of flexibility.

  

  Eigen Layer and Ethereum Stacks

Benefits and Risks of Restaking

What Are The Benefits of Restaking?

• In order to comprehend the restaking solution, it is important to grasp the limitations that the AVS protocol encounters in terms of development and scalability. These limitations include:

  • Technical Limitation: Difficulty in establishing and launching a new trust network.

  • Security Limitation: The security of AVS is compromised by the presence of multiple trust networks. This dilutes available resources among various networks, thereby increasing the risk of corruption.

  • Value Leakage: Users are required to pay fees to an additional trust network, in addition to transaction fees on the mainnet. Moreover, there are unsustainable incentives for providing stakers' rewards.

• The Eigen Layer restaking infrastructure attempted to address these issues in the following ways:

  • Free Market Governance In a free market, AVS protocols determine their own security level according to their available resources and development stage. Validators have the freedom to choose the desired risk and reward when providing services to a particular protocol.

  • Shared Security: Restaking allows the protocol to utilize the Ethereum security network, which currently has the largest validators and a strong security infrastructure.

  • Value Creation: Restaking provides additional revenue streams for ETH stakers, benefiting both the validators and those who stake ETH.

What Are The Risks of Restaking?

• Restaking is not without risks, for the protocols and users there will be risks and exposure below:

  • Security Risk: Stakers may lose their $ETH collateral due to smart contract vulnerabilities and bugs.

  • Rehypothetication Risk: The failure of any validators can impact all protocols that depend on shared security.

  • Underwriting Risk: To reduce the risk of losing their restaked $ETH, validators should carefully assess protocols before validating them.

  • Collusion Risk: Collaboration among malicious validators could lead to majority control and pose a security threat to a protocol.

  • Centralization Risk: Eigen Layer's open market design allows AVS and validators to make their own choices. However, validators may opt for the protocol that offers the highest yield to maximize their profits. Consequently, there will be a competition among protocols to provide greater yields and attract investments. This situation may result in a risk of centralization and higher fees for AVS when utilizing Eigen Layer.

• There are also concerns from Ethereum Co-Founder, Vitalik Buterin, about Systemic Risk that will be imposed to the Ethereum if large group of validators secure the same network and are subject to slashing, attacks, or hacks. It could destabilize Ethereum

• Sreeram Kannan from the Eigen Layer is fully aware of this and intends to address these risks.

Eigen Layer Ecosystem

AVS Projects utilizing Eigen Layer

Several projects have been built using the Eigen Layer infrastructure, creating an innovative ecosystem that emphasizes modularity. These projects include:

• EigenDA is a data availability service that provides high throughput and ensures economic security through Ethereum operators and restakers. It utilizes the danksharding concept to enhance the programmability of rollups and increase the maximum data processing capacity. By implementing horizontal scaling, EigenDA aims to achieve a remarkable throughput of up to 1 TB/s without significant expenses or technical burdens for each operator.

• Espresso Systems is developing a decentralized sequencer solution that allows for decentralized rollups, enhanced interoperability, and a strong, highly scalable data availability layer.

• Drosera Network  is a zero-knowledge automation protocol that provides emergency response infrastructure to Ethereum

• Celo is transitioning from an EVM-compatible Layer-1 blockchain to an Ethereum Layer-2. Celo will use Eigen Layer and EigenDA to improve data availability, increase throughput, reduce costs, and lower latency.

• Blockless Network is a platform for launching and integrating full-stack decentralized applications, allowing them to operate without the limitations of smart contracts.

• AltLayer is creating tools called Rollups-as-a-Service (RaaS) to scale up execution while significantly reducing costs. They use EigenLayer validators to enable fast verification of state transitions without requiring permission.

• Hyperlane is building a layer of interoperability that allows different chains to work together smoothly. This includes features like native rollup bridges, communication between different rollups, and a flexible architecture for applications that can work on multiple chains.

• Lagrange is developing infrastructure to enable zk-based cross-chain state and storage proofs. It incorporates EigenLayer for super-linear security, achieved by restaking.

• Mantle is developing a Layer-2 Ethereum that utilizing MantleDA, a modified version of EigenDA, and plans to transition to EigenDA upon its release. This ensures that the Mantle ecosystem can support the high transaction capacity and reduced gas costs required for advanced applications

• Omni aims to create an interoperability infrastructure that serves as a unification layer for all rollups. The project is building on the Eigen Layer to ensure security for future use cases. These use cases include cross-rollup stablecoins and primitives that enhance liquidity aggregation and enable fast and affordable communication between rollups.

• Polyhedra is developing novel ZK-proof-based infrastructure to enable trustless and efficient cross-chain interoperability using parallel and distributed computation.

• Witness Chain is developing a transparency middleware for blockchains. Witness Chain enables the creation of a decentralized watcher network to effectively monitor and verify AVSs leveraging Eigen Layer.

Liquid Restaking Protocols

The Eigen Layer technology brings about technological advancements. However, there are concerns regarding the complexity involved in being a validator for free-market governance, the risk of having rewards slashed, and the illiquidity of restaked tokens.

To tackle these issues, several projects strive to create liquid versions of restaked tokens. This initiative aims to simplify the process, provide higher yields, and enhance asset productivity. However, it should be noted that this approach also introduces additional risk by leveraging the underlying asset. The protocols involved in this endeavor are as follows (all of them are live on the testnet):

• Stader Labs 

  • Launched rsETH on the testnet. It is backed by LSTs accepted by Eigen Layer, and it also has ETHx as the LSD tokens.

• Astrid Finance 

  • Astrid have two LRTs (rstETH and rrETH) instead of one depending on the deposited tokens into a Eigen Layer’s pool

• Inception

  • Inception have inETH as their LRTs

The prospects appear optimistic, given that the AVS project could employ LRTs to enhance overall influence for their protocols due to their cost-effectiveness and liquid assets. However, the actual implementation remains to be witnessed, and we are eagerly anticipating its realization.

Closing Remarks

• The business model employed by EigenLayer follows a straightforward approach. It involves levying a fee on the rewards that are transferred from the AVSs to restakers.

• Based on a Compound Annual Growth Rate (CAGR) of approximately 37% over the past three years, it is projected that by 2030, the revenue generated from staking will exceed $25 billion. Eigen Layer predicted to capture 10% of these staking rewards, resulting in an estimated total addressable market of around $2.5 billion.

• It is worth noting that Eigen Layer is expected to be particularly appealing to newly established AVSs seeking to initiate their operations, rather than to already well-established networks, at least in the immediate future.

• Theoretically, Eigen Layer's Total Addressable Market (TAM) will encompass a portion of the future staking revenue generated by new systems, a fraction that is anticipated to grow as time progresses.

That’s a Wrap and Thank You!

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