0. Preface

EigenLayer is a restaking protocol for Ethereum that enables existing ETH stakers to opt in to validating new software modules (e.g. consensus protocols, data availability layers, oracles, middleware, etc.) built on top of the Ethereum ecosystem. Restakers will then earn an extra share of rewards, while being subject to additional slashing conditions on their staked ETH.

EigenLayer’s benefits extend beyond security and decentralization, as it acts as a stage where new ideas and implementations can be battle-tested in numerous iterations before being integrated into Ethereum itself.

In this article, we aim to summarize the key content within their newly published whitepaper, and will be publishing a deeper dive in another research piece. Do keep an eye out on our Twitter and Medium page to keep updated.

1. The Problem: Fractured Trust Networks

There are thousands of decentralized applications (DApps) currently built on top of Ethereum, and the ecosystem is constantly growing. However, not all applications are taking full advantage of the trust and security of Ethereum.

Actively validated services (AVS) such as sidechains based on new consensus protocols, data availability layers (DA), new virtual machines, oracles, and trusted execution environments, etc. are typically responsible for their own security, and there are distinct disadvantages to the current AVS ecosystem:

2. EigenLayer as the Solution

EigenLayer introduces 2 new concepts to extend Ethereum’s security to other systems and improve the efficiency of governance, namely re-staking and free-market governance.

Therefore, EigenLayer can solve the problems of AVS ecosystems as mentioned above:

2.1 How to “Restake” on EigenLayer

EigenLayer offers a variety of staking methods similar to Lido’s liquid staking and superfluid staking, including:

2.2 Delegators

Restakers who are interested in participating in EigenLayer but do not want to act as node operators themselves, can delegate their rights to other operators, who in turn deposit the delegated stake to spin up new nodes and distribute the proceeds to these restakers.

For this, EigenLayer offers two models:

3. Slashing Analysis

3.1 How slashing works

Slashing is an important mechanism that imposes a high cost of corruption, and therefore ensures strong cryptoeconomic security. Since stakers point their withdrawal authority towards EigenLayer contracts, any malicious actor that withdraws their ETH on the Ethereum base layer will have their ETH slashed by the on-chain contract of the AVS.

3.2 No fungible position on EigenLayer

EigenLayer also does not issue fungible tokens representing restaked positions, because each user may have different combinations of modules and therefore have different slashing risks. At the same time, transparency of fungible tokens may create conflicts between the holders of the positions and the node operators.

3.4 Risk Management

There are two types of risks in EigenLayer, the first being many operators colluding to attack a set of AVSs at the same time and the second being unintended slashing.

The pre-emptive solution is to create an open-source dashboard where AVSs built on EigenLayer can monitor whether a set of operators participating in its validation tasks are restaked across many other AVSs. These AVS can then make specifications in its contracts that only incentivize EigenLayer operators participating in a small number of AVS.

The reactive solution is to limit the profit-from-corruption of any particular AVS once slashing conditions are triggered. For example, bridges can restrict the value flow within the slashing period, or oracles can have bounds on the total value of transactions during that period.

Before AVS and its associated infrastructure and contracts are battle-tested, many slashing risks need to be mitigated to avoid cascading risks. One risk is accidental unintended slashing vulnerabilities (e.g. programming bugs) in AVS creation that, if triggered, can cause honest operators to lose funds.

The pre-emptive solution is to put AVS codebases through rigorous security audits.

The reactive solution is to set up a governance committee that can have the ability to veto unintended slashing.

3.5 Governance Framework

EigenLayer uses a reputation-based committee comprised of prominent names in the Ethereum and EigenLayer communities. The committee will be responsible for enabling upgrades to EigenLayer contracts, reviewing and vetoing slashing events and admitting new AVS into the slashing review process. This committee however, has no power to trigger slashing by itself, and any upgrade to the protocol’s contracts comes with a time lag.

AVS can use this committee to assure restakers that they will not be subject to malicious or inaccurate slashing due to bugs. At the same time, AVS developers can battle-test AVS-related code bases. Once mature and getting enough trust from restakers, AVS can stop using the committee as a fallback. AVS admission to build on top of EigenLayer may be subject to security audits and other due diligence, including checking of system requirements that validators have to serve the AVSs.

3.6 Maximizing security while minimizing centralization risk

Maximum security is obtained when all of the ETH that has been restaked with EigenLayer is used to secure a given AVS. However, there are two hurdles associated with this. One, whether the expected revenue of the AVS outweighs operators’ operating costs, and two, whether operators have enough computational resources to participate in AVS validation.

EigenLayer proposes two possible module design patterns to alleviate these concerns:

4. A World with EigenLayer

4.1 Enabling New Applications

EigenLayer can support many types of protocols by providing AVS services, including data availability layers, decentralized sequencers, light-node bridges to Ethereum, faster bridge between rollups, oracles, event-driven activation capabilities, MEV management, low-latency sidechains, and helping Ethereum achieve single slot finality.

4.2 Leveraging Staker Heterogeneity and Massively Expands Blockspace

Ethereum’s nodes are heterogeneous in terms of computing power, risk-reward appetite, and characteristics:

4.3 Break the Trade-off between Democracy and Agility

Ethereum’s upgrades are slow-moving, advancing through a robust off-chain democratic governance approach. EigenLayer’s emergence allows for innovation to be quickly deployed on Ethereum’s trust network, providing a testing platform for Ethereum mainnet, similar to a testnet. This helps avoid Ethereum’s trade-off between rapid innovation and democratic governance.

4.4 Incentivizing Staker Decentralization

EigenLayer provides AVS with a marketplace for monetizing decentralization. As more and more AVSs specify that only home validators can participate in their tasks on EigenLayer, it increases profitability in running home nodes on Ethereum, further incentivising decentralization of the mainnet.

4.5 Multi-token Quorums

EigenLayer allows the AVSs to define its own node group (quorums) to run together with the node group that restakes ETH. For example, Protocol A can choose to use two quorums, one needs to restake ETH, while the other needs to stake their native protocol token $A. Such a mechanism can help the protocol token $A gain utility and accrue value for the protocol.

4.6 Business models

Business models that can be adopted by AVSs on top of EigenLayer include: