EigenLayer, explained
EigenLayer aims to eliminate a critical barrier many new DApps face by providing developers with an established security framework.
Ethereum has come a long way since its launch in 2015. It has held its position as the most influential blockchain, successfully transitioned from proof-of-work (PoW) to proof-of-stake (PoS) and is the foundation for many innovative crypto projects.
EigenLayer is a decentralized Ethereum staking protocol that provides developers with an established security pool. This EigenLayer explanation details staking and other vital parts of the Ethereum staking protocol.
The EigenLayer protocol is an Ethereum-based project aiming to improve the network’s PoS consensus through a process called Ethereum restaking. The EigenLayer team claims to solve many existing Ethereum security inefficiencies, such as requiring every protocol to manage its own security and scalability processes.
EIGEN, the network’s token, became available for trading on Oct. 1, 2024. The token launched within a price range of $3.50 to $4.50, totaling around $6.5 billion in market capitalization. Market capitalization is a project’s assumed value if all its tokens are circulated. Think of it as a project’s total value at any given time.
Such a launch put EigenLayer in the top 100 tokens in terms of market cap, 94th overall. Interestingly, EigenLayer technically launched its token in May via an airdrop but prevented anyone from trading it until October.
Did you know? Ethereum launched as a PoW blockchain network. On Dec. 1, 2020, it converted into a PoS network by launching its Beacon Chain — a launch colloquially known as Ethereum consensus layer upgrade.
What is restaking, and how does EigenLayer support it?
Restaking is EigenLayer’s take on traditional staking. It provides new ways for users to generate passive income while increasing network security.
Restaking, in the case of EigenLayer, is the act of taking staked Ethereum and repurposing it to increase security on other protocols — essentially creating a pool of restaked assets from which other decentralized applications (DApps) can pull. Users can opt-in to EigenLayer’s restaking smart contract through their already staked Ether (ETH) or a liquid staking token (LST).
When a users stake funds on an Ethereum protocol, most projects offer liquid staking tokens to represent those staked assets — a sort of receipt. These tokens allow them to keep using their funds in other ways, such as restaking them through EigenLayer via a process called LST restaking without unstaking their original assets.
Alternatively, users can allow EigenLayer’s smart contracts to work with their already-staked ETH. Restaking with already-staked ETH is called native restaking. If a user participates in native restaking, the network will add those assets to the protocol’s security pool. How safe is EigenLayer? It’s about as secure as the size of its security pool.
EigenLayer supports restaking in two ways: native and LST restaking.
Native: Native restaking means turning a traditional Ethereum validator into an EigenLayer operator
LST restaking: Liquid staking tokens represent a 1:1 equivalent of the Ethereum you stake. They allow you to access and use the value of your staked tokens, even though the original assets remain locked.
Applications built on EigenLayer are called actively validated services (AVSs) and can be anything from a bridge to a DApp to an oracle. Developing on EigenLayer is cheaper and more efficient than developing on a separate protocol, as EigenLayer has an established trust network in place through restakers. Developing elsewhere requires building a trust network from scratch.
That said, AVSs aren’t randomly harnessing services from EigenLayer. Instead, there’s an intermediary called a node operator, a volunteer opting to help manage the network. Much like an Ethereum validator, an operator can be a single user or an organization.
Operators can build their own AVSs or provide services to other existing AVSs while receiving rewards in return. However, operators are also subject to an AVS’s slashing requirements should they fail to perform their duties.
Moreover, operators can be restakers, or restakers can choose to delegate their restaked assets to an operator. Either way, restakers have complete control over which services their assets go toward. As a result, EigenLayer creates a sort of free-market governance system. Developers build on EigenLayer to harness its established security, while operators and restakers earn rewards for managing and providing said security.
Did you know? While Ethereum validators focus on validating transactions and securing the Ethereum network, EigenLayer operators can pick and choose which AVS they support, making them more specialized than their Ethereum-based brethren. Think of operators as IT departments with knowledge of a specific company, while validators are more general tech support.
How to trade EIGEN?
As mentioned above, EigenLayer officially launched its token, EIGEN, on Oct. 1, 2024. EIGEN is available on several exchanges, such as Binance, OKX, Coinbase, and more.
To trade EIGEN, you must set up an account/wallet with one of these exchanges, fund your wallet through your local currency or other cryptocurrencies, and buy EIGEN. To understand how to sign up for a crypto exchange, check out this guide.
How do restakers manage their restaked assets?
EigenLayer streamlines asset management through its EigenPod solution.
Connecting a wallet: Users must connect their wallet to the EigenLayer application and select the token they want to restake. First-time restakers must approve the process before depositing funds into EigenLayer’s restaking contract.
Managing assets: A restaker manages their restaked assets through an EigenPod, a smart contract created during the restaker’s initial restaking process. An EigenPod is essentially a hub for the restaker to manage restaking processes, withdrawals and more. There can only be one EigenPod per Ethereum wallet address.
Earning rewards: Restakers can visualize their network contributions through EigenLayer’s restaked points. Users earn restaked points every time a block is validated from their restaking date onward. EigenLayer calculates a user’s restaked points through a proprietary formula that factors the amount of restaked assets and the time they’ve been locked in. The formula views native restaked ETH and restaked LST equally.
Did you know? Lido, a liquid staking solution, was the first group to introduce the concept of liquid staking. Introduced in December 2020, Lido solved the problem of stakers losing access to their assets while they’re locked up.
Partial reward withdrawals: Users can withdraw their staking rewards on EigenLayer through a partial or full withdrawal process. Restakers who want to withdraw their earned rewards but continue providing services go through a partial withdrawal process. Partial withdrawals require on-chain proofs, and their gas fees can be expensive. Restakers can request one partial withdrawal every four to five days, and withdrawn funds must go through an additional escrow period before appearing in the restaker’s wallet.
Full reward withdrawals: Full withdrawals are for restakers who no longer want to provide services. Otherwise, the process is similar to a partial withdrawal, requiring on-chain proofs and an escrow period for withdrawn funds. If a restaker accidentally initiates a full withdrawal, they can redelegate their assets via EigenPod’s “redeposit” button. Restakers can initiate either withdrawal process through EigenPod’s “Unstake” section.
Pros and cons of EigenLayer
EigenLayer features innovative solutions, though this Ethereum network upgrade also introduces its own problems.
EigenLayer hopes to innovate on Ethereum’s tried-and-true proof-of-stake feature. In some ways, it is doing just that. However, its innovations aren’t perfect and can lead to new problems.
Pros
Additional passive revenue: Since restakers can use their staked assets in additional ways, they have the potential to earn higher rewards than traditional staking methods.
Improving developer success rates: EigenLayer’s security pool eliminates a key barrier many new projects struggle to overcome. Now, developers can focus on providing valuable services without worrying about establishing trust. By removing one of the most significant barriers that newer projects face, EigenLayer may lead to genuinely innovative layer-2 projects.
Cons
Higher barrier to entry: While EigenLayer provides established security for new DApps, the requirement to restake may deter less technical users. Many crypto exchanges offer easy staking services, reducing setup complexity but at the expense of user involvement in node management. Users comfortable with simple staking may not be drawn to the added complexity of restaking.
Increased risk: Restaking on EigenLayer increases exposure to slashing risks, as participants are responsible for both traditional staking and restaking duties (Ethereum AVS). Additionally, choosing poor-performing AVSs could lead to a significant risk of losing funds, especially for users who don’t actively manage their restaked assets. Still, both systems are open-source, allowing developers to review the code before participating.
While the restaking model introduces higher risks and technical barriers, it also opens new avenues for value creation and network participation. For developers and users willing to navigate these complexities, EigenLayer can potentially drive the next phase of blockchain growth, especially as the ecosystem continues to evolve.
