Brief overview:
l EigenLayer is a reshaping protocol that allows ETH stakers to verify different networks/services built on Ethereum through a set of smart contracts.
l EigenLayer’s goal is to create a decentralized trust market by distributing Ethereum’s trust (capital + validator set) to anyone interested. This allows developers to focus on infrastructure-level innovation without the burden of creating a new network.
l Stakeholders can earn rewards by helping operate and secure various networks and services built on Ethereum, such as data availability layers, decentralized sequencers, and bridges.
l EigenLayer faces risks such as operator collusion, over-commitment and bootstrapping challenges, which require careful service/network design and monitoring.
There is no doubt that EigenLayer is one of the most talked about projects in recent months. There are podcasts, demos, and updates almost every week. Before I got into the details, I knew a few buzzwords but didn't understand how it actually worked. This article is actually my study notes and my brainstorming.
Simply put, EigenLayer is a new solution designed to solve the innovation challenges of the blockchain ecosystem at the infrastructure level. It is a reinvented protocol that allows ETH stakers to validate different networks and services through a set of smart contracts on Ethereum. By reinventing ETH on EigenLayer, stakers can support new Ethereum projects by providing services and gain more staking opportunities.
In this article, I want to talk about EigenLayer in more detail, including: what it is, how it works, why you should care, use cases, and the risks involved.
let's start.
But first – why should we care?
1. Developers don’t need to bootstrap a new ecosystem: Developers have access to Ethereum’s staked capital and validator set so they can now spend less time on secure bootstrapping. This means faster development cycles and new use cases.
2. More opportunities for ETH stakers: If you are an ETH staker looking for more options, EigenLayer may be an attractive option. The protocol works with your existing Ethereum validations, allowing you to use your staked capital more efficiently and gain additional advantages at no additional cost.
3. Improved security: By extending Ethereum’s cryptoeconomic security to additional applications, EigenLayer helps build an overall safer and more robust decentralized ecosystem.
What is EigenLayer?
As stated in the white paper:
EigenLayer is a set of smart contracts on Ethereum that allows consensus layer ether (ETH) stakers to choose to validate new software modules built on the Ethereum ecosystem.
It is a "reinvention" protocol that allows ETH stakers to secure different networks and services such as data availability layers, sequencers, bridges or other services built on Ethereum.
Looking Back at the Blockchain Landscape: Understanding the Development History of Blockchain
First, let’s review; Bitcoin emerged as an application-specific blockchain with a limited scope and focused solely on peer-to-peer payments. It is specifically designed for a single purpose. In that period of 2011-2012, every innovation required the creation of a new network.
Ethereum subsequently introduced a universal smart contract platform that allowed developers to build a variety of applications, making the blockchain ecosystem more programmable.
However, Ethereum has its limitations when it comes to innovation outside of the application layer. While Ethereum enables programmability at the application layer, it does not extend this flexibility to other underlying infrastructure components (e.g., consensus layer, data availability layer, new virtual machines, oracle network); in other words That said, for services that cannot be proven on top of EVM. This infrastructure-level component requires an Active Validation Service (AVS) with its own validation.
This means that any innovation beyond the application layer must either build its own service/network (e.g. Chainlink, Solana, etc.) or go through a lengthy protocol development process (if accepted by the Ethereum community and will be implemented in the protocol).
EigenLayer addresses infrastructure challenges
EigenLayer is a new approach to solving challenges associated with innovation at the infrastructure level. The idea behind EigenLayer involves leveraging a decentralized network of trust to build the infrastructure components required for advanced projects.
Simply put - how does it work? EigenLayer introduces a method called heavy staking, which enables networks and services to be protected by staked ETH rather than their own tokens. Ethereum validators can choose to offer new services that provide them with additional benefits. To do this, they must download and operate any necessary software. These services may impose conditions that could cause validators to lose their staked ETH if they behave dishonestly. This ensures that validators are behaving honestly as their stake is being compromised.
The core question EigenLayer tries to answer is: can we borrow trust from these decentralized networks and make it available to anyone who wants to use it.
What is "decentralized trust"?
Decentralized trust is easily lost in translation, so I wanted to take a moment to focus on it. (TBH, I don’t like the naming, but that’s how I feel about most terms in the blockchain space.)
Decentralized trust is a basic concept of blockchain. It refers to the ability of a system to establish trust among participants without relying on a central authority or third-party intermediary.
There are different trust models, each with their own trade-offs. Let’s look at what decentralized trust means for Ethereum.
Ethereum is a decentralized blockchain network that uses a consensus algorithm called Proof of Stake (PoS) to achieve trust and security without relying on a central authority. Multiple independent nodes validate and verify transactions, making it difficult for any single participant to manipulate or control the network, providing censorship resistance.
In Ethereum’s PoS, validators stake a portion of their cryptocurrency (ETH) to propose and validate new blocks in the blockchain. Validators must deposit 32 ETH to run a dedicated staking node. If they don't follow the rules, they risk losing a portion of their staked ETH. This mechanism encourages participants to act responsibly.
Today, Ethereum has more than 550,000 validators, data comes from hildobby’s Dune dashboard.
Application developers can leverage Ethereum’s decentralized trust network to build safe and reliable applications. They can ensure that their smart contracts function as expected without the need for a central authority or third-party intermediary to establish trust.
Decentralized trust market
Putting things together:
l In a decentralized network, participants can trust the system to operate safely, accurately, and reliably without the need for a central management entity.
l EigenLayer’s goal is to create a decentralized trust market: by acquiring Ethereum’s trust (capital + validator set) and making its components available to anyone interested.
How does it work?
EigenLayer creates a marketplace that connects ETH stakers who have pledged their services for additional provision, as well as the services/networks required of operators. It is a set of smart contracts on Ethereum that facilitate this.
The two main actors involved in EigenLayer are:
1. Active Verification Services (AVS): Services/networks that require an external operator to operate their network - these are services that require decentralized trust. (Also known as services/middleware). AVS can be a data availability layer, a decentralized sequencer, a bridge, an oracle, etc.
2. Pledgers: Actors who choose to provide specific services and thus receive additional income. Stakeholders can run software built on EigenLayer or delegate their staking to an operator.
Active verification service
First, to create an AVS on EigenLayer, you need:
1. Offline containers that operators must download and run (for example, a service may require validators to run specific software)
2. The on-chain contract stipulates the terms of payment and penalty (reduction)
Re-staking in EigenLayer
Stakeholders can choose to participate in new modules built on EigenLayer, providing security and verification services. This is called re-staking.
To participate in re-staking, stakers must do one of the following:
l Download and execute the node software required for these modules
l Entrust their staking to the operator who does this
Once opted in, these modules implement penalty conditions on staked ETH to encourage honest behavior.
Re-staking: different (re)staking options
Now you may be asking: is this the same ETH you need to stake to become a validator? What if I don't have the 32 ETH required to become a validator?
EigenLayer offers different restaking options. Each option has its own risks and rewards.
l Native Re-Staking: This option is suitable for independent stakers/family stakers who want to natively re-stake their same staked ETH. When they stake within the Ethereum protocol, they need to specify a withdrawal credential, which is the account that has the authority to withdraw the collateral. To participate in EigenLayer, you need to assign this credential to the EigenLayer smart contract. (L1 → EigenLayer)
l Liquidity re-staking: Liquidity staking is a service that allows users to deposit their ETH into a staking pool and receive a liquid staking token in return (as provided by Lido and RocketPool). Stakeholders can deposit liquid staking tokens into EigenLayer. There are different options here such as ETH LP re-staking.
Service developers have the flexibility to set specific conditions for their stakers. For example, they can decide which tokens to accept as collateral and establish rules for distributing rewards. A module that prioritizes decentralization might only accept native staking ETH.
Now, a key question: How does EigenLayer ensure that stakers stay honest?
Dishonest Actors: Cut
To ensure the honesty of stakers, service creators implement a slashing mechanism, which is a penalty condition for those who break the rules. Stakers agree to these terms and conditions when they choose to provide specific services, and if they act dishonestly, they may lose a portion of their staked ETH.
If you are entrusting your staking to an operator, you are also trusting the operator to act honestly and may face similar penalties.
Honest nodes are cut: unintentional cuts
First - audit, audit, audit. Services must undergo security audits to avoid vulnerabilities and attacks.
Something happened - there was a vulnerability or malicious code. Suppose a bug or malicious code causes an unintentional slashing penalty. EigenLayer relies on a governance committee to solve this problem. The committee can reverse reductions caused by bugs or malicious code.
While some object to human intervention, it is important to emphasize that the committee's role is simply to veto unintentional cuts. They do not make subjective judgments but act as a safety net for stakers.
In addition, committees operate transparently and their actions and membership are publicly accessible to ensure trust. Both services and stakers can choose to participate, fully understanding the role and structure of the committee.
Risks and Challenges
Some possible problems:
l What will happen if only a small number of re-stakeholders participate in multiple AVS and jointly attack? Will re-staking lead to over-leverage?
l When do reductions and payments occur? What if the cuts come too late?
l Who can run off-chain software specifications? Can everyone participate and become an operator, or will there be high requirements?
l Will people use EigenLayer?
Operator collusion: small-scale re-pledgers
If only a small portion of stakers participate in re-staking across multiple services, the system may become cryptoeconomically insecure.
Here's an example from the white paper:
Consider an AVS that is secured by $8 million of re-pledged ETH and contains a total of $2 million of locked value. Since a quorum of 50% is required to access the $2 million locked value, the application appears to be secure as a successful attack would result in the attacker losing at least $4 million of the staked value. However, the situation may be different if the same group of stakers are also staking in other AVS. In the simplest case, the exact same re-stakeholders participate in 10 other AVS, each with a locked value of $2 million. Therefore, the total profit from corrupting this group of re-hypothecaters is $20 million, but the total value at risk is only $8 million, making the system cryptoeconomically insecure.
This means that if the same stakers participate in multiple services, the system is at risk, as an attack may be more advantageous than losing all capital staked. (Attack > Staking)
Much of the risk mitigation depends on the design of the AVS. Applications can set some rules for the types of stakers they want; for example, you can only have native staked ETH. Additionally, applications can limit the amount of funds that can be stolen during an attack (e.g., bridges can limit the flow of value during slashing).
Staker can't afford cuts
If the mechanism for rebalancing staking in EigenLayer fails due to slow adjustment, delay, or parameter errors, it may expose the system to various security risks. Therefore, services on EigenLayer must maintain appropriate ETH balances to ensure the security and stability of the network.
Consider a situation where a staker who restakes across multiple services behaves dishonestly across services (before the slash is executed), and then they do not have enough ETH to pay for the slash. What do you do when your gas bill is high and the transaction doesn’t go through? The contract is on Ethereum L1, so when gas fees are high, this may cause problems for new AVS deployments, but more importantly, this may affect staker slashing and payouts.
It is important to ensure that stakers are able to promptly pay cutbacks following acts of dishonesty.
Again this depends on the design of the AVS. For example, you could design the system so that if a slash transaction has not occurred, stakers may be unable to run services for a period of time. However, this introduces a new risk that no staker is running the services required by AVS at a given time.
Operator centralization: off-chain software requirements
Off-chain software specifications depend on the design of AVS.
If services have high requirements for off-chain software, they create barriers to entry for potential stakers and operators. These complex specifications may result in only those with advanced infrastructure being able to participate, leading to centralization.
It is recommended that services have simple requirements for off-chain software to encourage more people to participate. Easy-to-meet requirements allow many operators to join without having to upgrade their current systems. This way, more individuals can become operators and the network can avoid becoming centralized due to heavy or complex requirements.
Boot service
Important question: Will ETH stakers (re)stake?
This is one of the most attractive projects and has gained a lot of attention in a short period of time. However, like all new ecosystems, there is a significant need for education for stakers, service developers, and users. I generally think of this as an opportunity for those who wish to participate 🙂
Use cases for EigenLayer: What can I do?
EigenLayer supports many use cases, including MEV management, Data Availability Layer (DA), decentralized sequencers, light node bridging and fast mode bridging.
These are just some possibilities, there are many more. For more information and potential use cases, you can visit the EigenLayer forum. Like any new and evolving technology, some may come to fruition and some may not.
Although most of these use cases are undocumented, I would like to provide an overview of some proposals for MEV management, and here are some resources I can refer to. I'm also grateful to the Discord moderators for guiding me to these resources. (I wish it was docs > discord, but I've accepted that in the crypto world, docs are the last place to be updated.)
Essentially, EigenLayer makes staking and slashing programmable, which is a powerful tool for a decentralized network. Let's dig into some technical details to make this concept more concrete.
MEV Management with EigenLayer - A Brief Overview
This is a completely new topic. In this part, I assume you have some knowledge about MEV-boost and Proposer-Builder Separation (PBS). If you're new to this knowledge, here's a comprehensive list of resources to get you started.
First, some background - MEV-boost is middleware software run by validators that implements proposer-builder separation (PBS). PBS is not currently implemented in the Ethereum protocol itself, mev-boost is a way to test and experiment while research continues.
PBS introduces a new role, block builders, who are responsible for building optimal blocks and providing them to block proposers. Block proposers auction the rights to produce the entire block. Block proposers cannot see the contents of the blocks; they simply choose the most profitable one.
The current implementation of MEV-boost only allows the construction of complete blocks, which limits the freedom of block proposers, which is a highly decentralized set.
Overview of MEV-Boost
Let’s look at this proposal: Improving MEV-Boost using EigenLayer to preserve the behavior space of block proposers
The proposal aims to improve MEV management by upgrading MEV-Boost, introducing partial block construction, giving block proposers more control, and using EigenLayer to increase resistance to censorship.
Overview of MEV Boost + EigenLayer Overview of MEV Boost + EigenLayer Under this proposal, block proposers must opt in to EigenLayer and comply with additional conditions, or risk losing part of their stake. They can now fill part of a block with their transactions, giving them greater control over block composition. If a proposer proposes a block that is not the replacement block they assembled, then they must include a Builder_part in that block or they will be cut by EigenLayer. You can find more details about the proposed approach and potential risks in the proposal itself.
The main idea is that when you think about your application, consider adding new customizable cut conditions, which can give you a more programmable and flexible network.
For a more in-depth look at this topic, I highly recommend checking out Jon’s in-depth article and Alex’s talk on mev-boost
Projects interested in EigenLayer
l EigenLayer is building EigenDA, a hyperscale data availability layer, which is the first use case built by the team themselves.
l Espresso Systems is developing Espresso Sequencer, and they plan to use EigenLayer for re-pledge
l Mantle plans to use EigenLayer’s data availability (DA) layer
Current status of EigenLayer
The EigenLayer testnet was launched on the Ethereum Goerli network on April 6, 2023. This is an early, non-incentivized, experimental testnet.
The protocol will launch in three phases: stakers, operators, and services. The first phase is currently for stakers. Stakeholders can participate in liquidity re-staking and local re-staking, and you can view the statistics here.
Statistics for May 9
in conclusion
Overall, EigenLayer is an innovative solution to the challenges associated with infrastructure-level innovation. By leveraging a decentralized trust network and introducing re-staking, EigenLayer enables ETH stakers to support new Ethereum projects while gaining additional staking opportunities. However, it is important to play the role of dissenter and acknowledge the potential risks that may exist, such as operator collusion, re-stakeholder centralization, and startup ecosystems.
After all the research, I can say that EigenLayer is one of the most innovative ideas I have seen in the Ethereum ecosystem. As with any new technology, it's important to remain critical and aware of the risks involved. By doing so, we ensure the development of a robust and trusted ecosystem#BTC #crypto2023 #ETH #Binance #Web3