Written by: JK and Coinbase Ventures
Compiled by: TechFlow
Key insights
EigenLayer is a protocol built on Ethereum that introduces a new cryptoeconomic security primitive called restaking.
Through EigenLayer, developers can leverage Ethereum’s existing economic security infrastructure (i.e. validator sets and staked ETH) to launch new Active Validation Services (AVS).
Compared to the transformation of Web2 development by traditional cloud platforms and SaaS solutions, EigenLayer and its growing AVS ecosystem unlock the "verifiable cloud" paradigm for Web3.
As restaking and shared security models evolve, their impact on the blockchain ecosystem will become increasingly significant, driven by the needs of stakers and developers seeking to unlock new opportunities on-chain.
What is EigenLayer?
EigenLayer is an Ethereum-based protocol that introduces a new type of cryptoeconomic security primitive - re-staking. The core of EigenLayer consists of a series of smart contracts that allow users to choose to "re-stake" their staked ETH or Liquid Staking Tokens (LST) to launch new PoS networks and services within the Ethereum ecosystem, thereby obtaining additional staking income/rewards.
The core goal of EigenLayer is to reduce the complexity for developers to build and launch these networks from scratch by leveraging Ethereum's established trust guarantees and economic security infrastructure, thereby ushering in a new era of permissionless innovation and free market governance. EigenLayer was launched in 2023 and allows users to re-stake their ETH or LST. As of May 14, 2024, more than 4.9 million ETH (worth approximately $15 billion) has been re-staked into the EigenLayer protocol.
Why is this important?
The Ethereum network uses a PoS consensus mechanism where node operators stake their ETH and run validator software to ensure the security of the network (i.e. store data, process transactions, add new blocks to the beacon chain, etc.), thereby earning rewards (i.e. a portion of the network fees). If node operators fail to perform their validation functions or behave improperly, they risk losing their staked ETH (i.e. slashing).
Right now, developers building protocols on Ethereum that require external operators are typically required to launch and secure their own PoS network. This is a difficult task that requires developers to design/launch a token, incentivize node operators to stake that token and run validator software, and implement fair reward distribution and slashing mechanisms. In addition, according to EigenLayer, forcing each new protocol to launch its own PoS network would fragment Ethereum’s security and draw value (in the form of staked tokens) away from the beacon chain.
How does EigenLayer work?
EigenLayer solves the above challenges by enabling developers to leverage Ethereum's existing validator set and staked ETH from day one. This approach is called "shared security". Shared security and re-staking mechanisms not only promise to lower the barrier to entry for developers and promote rapid innovation within the Ethereum ecosystem, but also aim to create new ways for Ethereum stakers to actively participate in multiple networks that require cryptoeconomic collateral and external operators, thereby maximizing their reward potential.
The protocol architecture of EigenLayer consists of four key components: re-stakeholders, operators, active verification services (AVS), and AVS consumers.
Re-stakers: Individuals or entities who re-stake their staked ETH or LST to extend the security of services in the EigenLayer ecosystem, which are called Active Validation Services (AVS)
Operator: An entity that runs specialized node software and performs AVS verification tasks, in return for a predefined reward. Operators register in EigenLayer, allowing re-stakers to delegate to them, and then choose to provide verification services for various AVS. It should be noted that operators are subject to the slashing conditions of each AVS.
Active Verification Service (AVS): Any system that requires a unique distributed verification method for verification. AVS can take many forms, including data availability layers, shared sequencers, oracle networks, bridges, coprocessors, applied cryptography systems, etc.
AVS Consumer: An end user or application that uses the services provided by EigenLayer.
Encrypted “Verifiable Cloud”
Sreeram Kannan, founder of EigenLayer, often says: "EigenLayer is a cryptographically verifiable cloud", but what does that really mean? In traditional cloud architectures, centralized entities provide computing, storage, and hosting services for various Web2 SaaS solutions. These SaaS solutions are generally divided into two categories: horizontal SaaS (i.e., generalized software solutions for a wide range of end users, regardless of their industry) and vertical SaaS (i.e., software solutions for specific market segments, use cases, or industry standards).
Compared to the transformation of Web2 development by cloud platforms and SaaS solutions, we believe that the emergence of EigenLayer and AVS provides a similar paradigm shift for the blockchain ecosystem. EigenLayer aims to provide crypto-economic security services (e.g., "Web3 SaaS") to AVS. Similar to the emergence and widespread adoption of SaaS solutions in the context of Web2, we see a similar trend in AVS driven by the needs of protocols and dapps.
Overall, EigenLayer’s “shared security system” aims to drive rapid innovation on the chain while providing enhanced decentralization, trust, and transparency, thereby redefining the future of “verifiable cloud” computing.
EigenLayer AVS Ecosystem (Current Status)
On April 9, 2024, EigenLayer launched its Operator and AVS modules on mainnet and currently has a vibrant ecosystem of Operators (over 200 as of May 14, 2024), and a pipeline of AVSs expected to be launched in the coming months (11 today). Similar to the traditional SaaS landscape, we expect AVSs to naturally segregate into different categories (i.e. horizontal and vertical specific).
Under the above framework, we see the current EigenLayer AVS ecosystem as follows:
“Horizontal” AVS
Developer Services: Frameworks and tools that help developers build and deploy PoS networks that require shared security infrastructure (e.g., AVS, L1s/L2s, etc.) (e.g., Othentic, Blockless, Ethos)
Operator Services: Services that help AVS operators manage their node infrastructure, validator tasks, and/or staking operations (e.g., Supermeta)
Payment Services: Services that manage the delivery of payments (i.e. AVS rewards) to re-stakers and operators (e.g., Anzen)
“Vertical” AVS
Rollup services: Developing infrastructure services (e.g., rollups) that extend Ethereum while inheriting the security of the Ethereum trust network. Examples include: data availability (e.g., EigenDA, NearDA), shared ordering (e.g., Espresso, Radius), Rollup as a service (e.g., Caldera, AltLayer), interoperability (e.g., Omni, Polymer, Hyperlane, Polyhedra)
Decentralized Networks: Networks that require distributed verification mechanisms. Examples include oracles (e.g., eOracle), proof verification (e.g., Aligned Layer), decentralized physical infrastructure networks (DePIN) (e.g., WitnessChain, OpenLayer), security monitoring (e.g., Drosera), or smart contract policy engines (e.g., Aethos)
Coprocessors: Services that provide developers with cost-effective and verifiable off-chain computing capabilities. Examples include database coprocessors (e.g., OpenDB), ZK coprocessors (e.g., Automata, Fairblock), trusted execution environments and cryptographic coprocessors (e.g., Automata, Fairblock), or AI reasoning (e.g., Ritual)
Applied Cryptography: Services for creating strong cryptographic systems. Examples include fully homomorphic encryption (e.g., Fhenix), multi-party computation (e.g., Silence Laboratories), or threshold cryptography (e.g., Mishti Network)
MEV Governance: An emerging service that allows block proposers to make additional trusted commitments on block inclusion and ordering
Application Layer
On top of AVS, we expect new on-chain applications to emerge that leverage the unique economic security features of EigenLayer.
Emerging examples include Rollups, Liquid Recollateralized Tokens (LRT) and related LRTFi applications (i.e., DeFi protocols that use LRT as underlying collateral), social and gaming applications, Decentralized Physical Infrastructure Networks (DePINs), and identity/privacy-preserving applications.
Future Outlook
As restaking and shared security models evolve, their impact on the blockchain ecosystem will become increasingly apparent. Growing demand from stakers/validators seeking to maximize their yield potential and developers seeking to accelerate infrastructure-level innovation has the potential to unlock new opportunities on-chain. Additionally, while EigenLayer is the first project to launch a restaking protocol, we are seeing similar mechanisms emerging in other ecosystems: Bitcoin (e.g., Babylon Chain), Solana (e.g., Solayer, Cambrian, Fragmetric), IBC (e.g., Picasso Network), full-chain restaking (e.g., Exocore), and multi-asset restaking (e.g., Karak).
Nonetheless, while re-staking and shared security models open up many exciting opportunities on-chain, re-stakers need to understand the risks that may arise, such as smart contract security risks or unexpected slashing events. It is worth noting that as of the time of writing, EigenLayer's slashing and payout (i.e. AVS rewards) mechanism is not yet live, but will be launched later this year. Overall, Coinbase Ventures is excited about the potential of re-staking and shared cryptoeconomic security.
