EigenLayer Deep Dive: What is EigenLayer and the New Restaking Concept?

EigenLayer is a middleware protocol developed on top of Ethereum, introducing an extensive network enhancement through a novel cryptoeconomic concept called restaking. This restaking ecosystem is composed of three main components: restakers, operators, and actively validated services (AVS).

TL;DR:

• EigenLayer expands the Ethereum capabilities through a unique cryptoeconomic concept called restaking.

• Users will be able to repurpose staked ETH or ETH LSTs (Liquid Staking Tokens) to validate transactions within EigenLayer modules.

• EigenLayer’s framework in the Ethereum blockchain is built upon three fundamental components: restakers, operators, and actively validated services (AVS).

Exploring the EigenLayer Protocol on Ethereum

EigenLayer introduces a novel approach in the Ethereum blockchain ecosystem, focusing on expanding the network's capabilities through a unique cryptoeconomic concept called restaking. This middleware is essentially a collection of smart contracts on Ethereum, enabling ETH stakers to restake and engage in validating the software modules, deployed on the Ethereum Network.

These software modules can take several forms, such as consensus protocols, data availability layers, virtual machines, oracle networks, and bridge technologies. Restaking purpose is to provide security (validation) for this modules, by aggregating the security provided through the process to the full ecosystem.

The EigenLayer framework facilitates the use of staked ETH or ETH LSTs (Liquid Staking Tokens) for the verification of transactions within these modules, rewarding participants with the transaction fees generated, thus creating an incentive for engagement.

Moreover, it lowers the barriers for innovators who previously needed to establish their trust networks for deploying new distributed validation modules. Instead, they can now leverage the established security and decentralization of the Ethereum network, underpinned by ETH restakers through EigenLayer.

EigenLayer Logo. Source

Key Components of the Framework

EigenLayer’s framework in the Ethereum blockchain is built upon three fundamental components: restakers, operators, and actively validated services (AVS).

Restakers are the first element of this framework and the fuel that powers it. These participants commit their staked ETH or ETH liquid staking tokens (LSTs) to the system, and in return are rewarded for their investment. For those with ETH staked directly on the Ethereum beacon chain, participation is facilitated by creating an EigenPod. This is a user-deployed contract that enables native restaking by redirecting the beacon chain withdrawal credentials to EigenPod addresses.

For the users that have their ETH staked on a liquid staking platform (thus in the form of an LST), the approach differs. To restake ETH LSTs, investors can engage directly with the EigenLayer platform or through the liquid restaking protocols. These protocols allow users to restake LSTs while remaining capital-efficient by minting a wrapped token that represents both layers of yield and the underlying asset.

The second pillar of the framework is the operators. They are key players who support the functioning of software developed on this platform. Operators allow restakers to delegate their stakes to them, and then select and support various services operating on EigenLayer. Notably, they can also be restakers, as these roles are not mutually exclusive. Operators in EigenLayer have a role akin to validators on the Ethereum network, which makes them responsible for authenticating blockchain transactions.

The final stakeholder is actively validated services (AVS). These are systems that need specialized distributed validation methods for verification. This category includes a diverse array of services such as fast finality layers, data availability layers, virtual machines, keeper networks, oracle networks, bridges, threshold cryptography systems, AI inference/training mechanisms, and committees for trusted execution environments.

Each AVS has its unique solution, leading to the development and integration of various AVSs into the ecosystem. An example, that is already in the testnet phase is EigenDA, a decentralized data availability layer aimed at boosting Ethereum's scalability and efficiency.

EigenLayer Framework - Architecture and Stakeholders. Source

Restakers and Operators' Roles and Responsibilities

Even though their roles are distinct, both restaker's and operators' activities are closely intertwined.

Restakers are the cornerstone of the ecosystem. They are the stakeholders that allow EigenLayer to expand Ethereum decentralized trust, and create a marketplace for it. Their participation can either be done directly through the EigenLayer platform, by restaking native beacon chain ETH or an ETH LST, or through liquid restaking protocols, which is a sector with tremendous potential.

Once restakers have committed their assets, they choose operators to allocate their restaked ETH or ETH LSTs. These operators are responsible for validating transactions using the restaked assets. Echoing the role of validators in Ethereum, EigenLayer enforces strict slashing conditions on operators to deter malicious activities.

Thus, the roles of restakers and operators are intricately linked. Operators must maintain high-performance standards to attract restakers, while restakers should undertake comprehensive research and due diligence to protect their investments from potential slashing. This symbiotic relationship is crucial for ensuring the stability and security of the EigenLayer system.

EigenLayer Delegation Menu. Source

Actively Validated Services

AVSs are central to unlocking the full potential of the EigenLayer ecosystem, offering Ethereum developers an array of innovative opportunities. Earlier in this blog post, we identified them as the software modules that enabled EigenLayer to fulfill its purpose.

AVSs can tap into the programmable trust offered by the Ethereum restake, empowering developers to create and launch an array of blockchain systems and infrastructures. Such systems include fast finality layers, data availability layers, virtual machines, keeper networks, oracle networks, bridges, threshold cryptography systems, AI inference/training mechanisms, and committees for trusted execution environments. Moreover, AVSs hold the responsibility of setting fee rates for the services operating within their framework, with which they will later pay to the restakers.

A prime example of an AVS is EigenDA, developed by EigenLabs. Currently, in its testnet phase, EigenDA is an AVS designed for horizontal scaling, which allows it to enhance throughput as more operators join, directly addressing one of Ethereum's significant challenges: scalability.

It distinguishes itself as a data availability service layer on Ethereum, boasting its unique economic security and decentralization. It's marked by economic efficiency and offers flexibility and customization in payment models for roll-ups. With its innovative design and integration with Ethereum's trust network, EigenDA aims to be resistant to censorship.

While EigenDA represents just the beginning of what's possible within the EigenLayer ecosystem, it already highlights the transformative impact EigenLayer is poised to have on the broader Ethereum network.

Stakers, Restakers, Operators and EigenDA AVS. Source

Final Thoughts

Even though the EigenLayer ecosystem is still in its early days, its purpose is already attracting users' attention. Moreover, with the recent LSTs cap increase, EigenLayer is steadily climbing the ladders of the TVL rankings.

According to DefiLlama, it is currently sitting in 13th place in the Ethereum ecosystem with a TVL of $1.12 billion, which can increase even more if the recent caps are completely met.

EigenLayer Data on DefiLlama. Source

Additionally, EigenLayer's goal of establishing a decentralized trust marketplace, where innovators can draw security to support their applications, promises to be a game-changer compared to the current landscape.

We foresee this marketplace to be largely adopted, and to be the ground running infrastructure for the future of blockchain dApp.s.

The future is looking bright for EigenLayer and inherently for Ethereum. As we see this infrastructure grow, we expect big things from it, unlocking a new level of cross-chain communication and removing some of the largest barriers to permissionless innovation.