EigenLayer Review: The First Restaking Protocol To Earn Profits And Secure Ethereum
EigenLayer is the first project in the field of staking that allows those who have to stake ETH to continue earning profits and enhances the security of the Ethereum network. This EigenLayer review will introduce details about the EigenLayer project.
About EigenLayer
EigenLayer is a protocol built on Ethereum that introduces resetting, a new principle in crypto-economic security. This prototype allows for ETH reuse on the consensus layer. Users staking ETH natively or with a staking liquidity token (LST) can opt-in to the EigenLayer smart contract to reclaim their ETH or LST and extend crypto-economic security to applications. Use extras online to earn extra rewards.
With EigenLayer, Ethereum stakingers can help secure multiple services by resetting their staked ETH and opting into multiple services simultaneously, providing aggregate security. Reusing ETH to provide protection across multiple services reduces the cost of capital for a single participant and significantly increases the assurance of trust for individual services.
Anyone building a new decentralized service for Ethereum has to launch a new trust network to secure their system, and security fragmentation. EigenLayer solves this problem by allowing any service, regardless of its composition (e.g., EVM compatibility), to exploit the synthetic security of Ethereum producers, creating an environment for unlicensed innovation and free market governance. Currently, the project has yet to launch the token.
The project targets two main audiences:
- Re-Participants: Rewards can be earned for helping to operate and secure various networks and services built on Ethereum, such as data availability layers, decentralized serializers, and bridges connect.
- Active verification service provider: includes third parties such as consensus protocol, data availability layer, virtual machine, keeper network, oracle network, cross-chain bridge, threshold encryption scheme, and trusted execution environments, such as Chainlink.
What Is Restaking?
Let’s delve a little deeper into what restaking is about. Simply put, restaking allows users to stake the same ETH on Ethereum and other protocols, securing all of these networks simultaneously. Hence, restaking allows for the leverage of existing trust networks.
However, when users opt-in to retake their ETH, they are exposed to increased slashing risk. As a result, restakers are compensated with higher staking rewards for undertaking more risk.
Restaking mechanism on EigenLayer
EigenLayer allows users to participate in ReStaking with different asset classes:
- Native Restaking: Validators can reset their staked ETH natively by pointing their withdrawal credentials to EigenLayer contracts. This is equivalent to L1 EigenLayer yield stacking.
- LST Restaking: Validators can reset by staking their LST, ETH that has been reset through protocols like Lido and Rocket Pool, by transferring their LST into the EigenLayer smart contract. This is equivalent to DeFi Eigen productivity stacking.
- ETH LP Restaking: A validator that places LP tokens of a pair consisting of ETH. This is equivalent to DeFi profit stacking.
- LST LP Restaking: Validators stake the LP token of a pair that includes liquidity staking ETH tokens, such as Curve’s stETH-ETH LP token, thus using a profit stacking route L1.
There are 2 ways to participate in ReStaking on EigenLayer:
- Solo Staking: Restakers can provide validation services for protocols or delegate operations to other operators while continuing to act as validators for the Ethereum network.
- Trust Model: Restaker chooses a trusted operator to authorize. If the selected operator does not comply with the agreement, they will be subject to specific penalties.
Issues handled by EigenLayer
Difficulty and cost inefficiencies in establishing protocol security
The current challenge in blockchain design is decentralized security. This is especially true on the Ethereum network. Middleware and non-EVM applications built on the Ethereum network will be responsible for creating their trust network. However, building a security system is expensive and resource-intensive. Furthermore, the security system requires resources to maintain and scale once built. As more and more applications are built, security will become more and more decentralized.
EigenLayer is the first project in the launch of a new mechanism called “ReStaking” to solve the problem of decentralized security. The ReStaking feature is a set of smart contracts in which ETH staking can reuse their locked ETH to extend security to other protocols. EigenLayer creates a middle layer where stakers agree to grant additional execution rights to their staked ETH, and allow it to be effectively retaken for other protocols.
Lack of sovereignty
Protocols that want to be built on Ethereum must adhere to the basic set of rules already built into Ethereum. As a result, these protocols will need more innovation to achieve. This lack of sovereignty motivates developers to build on other chains like Cosmos, which give them a greater degree of customization.
Lack of trust in other protocols
A protocol often depends on other protocols for certain functions, such as oracles . However, since these protocols can be built on chains other than Ethereum, it means a lower level of security. This, therefore, poses a security risk to the user as the security of the protocol is only as good as the security of the weakest component, as depicted in the figure below.
EigenLayer’s products
EigenLayer allows ETH staking to continue to stake and receive interest. ETH Staker opts in by granting EigenLayer smart contract the ability to impose additional slashing conditions on their staked ETH. In return, Staker gets additional revenue from providing their chosen service.
Currently, EigenLayer only supports 3 forms of ETH:
- Rocket Pool Ether (rETH).
- Lido Staked Ether (stETH).
- Beacon Chain Ether (ETH).
Currently, EigenLayer is in the testnet phase on the Ethereum Goerli network. You can join the testnet by staking your gETH on the project to learn about their basic operating model. The amount of gETH staking is 266,000 ETH (May 2023).
Application of EigenLayer
One of the most prominent use cases of EigenLayer today is EigenDA, which is a decentralized availability data layer secured by Ethereum. With EigenDA, gas charges on Layer 2 (L2) can be significantly reduced. This is possible because EigenDA is a separate data availability protocol secured by Ethereum’s security. This is in contrast to the current infrastructure, where data availability is built into Layer 1.
The biggest bottleneck arising from this will be network congestion, as the Layer 1 network has to perform. all the different aspects, including execution, data storage and so on, which inevitably leads to higher gas fees. In addition, EigenDA also provides higher bandwidth for data availability. The current Ethereum base layer can process 80 kilobytes (KB) per second, while EigenDA is looking to deliver up to 10 megabytes (MB), much higher.
One of the existing partners is Mantle, a modular Ethereum L2. Mantle uses EigenDA as its data availability layer. By layering available data while leveraging Ethereum’s security through resetted ETH, Mantle can reduce L2 transaction fees by approximately 80% compared to existing L2s. This is likely to attract a large number of users.
EigenLayer also demonstrated the ability to improve the censorship problem encountered in the maximum extractable value (MEV) vertical. The transition of Ethereum from Proof-of-Work consensus to Proof-of-Stake consensus has introduced the issue of censorship. Since EigenLayer introduces a cut to block proponents who engage in misconduct, any malicious activity will face a cut, addressing the censorship issue.
The advantages of EigenLayer
With EigenLayer, Developers can fully take advantage of the security of Ethereum without investing the cost of operating their own security system. When exploiting the security of Ethereum, the protocols are concurrently given control over the underlying mechanisms, such as the consensus mechanism and penalty conditions. Thus, this will give protocols control over which factor they want to prioritize, be it decentralization, scalability, or any number of other factors.
Risks to consider with EigenLayer
EigenLayer is granted access to their staked ETH by the restaker. If some amount of ETH is staked through EigenLayer, and this protocol is hacked/mined, it will seriously affect the Ethereum network.
Conclusion – EigenLayer Review
Recently, we have witnessed the explosion of the Liquidity Staking trend following the Ethereum Sanghai update event. Now anyone can freely add or withdraw ETH Staking on protocols like Lido. And to create more use cases as well as unlock liquidity for ETH assets in the form of LP or LST (liquidity staking token), EigenLayer was born and introduced the concept of Restaking to the crypto market.
EigenLayer seems to be the first and most pioneering project in the field of restaking, so there currently needs to be a similar project. The projects that are most similar to EigenLayer are Liquid Staking Derivatives projects such as Lido Finance, StakeWise, Rocket Pool, and StaderLabs.
Its architecture can benefit many parties, including developers working on protocols that currently have access to limitless innovation possibilities, and market participants can leverage their capital to earn more rewards. More importantly, we can foresee the blockchain landscape becoming increasingly powerful with improved security and innovation that can be brought to market. This will be an essential driving force in attracting more users to come and join the ecosystem.
DISCLAIMER: The Information on this website is provided as general market commentary and does not constitute investment advice. We encourage you to do your own research before investing.
Join us to keep track of news: https://linktr.ee/coincu
Foxy
Coincu News
Author
Other Reviews
EigenLayer Review: The First Restaking Protocol To Earn Profits And Secure Ethereum
EigenLayer is the first project in the field of staking that allows those who have to stake ETH to continue earning profits and enhances the security of the Ethereum network. This EigenLayer review will introduce details about the EigenLayer project.
About EigenLayer
EigenLayer is a protocol built on Ethereum that introduces resetting, a new principle in crypto-economic security. This prototype allows for ETH reuse on the consensus layer. Users staking ETH natively or with a staking liquidity token (LST) can opt-in to the EigenLayer smart contract to reclaim their ETH or LST and extend crypto-economic security to applications. Use extras online to earn extra rewards.
With EigenLayer, Ethereum stakingers can help secure multiple services by resetting their staked ETH and opting into multiple services simultaneously, providing aggregate security. Reusing ETH to provide protection across multiple services reduces the cost of capital for a single participant and significantly increases the assurance of trust for individual services.
Anyone building a new decentralized service for Ethereum has to launch a new trust network to secure their system, and security fragmentation. EigenLayer solves this problem by allowing any service, regardless of its composition (e.g., EVM compatibility), to exploit the synthetic security of Ethereum producers, creating an environment for unlicensed innovation and free market governance. Currently, the project has yet to launch the token.
The project targets two main audiences:
- Re-Participants: Rewards can be earned for helping to operate and secure various networks and services built on Ethereum, such as data availability layers, decentralized serializers, and bridges connect.
- Active verification service provider: includes third parties such as consensus protocol, data availability layer, virtual machine, keeper network, oracle network, cross-chain bridge, threshold encryption scheme, and trusted execution environments, such as Chainlink.
What Is Restaking?
Let’s delve a little deeper into what restaking is about. Simply put, restaking allows users to stake the same ETH on Ethereum and other protocols, securing all of these networks simultaneously. Hence, restaking allows for the leverage of existing trust networks.
However, when users opt-in to retake their ETH, they are exposed to increased slashing risk. As a result, restakers are compensated with higher staking rewards for undertaking more risk.
Restaking mechanism on EigenLayer
EigenLayer allows users to participate in ReStaking with different asset classes:
- Native Restaking: Validators can reset their staked ETH natively by pointing their withdrawal credentials to EigenLayer contracts. This is equivalent to L1 EigenLayer yield stacking.
- LST Restaking: Validators can reset by staking their LST, ETH that has been reset through protocols like Lido and Rocket Pool, by transferring their LST into the EigenLayer smart contract. This is equivalent to DeFi Eigen productivity stacking.
- ETH LP Restaking: A validator that places LP tokens of a pair consisting of ETH. This is equivalent to DeFi profit stacking.
- LST LP Restaking: Validators stake the LP token of a pair that includes liquidity staking ETH tokens, such as Curve’s stETH-ETH LP token, thus using a profit stacking route L1.
There are 2 ways to participate in ReStaking on EigenLayer:
- Solo Staking: Restakers can provide validation services for protocols or delegate operations to other operators while continuing to act as validators for the Ethereum network.
- Trust Model: Restaker chooses a trusted operator to authorize. If the selected operator does not comply with the agreement, they will be subject to specific penalties.
Issues handled by EigenLayer
Difficulty and cost inefficiencies in establishing protocol security
The current challenge in blockchain design is decentralized security. This is especially true on the Ethereum network. Middleware and non-EVM applications built on the Ethereum network will be responsible for creating their trust network. However, building a security system is expensive and resource-intensive. Furthermore, the security system requires resources to maintain and scale once built. As more and more applications are built, security will become more and more decentralized.
EigenLayer is the first project in the launch of a new mechanism called “ReStaking” to solve the problem of decentralized security. The ReStaking feature is a set of smart contracts in which ETH staking can reuse their locked ETH to extend security to other protocols. EigenLayer creates a middle layer where stakers agree to grant additional execution rights to their staked ETH, and allow it to be effectively retaken for other protocols.
Lack of sovereignty
Protocols that want to be built on Ethereum must adhere to the basic set of rules already built into Ethereum. As a result, these protocols will need more innovation to achieve. This lack of sovereignty motivates developers to build on other chains like Cosmos, which give them a greater degree of customization.
Lack of trust in other protocols
A protocol often depends on other protocols for certain functions, such as oracles . However, since these protocols can be built on chains other than Ethereum, it means a lower level of security. This, therefore, poses a security risk to the user as the security of the protocol is only as good as the security of the weakest component, as depicted in the figure below.
EigenLayer’s products
EigenLayer allows ETH staking to continue to stake and receive interest. ETH Staker opts in by granting EigenLayer smart contract the ability to impose additional slashing conditions on their staked ETH. In return, Staker gets additional revenue from providing their chosen service.
Currently, EigenLayer only supports 3 forms of ETH:
- Rocket Pool Ether (rETH).
- Lido Staked Ether (stETH).
- Beacon Chain Ether (ETH).
Currently, EigenLayer is in the testnet phase on the Ethereum Goerli network. You can join the testnet by staking your gETH on the project to learn about their basic operating model. The amount of gETH staking is 266,000 ETH (May 2023).
Application of EigenLayer
One of the most prominent use cases of EigenLayer today is EigenDA, which is a decentralized availability data layer secured by Ethereum. With EigenDA, gas charges on Layer 2 (L2) can be significantly reduced. This is possible because EigenDA is a separate data availability protocol secured by Ethereum’s security. This is in contrast to the current infrastructure, where data availability is built into Layer 1.
The biggest bottleneck arising from this will be network congestion, as the Layer 1 network has to perform. all the different aspects, including execution, data storage and so on, which inevitably leads to higher gas fees. In addition, EigenDA also provides higher bandwidth for data availability. The current Ethereum base layer can process 80 kilobytes (KB) per second, while EigenDA is looking to deliver up to 10 megabytes (MB), much higher.
One of the existing partners is Mantle, a modular Ethereum L2. Mantle uses EigenDA as its data availability layer. By layering available data while leveraging Ethereum’s security through resetted ETH, Mantle can reduce L2 transaction fees by approximately 80% compared to existing L2s. This is likely to attract a large number of users.
EigenLayer also demonstrated the ability to improve the censorship problem encountered in the maximum extractable value (MEV) vertical. The transition of Ethereum from Proof-of-Work consensus to Proof-of-Stake consensus has introduced the issue of censorship. Since EigenLayer introduces a cut to block proponents who engage in misconduct, any malicious activity will face a cut, addressing the censorship issue.
The advantages of EigenLayer
With EigenLayer, Developers can fully take advantage of the security of Ethereum without investing the cost of operating their own security system. When exploiting the security of Ethereum, the protocols are concurrently given control over the underlying mechanisms, such as the consensus mechanism and penalty conditions. Thus, this will give protocols control over which factor they want to prioritize, be it decentralization, scalability, or any number of other factors.
Risks to consider with EigenLayer
EigenLayer is granted access to their staked ETH by the restaker. If some amount of ETH is staked through EigenLayer, and this protocol is hacked/mined, it will seriously affect the Ethereum network.
Conclusion – EigenLayer Review
Recently, we have witnessed the explosion of the Liquidity Staking trend following the Ethereum Sanghai update event. Now anyone can freely add or withdraw ETH Staking on protocols like Lido. And to create more use cases as well as unlock liquidity for ETH assets in the form of LP or LST (liquidity staking token), EigenLayer was born and introduced the concept of Restaking to the crypto market.
EigenLayer seems to be the first and most pioneering project in the field of restaking, so there currently needs to be a similar project. The projects that are most similar to EigenLayer are Liquid Staking Derivatives projects such as Lido Finance, StakeWise, Rocket Pool, and StaderLabs.
Its architecture can benefit many parties, including developers working on protocols that currently have access to limitless innovation possibilities, and market participants can leverage their capital to earn more rewards. More importantly, we can foresee the blockchain landscape becoming increasingly powerful with improved security and innovation that can be brought to market. This will be an essential driving force in attracting more users to come and join the ecosystem.
DISCLAIMER: The Information on this website is provided as general market commentary and does not constitute investment advice. We encourage you to do your own research before investing.
Join us to keep track of news: https://linktr.ee/coincu
Foxy
Coincu News
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