Summary of EigenLayer’s Whitepaper
Introduction
EigenLayer is a novel innovation that will revolutionize ETH staking and interoperability. It is a native ETH restaking protocol that enables ETH stakers to validate software modules such as sidechains, data availability layers, and trusted execution environments built on the Ethereum ecosystem. By validating these modules, stakers can increase their security and decentralization while creating new fee-sharing opportunities for all participants. EigenLayer also serves as a staging system for new innovations to be battle-tested. With EigenLayer, innovators can rely on the security and decentralization provided by ETH restakers, enabling permissionless innovation.
This content is extracted from EigenLayer's white paper, recently released. As a reader who has delved into the white paper, I will summarize its key points so that those who prefer not to read it in full can still gain an understanding of its content. EigenLayer is a revolutionary concept that has the potential to greatly impact various aspects of the Ethereum ecosystem, including DeFi, Layer 1 and Layer 2 solutions, decentralized applications, bridges, oracles, and MEV.
I fell in love tbh
The Problem: Fractured Trust Networks
2 years ago, Ethereum made a shocking decision to abandon sharding and focus on its trusted network. Yes, ETH is a trusted network, and so is Bitcoin. However, Bitcoin isn't modular. A trusted network is one you can trust to ensure that your dapps, L2s, and other applications are secure. Sharding was abandoned for rollups, which absorb ETH's trust by proving computation on ETH through an EVM contract using crypto-economic guarantees such as fraud proofs or validity proofs. This has led to massive adoption of innovation in rollups.
Some modules cannot absorb ETH's trusted network because they cannot be proven on top of ETH's EVM contract. This includes sidechains, data availability layers, new virtual machines, oracles, bridges, and trusted execution environments. Therefore, they rely on Actively Validated Services (AVS) for validation, which are secured by their own native tokens. Note that AVS are blockchains (bridges, sidechains, oracles, DAs, etc.) with their validation semantics.
However, there are some problems:
1. AVS have to bootstrap trust networks for security.
2. There is value leakage due to fees paid to AVS trust fees and also ETH fees.
3. Validators who stake in the AVS face high capital costs, which must be compensated by a high staking return, and this burdens the AVS as capital cost > operational cost.
4. Multiple trust model dependencies for dapps could lead to a security breach since the cost of attack for a dapp is the minimum cost to corrupt at least one of its dependencies.
The Solution that is Eigenlayer
EigenLayer introduces two features aimed at extending ETH's security to arbitrary systems and improving governance structures. These features are pooled security via restaking and free governance
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Restaking allows validators to restake their ETH in AVS to earn additional yield while protecting these modules and validation services. These modules can impose additional slashing conditions on the staked ETH of validators who opt in. Any AVS can be secured by EigenLayer.
Free Governance gives validators the freedom to choose which module to restake in. This feature aids the growth of open innovation in blockchain applications, with benefits such as stable blockchain governance and the ability for AVSs to explore validator options, enabling maximum growth and performance
In summary, EigenLayer can address the following problems faced by AVSs:
1. EigenLayer allows AVSs to bootstrap security from a large validator set.
2. The cost for validators to restake across various AVSs is minimal or even zero for honest validators compared to the revenue earned.
3. EigenLayer significantly improves the trust model by restaking a larger pool of capital, increasing the cost of corruption from the minimum stake to the sum of the stake.
4. With EigenLayer, validators can participate in several revenue streams.
5. As a result, EigenLayer becomes a marketplace for renting pooled security provided by validators.
Restaking in Eigenlayer
EigenLayer offers multiple staking methods for yield stacking, including liquid staking, superfluid staking, and restaking. Restaking on EigenLayer can be achieved natively, via existing staked ETH through protocols like Lido and Rocket Pool, or by staking LP tokens. Each of these pathways involves different risks, which are managed by module developers.
The staking methods include:
• Native Staking: validators restake their staked ETH
• LSD Staking: validators restake Lido and Rocket Pool staked ETH assets
• ETH LP Restaking: validators restake LP tokens if a pair includes ETH
• LSD LP Staking: validators restake LP tokens of a pair that comprises a liquid staking ETH token, such as the Curve's stETH-ETH LP Token.
Delegation in Eigenlayer
EigenLayer offers restakers an option to delegate their ETH or LSDs to other entities running EigenLayer operator nodes. These operators receive fees from Ethereum and EigenLayer modules, and share a portion of those fees with the delegators. Restakers can either solo stake and provide validation services directly or delegate operations to a different entity while continuing to validate for Ethereum. In the trust model, restakers must trust the operator to whom they delegate their stake and do extensive due diligence. EigenLayer restakers also need to consider the proportion of fees that operators share back to delegators, leading to a free market of delegation between restakers and operators.
Slashing Mechanism
Slashing
Slashing is a crypto-economic security mechanism that imposes a high Cost-of-Corruption (CoC) to ensure strong security. EigenLayer provisions robust security by using slashing mechanisms to slash the ETH of any malicious actor who withdraws their ETH on the Ethereum base layer.
No Fungible Position on Eigenlayer
EigenLayer has decided not to issue fungible tokens for restaked positions, citing the potential for conflicting interests between position holders and node operators due to varying slashing risks based on module combinations.
Comparison with merge mining
EigenLayer's restaking concept shares similarities with merge mining in spreading costs across multiple blockchains but differs in its reinforcement of security. Restaking transfers crypto-economic security to arbitrary subsets and allows for recourse in case of malicious attacks, while merge mining does not transfer crypto-economic security and lacks the option of slashing or disabling malicious miners' hardware.
Risk Management
There are two risks in Eigenlayer, the first being a joint attack by malicious operators on an AVS and the second being unintended slashing.
Operator Collusion
A subset of operators may collude to steal funds from multiple AVSs. This poses a challenge to maintaining crypto-economic security, particularly if only a small fraction of ETH stakers are participating in restaking. One solution is to restrict the profit-from-corruption of any particular AVS by limiting the value flow or transactions during the slashing period. Another solution is to actively monitor and limit the number of AVSs that a set of operators participates in, thereby incentivizing EigenLayer operators participating in a small number of AVSs. The article proposes an open-source dashboard for this purpose, allowing AVSs to monitor the restaking behavior of operators and adjust their service contracts accordingly.
Unintended slashing
In order to mitigate the risks of unintended slashing in AVSs built on EigenLayer, two lines of defense have been proposed. Firstly, security audits of AVS codebases, as well as a governance layer comprised of prominent members of the Ethereum and EigenLayer community, have the ability to veto slashing decisions via a multisig. These measures are necessary to avoid unintentional slashing vulnerabilities and protect honest operators from losing funds.
Governance-
Careful consideration is needed when establishing a multisig veto committee for EigenLayer governance to avoid centralization. EigenLayer uses a reputation-based committee consisting of reputed individuals in the Ethereum and EigenLayer communities. The committee is responsible for enabling upgrades, reviewing and vetoing slashing events, and admitting new AVSs. It has no power to trigger slashing by itself and any upgrade to EigenLayer contracts comes with a time lag. AVSs can use this committee to assure restakers of their security and developers can test AVS-related code bases. Admission to build on top of EigenLayer may require security audits and diligence from the committee.
Designing Modules for Maximal Security Also Minimizes Centralization Risk
EigenLayer proposes two design patterns to maximize security while minimizing centralization risk in Ethereum staking.
The first pattern is hyperscale AVS, which distributes the total computing workload among all participating operators, reducing storage costs and node throughput requirements.
The second pattern is lightweight, which involves low-cost tasks that require low computing infrastructure and can be redundantly performed by operators. By designing a suite of hyperscale and lightweight AVSs, EigenLayer aims to ensure that even home validators in Ethereum can obtain most of the economic benefit of EigenLayer, thereby minimizing centralization pressures on Ethereum staking.
A World with EigenLayer
Enables New Applications
EigenLayer is a versatile platform that can enable a wide range of new applications and protocols by providing AVS services. These include hyperscale data availability layers, decentralized sequencers, light-node bridges to Ethereum, faster bridges between rollups, oracles, event-driven activation capabilities, MEV management, low-latency sidechains, and single-slot finality for Ethereum. The platform enables horizontal scaling and can support large collateral pools to certify state roots, providing economic finality in settlement chains with low latency. EigenLayer offers new opportunities for research and development in blockchain technology.
EigenLayer Leverages Staker Heterogeneity and Massively Expands Blockspace
EigenLayer leverages staker heterogeneity to expand blockspace by creating opt-in validation tasks for higher-capacity nodes. This allows for the allocation of excess resources that cannot be utilized in the present homogeneous architecture of blockchains. Nodes with different risk-reward appetite and characteristics can be selected for validation tasks through the use of verifiable credentials, SBT, and other technologies. EigenLayer allows for the expression of heterogeneity across nodes while maintaining decentralization and avoiding centralization pressure
Break the Trade-Off between Democracy and Agility
Ethereum's democratic governance leads to slow innovation while competing protocols like Binance Smart Chain sacrifice democracy for efficiency. However, the emergence of EigenLayer breaks this trade-off, allowing for agile innovation to be built on top of Ethereum while maintaining its stable base layer. EigenLayer acts as a staging network for Ethereum, enabling permissionless innovation to occur before being integrated into the mainnet. This results in both conservative governance for Ethereum and agile innovation, simultaneously achieving the best of both worlds.
Incentivize Ethereum Staker Decentralization
EigenLayer facilitates AVS in maintaining decentralization by enabling a marketplace to monetize it. By specifying that only home validators can participate in their tasks on EigenLayer, AVS can further incentivize decentralization, making it more profitable to run home nodes on Ethereum.
Multi-Token Quorums
EigenLayer enables AVSs to create multiple quorums, including a quorum consisting of restaked ETH and another quorum comprising the AVS's own token. Operators must either restake ETH or stake the AVS token to perform services. The AVS can treat the quorums independently and combine the majority response using an AND clause. This allows AVSs to bootstrap their own token's utility and value while hedging against a death spiral of their token.
Eigenlayer business models
Potential business models for AVSs on EigenLayer: Pure wallet, Tokenization of fees, Paying with protocol native tokens, and Dual-coin staking. The Pure wallet model involves users paying fees to utilize the AVS service, with a portion of the income going to the company and the rest to ETH restakers. In the Tokenization of fees model, AVS is deployed as a protocol, and users pay fees in a neutral denomination with a fraction going to token holders of $AVS and the rest to ETH restakers. The Paying with protocol native tokens model involves users paying fees in $AVS to utilize services, with a portion going to a quorum of token holders and the rest to ETH restakers. Lastly, the Dual-coin staking model drives utility to $AVS by operating together with ETH restakers while hedging against a potential death spiral of the protocol token.
Conclusion
EigenLayer is a novel innovation that has the potential to revolutionize ETH staking and interoperability in the blockchain ecosystem. By introducing pooled security via restaking and free governance, EigenLayer can extend ETH's security to arbitrary systems and improve governance structures. With its unique features, EigenLayer can solve the problems of actively validated services, such as cost for validators, bootstrapping trust networks, and multiple trust model dependencies. EigenLayer allows for permissionless innovation, creating new fee-sharing opportunities for all participants and serving as a staging system for new innovations to be battle-tested. Overall, EigenLayer's impact on Ethereum, DeFi, L1s, L2s, dapps, bridges, oracles, and MEV cannot be overstated, and it's definitely worth keeping an eye on its development in the future.
Can also check these threads on Eigenlayer from popular CT defi threadoors and researchers alike:
