WTF is EigenLayer

The restaking behemoth.

What is EigenLayer

Through the concept of restaking, EigenLayer achieves greater trust not only on Ethereum, but also on other blockchain ecosystems. In this article, we dive into EigenLayer to explain how it works in detail and why it is important for the crypto space.

What is EigenLayer?

EigenLayer is a protocol built on Ethereum that introduces restaking as a DeFi primitive.

The protocol enables users to restake their ETH to further increase its utility. But more than only allowing users to restake, EigenLayer allows validators on PoS networks to "rent out" their staked assets' security to other protocols without compromising the security of the underlying blockchain. But, how does EigenLayer achieve restaking?

It’s both simple and complex. From an architectural perspective (but simply explained), EigenLayer works as a middle layer by acting as the link that connects and secures various blockchains and protocols without being a base layer (L1) or an app-specific layer (L2).

  • EigenLayer allows L1 validators to "rent out" their staked assets to secure other projects, effectively providing security-as-a-service. This pooled security can benefit new blockchains, L2s, or dApps that require additional security without needing to establish their own network of validators.

  • All EigenLayer does is provide the rehypothecation system that allows anyone to grant EigenLayer rights over their staked ETH, enabling it to be restaked on to other applications that require additional security.

By bridging the gap between security of L1s and protocols that require more security but can’t set out a proprietary validator network, EigenLayer enhances the overall functionality, security, and efficiency of the blockchain ecosystem.

Why is EigenLayer important?

EigenLayer introduces cryptoeconomic security by enabling the reuse of ETH on the consensus layer. Through the utilization of economic incentives and cryptography, EigenLayer ensures the proper functioning and security of a network.

How does EigenLayer increase Ethereum’s security?

Pooled Security

We have now learned that EigenLayer’s core concept is restaking. By restaking, they achieve Pooled Security which can be understood with the “The whole is greater than the sum of the parts” phrase. By enabling multiple parties to combine their resources, greater security is achieved in the system. In EigenLayer, Ethereum stakers are able to “restake” their ETH or Liquid Staking Tokens (LST) by opting into new services built on EigenLayer.

To make the concept of pooled security easier to understand, let’s use an analogy.

  • Imagine you live in a neighborhood where all houses have security systems. Some houses have better systems than others, consisting of cameras, motion detectors, and alarms, while others only utilize basic locks on their doors and windows. Regardless of the complexity, all houses have security mechanisms.

  • The houses represent validators on blockchains and their security measures symbolize the validator's staked assets that protect the blockchain's integrity.

  • Validators (homeowners) are invited to join a neighborhood watch (EigenLayer) by which they agree to extend the use of their security systems beyond just their own house. In return, they receive benefits such as increased overall security for the neighborhood and rewards for their contribution.

  • When they agree to participate, validators are linked to a centralized network managed by the neighborhood watch.

  • It could be possible that one house is particularly good at detecting motion, another has excellent cameras, and a third has a very loud alarm. By pooling these resources, the neighborhood watch ensures that if a motion is detected at any house, the best cameras in the neighborhood can record it, and the loudest alarm can alert everyone. This is similar to how validators commit their staking power to secure additional protocols or layers through EigenLayer, further enhancing the security of these new entities based on the collective security of all parties.

To ensure security of the network of participants, EigenLayer also introduces a slashing mechanism. Continuing with our neighborhood analogy, if a homeowner fails to maintain their security system or acts against the interests of the neighborhood watch (similar to a validator acting maliciously), they face penalties. These could include being expelled from the program or having to pay fines, similar to the slashing mechanism that penalizes validators in the blockchain context.

EigenLayer’s Challenges

While EigenLayer has created a promising approach to enhancing blockchain functionality, there are challenges to ensure its mass adoption. These challenges include technical development related to the integration with existing blockchains, as well as the need for a robust ecosystem of validators, and regulatory considerations.

A very important threat that EigenLayer faces is the risk of centralization. 

  • Validators with more resources can stake more assets, potentially earning more rewards and further increasing their influence over the network. This could lead to a situation where a small number of validators control a large portion of the network's security power.

Despite these challenges, EigenLayer's approach positions it as a key player in the next generation of blockchain technology, potentially revolutionizing how blockchains interact and how their security is leveraged for the broader ecosystem. This is also due to their commitment to helping scale existing blockchain ecosystems like what they are doing regarding Ethereum’s Data Availability challenge.

The Future of EigenLayer

Due to the demand for Data Availability solutions on Ethereum, a secure, high throughput, and decentralized data availability (DA) service built on top of Ethereum using the EigenLayer restaking primitive is being built. While it was recently announced, information is not as extensive as other Data Availability solutions. They will use ZKG commitments which are a type of commitment scheme (cryptographic technique that allows a Sender to commit a chosen value) that ensures the integrity and availability by proving only that certain pieces of data are available and correct, without needing to show all the data every time.

In conclusion, EigenLayer represents a significant step forward in blockchain technology and security, offering a versatile and secure solution to some of the most important challenges facing the industry today. EigenLayer’s ability to repurpose existing blockchain security for new applications not only enhances the utility of these networks but also opens up a world of possibilities for the development of new protocols and services. As the protocol continues to develop and gain adoption, it could play a pivotal role in shaping the future of blockchain and cryptocurrency.