EigenLayer is a protocol built on the Ethereum network. Its primary goal is to boost the security and scalability of the network through restaking, which enables ETH stakers to use their staked assets for securing apps built on Ethereum. This provides stakers with additional rewards on top of what they get for staking their ETH while lowering the cost and complexity for the developers of the protocols.
This article explores EigenLayer and discusses some of its advantages and shortcomings that may come along with it.
EigenLayer in a Nutshell
As was said above, EigenLayer enables users to have their ETH restaked for additional rewards, which helps 3rd-party higher-level protocol developers ensure the security of their products. As such, EigenLayer is capable of significantly boosting the capital efficiency of the entire Ethereum ecosystem.
- ETH stakers can earn rewards from multiple protocols by merit of having their ETH staked, which means that they don’t need to provide additional capital on top of what they had originally staked.
- Ethereum-based protocols can tap into the broad selection of ETH validators to enhance their security rather than establish and support their own set of validators. They also can introduce their own slashing parameters for additional security.
On top of that, EigenLayer also has more advanced use cases enabled by AVS (Actively Validated Services), such as EigenDA, which is a decentralized data availability layer that can massively enhance the scalability and efficiency of data processing on Ethereum. In particular, it can outperform Ethereum regarding data availability bandwidth, which would be highly beneficial to data-intensive applications on the network.
What Is Restaking?
Restaking is at the heart of EigenLayer. The process itself and its effect on Ethereum and the protocols that use it boil down to the following.
- ETH stakers reallocate their staked assets through EigenLayer to support other protocols and get an increased yield. To do that, they accept additional conditions, which usually include expanded slashing parameters.
- Restaking implies contributing to a pool of operators that other protocols can use to secure their networks.
- Stakers earn extra rewards through restaking. Protocols can provide incentives to the stakers at their own discretion, which will be added to the standard Ethereum staking rewards.
There are several kinds of EigenLayer restaking, as shown in the picture below.
Types of EigenLayer restaking, courtesy of Delphi Digital
In essence, restaking increases user capital efficiency, as they can make more out of their initial funds. At the same time, it improves the scalability of Ethereum and supports a broad range of apps and services, all while making it more resilient and capable of supporting more decentralized applications.
The Difference Between Ethereum Staking and EigenLayer Restaking
Staking in Ethereum and restaking ETH may sound similar, but they are distinct activities. They have different purposes, risks, security effects, and more. The table below summarizes those differences.
Pros and Cons
New opportunities brought about by EigenLayer are inevitably paired with certain risks and shortcomings both for stakers and developers. While future upgrades of EigenLayer may tackle some of them, some of them are fundamental to economic relations and blockchain architecture, so users and developers alike should be aware of them when making decisions with regard to using EigenLayer.
The table below provides a breakdown of both advantages and disadvantages that one should expect in EigenLayer.
From a general standpoint, the advantages of using EigenLayer in its current form seem to outweigh the disadvantages. That being said, it is crucial to weigh all possible risk factors against your own risk appetite before engaging in any activity, including restaking on EigenLayer. All decisions made should be based on solid reasoning and be well-informed.
For instance, certain protocols may have specific conditions for locking the restaked ETH, which may affect their liquidity and the user’s ability to use them at any given time if those conditions imply locking tokens for a specific term. Always pay close attention to the conditions provided by the protocols, you may want to restake your ETH with, and plan your EigenLayer restaking activities accordingly.
EigenLayer Plans for 2024
The EigenLayer team has announced ambitious plans for 2024, most of which focus on the further development and expansion of the protocol.
The year is expected to see the launch of the mainnet’s second phase, which will bring about the ability to delegate staked Ethereum to operators of EigenDA. It will support efficient integration with rollups and usher in new transaction fee structures and yield opportunities.
EigenDA will become the key actively validated service (AVS) on the platform, yet other AVSs are also expected to emerge in the third phase. These improvements will power up blockchain and data-scaling services, all of which will leverage the staked ETH and liquid staking tokens (LSTs).
The liquid staking tokens will expand EigenLayer’s ecosystem, and the restaking caps for the currently available LSTs will be increased. Including new LSTs will enhance the protocol’s overall flexibility and scalability and give users more opportunities for rewards and engagement with the platform. This is part of a broader strategy that seeks to open up the ecosystem for a more expansive trust capital flow necessary for the upcoming Stage 2 mainnet launch and the integration of operators and EigenDA associated with it.
All those activities and developments will likely have a pronounced positive impact on the Ethereum ecosystem. Aside from bringing more opportunities and tools for stakers and dApp builders, it has the potential to boost mass adoption, enhance overall security, and dramatically improve scalability for applications built on Ethereum.
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