A Restaking Collective for Ethereum

EigenLayer protocol uses the concept of restaking to help new protocols leverage the security of the Ethereum blockchain.

Maintaining robust crypto-economic security on the Ethereum blockchain network has always been a major challenge. EigenLayer, a newly launched protocol, has introduced the concept of ‘restaking’ to enhance the crypto-economic security of Ethereum.

This middleware allows stakers on Ethereum to restake their ETH and secure the new protocols built on top of the Ethereum ecosystem. It commoditizes the decentralized trust and enables the protocols that integrate with it to leverage the security layer of Ethereum without needing to form its own set of validators.

What is EigenLayer?

The most prominent feature of the Ethereum network is its security. The Ethereum Virtual Machine (EVM) allows decentralized applications (dApps) to leverage the security of the base layer without building any trust networks of their own. However, dApps that require their own actively validated systems (AVS) cannot be deployed on EVM. Therefore, it cannot exploit the secured network of Ethereum’s settlement layer.

The AVS of each new dApp pushes the crypto-economic security into its own-contained system rather than the base layer of Ethereum. This gives rise to an ecosystem that contains smaller, fragmented pools of security. These fractured trust networks are highly susceptible to attacks and this can eventually negate the power of Ethereum’s base layer.

EigenLayer is a highly innovative protocol that has recently been deployed on the Ethereum Mainnet. Sreeram Kannan, the founder of EigenLayer, proposed this initiative to solve the major issues of the Ethereum blockchain design (e.g., fragmented security).

The ‘restaking’ primitive of EigenLayer allows the reuse of staked ETH or liquid staking tokens (LST) on the consensus layer. Stakers and validator nodes can opt-in to the EigenLayer smart contracts and restake ETH or LST (e.g., rETH, stETH, fxsETH). These assets are then reused for validating and securing other new networks on Ethereum including oracles, virtual machines, sidechains, keeper networks, bridges, consensus protocols, and data availability layers.

The Restaking Mechanism of EigenLayer

EigenLayer protocol introduces two fundamental ideas, namely, pooled security via restaking and free-market governance. Using the combination of these, EigenLayer extends the security of Ethereum’s base layer to other protocols built on top of it irrespective of their EVM compatibility.

The restaking mechanism of the EigenLayer creates an optimized system for pooled security. In this system, the new modules on the network are secured by restaked ETH as opposed to their tokens. The staked and locked ETH, which was originally collateral for securing Ethereum, is restaked in this scheme to ensure the validation and security of other protocols.

By opting into the new protocols of the EigenLayer, Ethereum validators agree to the new slashing conditions to earn rewards in return. The protocol enforces this when stakers grant EigenLayer’s smart contracts the rights for the withdrawal credentials of the staked ETH. This results in an extension of the crypto-economic security while also enabling the protocol to discourage malicious practices and enforce honest user behavior.

The open-market governance mechanism of the EigenLayer protocol works by governing how the pooled security is supplied by validators and received by AVSs. With EigenLayer, validators can choose the particular projects they want to restake their capital and provide security.

Through this, stakers and validators can decide up to what amount of additional slashing risk they are comfortable with. On the other hand, the new modules are required to incentivize the validators sufficiently for them to restake their ETH to their module. Additionally, Ethereum stakers can restake their staked capital for securing multiple protocols at once. This reduces the participation capital costs for stakers while increasing the trust guarantees for individual services.

To sum it up, EigenLayer enables new protocols to tap on Ethereum’s base layer security using a restaking mechanism. This governs these new projects with improved security, a large set of validators, and a level of sovereignty to customize their architecture. Moreover, with this protocol market participants can also make use of their staked capital in a better way to earn more rewards. Hence, it is quite plausible that EigenLayer can bring more innovation and robustness to the blockchain landscape soon.

Andrew is a blockchain developer who developed his interest in cryptocurrencies while his post-graduation. He is a keen observer of details and shares his passion for writing along with being a developer. His backend knowledge about blockchain helps him give a unique perspective to his writing