Key Takeaways

EigenLayer allows ETH stakers to “restake” their ETH into an Ethereum smart contract to secure other projects, including middleware like oracles and bridges all the way down to new Layer-1s and sidechains.
This system leads to zero marginal cost of capital, incentive alignment with the Ethereum protocol, and allows for much quicker innovation at the middleware layer.
EigenLayer’s first product is EigenDA, a data availability service for Ethereum. It is able to take Ethereum’s 80 kilobytes per second of data bandwidth to 15 megabytes, an increase of nearly 200x.
Validators can restake to EigenLayer for “credible commitments”, agreeing to take some action prior to validation. For example, a validator can commit to a new Ethereum upgrade without hard forking the chain, allowing new Ethereum upgrades to be done much more efficiently.
EigenLayer is especially synergistic with Ethereum and ETH the asset, as it increases the value of staked ETH and incentivizes services that act in the best interest of the Ethereum protocol.

One of Ethereum’s most important components is its security. Through proof of stake, it is able to take advantage of its large market capitalization and slashing penalties in order to fully secure its network from malicious actors. EigenLayer is a new service meant to utilize Ethereum’s robust security. EigenLayer allows ETH validators to “restake” their ETH into a new smart contract on Ethereum, with that stake now securing a brand new project. Through this simple mechanism, EigenLayer allows for much quicker innovation at different levels of the blockchain stack, and could foster an explosion of new projects built on and around Ethereum and its ecosystem.

EigenLayer: One Trust Network

Every time someone builds a new decentralized network, whether that be a Layer-1 or an oracle network, they must establish their own level of security or what EigenLayer refers to as a “trust layer”. For example, Bitcoin’s security and trust layer comes through proof of work mining, where anyone using the network can trust the information and state contained on the Bitcoin blockchain because they can trust that someone did the necessary computation. For Ethereum, this security and trust layer is done through proof of stake, where any user and application on top of the network can trust every transaction because of the security incentives that come with proof of stake consensus, such as slashing. When an application uses information that comes from a different source than the Ethereum protocol and data availability, such as a set of oracles, they need to adopt a different set of trust for that specific network.

By having both middleware and alternative Layer-1s run on different trust networks, this slows down potential innovation by increasing the cost of capital and labor to create this brand new layer of trust and security. In addition, these protocols must accrue large amounts of value in order to have sufficient security and trust, especially for a proof of stake network whose security is directly tied to the value of the token. Finally, there is little incentive alignment between different networks, which paves the way for negative value extraction.

*Source:* *https://youtu.be/-V-fG4J1N_M*

EigenLayer is meant to solve the issues of fragmented trust networks by offering a service in which users who have locked their ETH in staking can “restake” their ETH in a separate smart contract. This essentially means putting up the same capital for additional slashing risk. This restaked capital is then used to secure any new application or middleware created with EigenLayer. Stakers will be able to choose which projects they want to restake and provide security to, therefore giving stakers the opportunity to take on the amount of risk they are comfortable with while providing an incentive for these projects to compensate restakers for their security.

*Source:* *https://youtu.be/-V-fG4J1N_M*

This system leads to zero marginal cost of capital, as each of these projects do not need to create a new token as part of its trust layer; it is able to bootstrap on the back of ETH security which is already very robust. This also creates value alignment between the middleware being created and the Ethereum protocol, as their fate is now tied through shared security. This creates a flywheel in which the more valuable services that are created through EigenLayer, the higher the return for ETH stakers, leading to a higher value for ETH and therefore ETH security and the security for each EigenLayer project, which gives greater incentive to create new projects with EigenLayer. Without the need to bootstrap security and trust for middleware solutions, this could spark large amounts of innovation that previously were only possible at the application level.

What can be built with EigenLayer?

By utilizing ETH’s security layer, there are really an infinite number of things that can be built using EigenLayer. However, the most suitable projects to build using EigenLayer will be developers of projects where bootstrapping security is difficult and there are some synergies between the project being created and Ethereum itself.

One use case of EigenLayer could be the creation of sidechains for Ethereum. One of Ethereum’s issues is its blockspace, as the more the blockspace is filled with transactions the higher the transaction fees, where some days users are forced to pay over $100 in a single transaction. On EigenLayer, projects can build sidechains that are directly aligned with Ethereum since they are secured by ETH, and create ways for transactions to be included in their blocks before being settled back to the Ethereum L1.

In a similar vein, developers can create new Layer 1’s secured by ETH. These can be chains with an entirely different virtual machine than we have seen previously, or created for a very specific application in mind. This allows for quick innovation at the Layer 1 level without requiring the bootstrapping of a new validator set or consensus mechanism.

One thing the EigenLayer team has already built is a data availability layer for Ethereum, called EigenDA. This allows for much cheaper and higher bandwidth for data availability than Ethereum’s Layer-1. For example, Ethereum’s current data bandwidth given block constraints is around 80 kilobytes per second. With EigenLayer’s data availability, this jumps to 15 megabytes per second. When you think of a future in which there are a large number of rollups on Ethereum looking for data availability, it may be better to use EigenLayer as opposed to posting calldata directly to Ethereum.

There are plenty of other middleware solutions that can be built with EigenLayer, which includes oracles, keepers, bridges, data storage, etc. Beyond just middleware, one of the powers of EigenLayer will be the ability to upgrade the core Ethereum protocol without needing to undergo a hard fork. This is because of a process called “credible commitments”, which uses restaking smart contracts to have validators commit to some future action. In the example of Ethereum upgrades, stakers can simply opt-in to some credible commitment saying that they will agree to this change and will not fork the chain. This means that EigenLayer not only allows for innovation at the middleware layer, but also innovation and quicker development at the base level of Ethereum. These credible commitments can also help with many other issues, including allowing for improved MEV extraction or mitigation, by having proposers agree to do certain actions any time they receive a block from the block builder.

When it comes to value capture for projects utilizing EigenLayer, while value will be accruing back to ETH stakers for security, projects still have a few ways to capture value within their protocol similar to the application layer. For example, the protocol will be able to take a cut of the fee revenue generated, either retaining that for themselves or distributing it to token holders similar to dYdX versus xSUSHI. Protocols also have the option of having “dual token staking” where users can stake the protocol’s native token alongside the restaked ETH for obtaining security assurance from both their own token community as well as from credibly-neutral ethereum restakers. While the ethereum re-stakers can be slashed for any misbehavior that can be proved on-chain, the native token stakers have long-term exposure to price of the particular protocol, thus allowing protocol designers to combine two distinct type of cryptoeconomics (slashing and price exposure).

Final Thoughts

While EigenLayer is still in its early stages of development, it is showing clear promise as being able to facilitate further innovation at the base layer and middleware components of blockchains. It is especially synergistic with Ethereum and ETH the asset, as it increases the value of staked ETH and incentivizes services that act in the best interest of the Ethereum protocol. If there are many successful protocols built on EigenLayer that relay revenue back to ETH stakers, it could have immense impact on the monetary value of ETH both from its yield and a decrease in circulating supply.

The founder specifically mentioned that services will not be secured by an EigenLayer token, but with many large investors we can expect them to monetize in some way. This will likely be in creating first-to-market middleware secured by the Eigenlayer system, such as the data availability layer, and potentially a token to accompany these services. However, this is all speculation and we should expect to hear more from their team closer to launch, and once their whitepaper has been published.

EigenLayer: Supercharging ETH Through Restaking