EIGENLAYR

EigenLayr: The Restaking Collective

Jan 10, 2023

If you're very deep in the blockchain space, you might have come across EigenLayr sometime during your research. If you're not that deep, chances are...this is you're first time coming across this term.

Either ways, this article aims to help you fully grasp what EigenLayr is all about.

PS: EigenLayr is the same as EigenLayer but I'll be using the former throughout this article.

This article will mainly cover 5 aspects:

1. The technicalities of EigenLayr.

2. The problems it solves (the HOW & WHY).

3. The different "actors" involved.

4. Pros and cons.

5. EigenDA (Data Availability).

You ready? Let's dig in.

EigenLayr is a mechanism built on the Ethereum blockchain which allows other protocols (middlewares, sidechains, rollups, dApps, oracles, bridges, etc) to leverage on Ethereum's security through restaking.

If I were you, I'd be confused too. But you can wipe that confusing look off your face because I'll be explaining what these technical jargons mean.

For the sake of making this article less-ambiguous, I'll leave links to comprehensible articles that explain what middlewares, sidechains, rollups, dApps, oracles, bridges are all about at the bottom page of this article. But as far as this article is concerned, we'll refer to them as "protocols," "other protocols" and "these protocols."

Now back to EigenLayr...

It is a mechanism (a series of smart contracts) built on the Ethereum network that allows other protocols leverage on Ethereum's security via restaking.

The first question that popped in my head when I saw this during my research was "HOW?" I'll like to add another question which is "WHY?"

We'll discuss both but permit me to start with the "WHY."

WHY: Typically, developers deploy protocols/dApps on Ethereum blockchain with the Ethereum Virtual Machine (EVM) permissionlessly but these protocols will need to build their own trust network (their own security model). Meaning, these protocols don't get to use Ethereum's security.

But building a new trust network has these problems.

1. It is usually expensive.

2. Probably time-consuming.

3. It also very difficult to upgrade.

The EigenLayr team, headed by Sreeram Kannan, after years of research, found these problems limiting and thereby proposed a solution.

EigenLayr's solution is to allow those protocols take advantage of Ethereum's security through restaking. Meaning, these protocols don't have to build their own new trust network, Ethereum becomes their trust network.

We have an answer to the "WHY?" which is Sreeram and his team discovered a problem (high cost of maintenance of new trust networks) and they built a solution (a mechanism that helps the protocols reduce the high cost of building trust networks).

Now, for the first question that popped in my head. HOW?

HOW: How does EigenLayr allow other protocols leverage Ethereum's security? Of course, we know it's via restaking but the actual question is HOW does EigenLayr use restaking to do this?

You can take a 30 secs break here before we forge ahead…

Ok, let's move on.

Just to refresh our memory, staking is the act of commiting or pledging your assets to support a blockchain, helping it validate transactions and maintain the security of its network. It involves locking up your crypto assets for a specified period of time and receiving rewards for it. People who stake are called "validators."

Meanwhile, restaking simply means using an already staked asset to commit to another protocol; repledging a staked asset. In this article, the asset involved is Ethereum (ETH).

So, EigenLayr allows other protocols reuse staked ETH which is already being used for transaction validation & security maintenance on the Ethereum network for their own validation. We can simply say, EigenLayr is that mechanism that allows these protocols inherit staked ETH of validators.

By doing this, these protocols share in Ethereum's security too. Because when they reuse already staked ETH, they not only get the validation service, they also gain the security that comes from the Ethereum network.

I believe we now have a concrete answer to the "HOW?" which is EigenLayr acts as a middleman by allowing those protocols get security from Ethereum blockchain via reuse of its staked ETH.

In other words, EigenLayr provides crypto-economic "security as a service" to those protocols.

TECHNICALITIES OF EIGENLAYR

EigenLayr does not mandate validators to restake their ETH. They can only opt-in if they want to, without even needing permission from Ethereum itself. Validators can decide if they want to opt-in to EigenLayr's model of restaking.

Also, validators are the ones to decide the particular protocols to opt-in to and offer services for. That is, they get to choose the protocols they want their staked ETH to validate.

How validators do this is by setting their withdrawal address to the EigenLayr's smart contract which automatically gives EigenLayr slashing enforcement rights on their staked ETH.

In broader terms, as a validator, if you've decided to opt-in to EigenLayr's restaking model; then you'd have to set your validator's withdrawal credentials (the right to who can use your staked ETH) to be EigenLayr's smart contract. This automatically gives EigenLayr slashing power over your stake. By the way, here's what slashing means.

Slashing is the punishment given to validators who have staked asset (ETH, in this case) if they engage in malicious behaviours that break the rules of the blockchain.

Slashing means they'll lose a percentage of their staked assets. These malicious behaviours include but not limited to: double signing, not being online for a long period of time, etc. That is why it is very important to read a blockchain's slashing conditions before deciding to stake.

If you want to opt-in to EigenLayr, there are two crucial things to know:

1. Validators that opt-in to EigenLayr gain additional rewards because asides the reward they get from Ethereum network for staking ETH; they also earn from the other protocols for providing services.

2. Validators who choose to opt-in to EigenLayr also get exposed to more slashing risk because asides the slashing conditions from Ethereum network, EigenLayr also has its own slashing conditions to regulate harmful behaviors for the other protocols.

EigenLayr and the protocols, however, have to agree on the behaviours that can lead to slashing from their own end. These slashing conditions are not tied to Ethereum's own, they are separate.

This means, if you, as a validator, decides to opt-in to EigenLayr and you break the rules or engage in malicious behaviour that contrasts the rules of those protocols and Ethereum blockchain, you'd receive slashing from both Ethereum and EigenLayr. This could lead to total or partial loss of all your staked ETH.

Tricky right? Well, if you're careful and you don't do anything to break Ethereum or EigenLayr's rules, you're safe to withdraw your ETH with extra reward when the staking period is over.

Additional reward = Additional risk

Below is a diagrammatic explanation of this model:

THE FOUR MAIN ACTORS INVOLVED IN THIS MODEL

1. Ethereum: this is the network which EigenLayr is built on. Its native token is being staked and restaked. This is basically the trust network that EigenLayr is adapting to do other things it wasn't intended to do. Let's call this "THE INNOCENT ACTOR."

2. EigenLayr: this is the middleman that is trying to "save" other protocols by getting them security. Let's call it "THE SAVIOUR."

3. The Additional Protocols: these are the other networks relying on Ethereum's security and also using their staked ETH. Let's call them "THE PARASITES" (well to be fair, they do their part by rewarding those validators).

4. The Validators: these ones are people who support the blockchain with the aim of getting rewarded. They are also the ones who'd risk being exposed to 2x slashing if they opt-in to EigenLayr restaking model. Let's refer to them as "THE RISK TAKERS OR OPPORTUNISTS."

Now that we've classified them, let's outline the pros and cons of this model as it relates to each of the actors.

PROS OF THE EIGENLAYR MECHANISM

1. For validators: with the same staked ETH, validators earn rewards from Ethereum network and also from the protocols they opt-in to. These validators provide additional services to earn additional reward.

The rewards given to validators can be in form of the protocol's native token or a percentage of their trading fees.

2. For the protocols: This proposed model will cut security cost for the protocols involved.

3. For Ethereum network: The additional yield that ETH stakers receive from those protocols increases the value of ETH token itself.

Also, with the launch of EigenDA, the capacity by which Ethereum blockchain will process transactions is expected to increase. (We'll be discussing EigenDA subsequently).

CONS OF THE EIGENLAYR MECHANISM

1. For validators: due to the extended slashing conditions that EigenLayr imposes, validators are exposed to more risk of their staked ETH being slashed.

Besides this, honest nodes (validators) can get slashed if there are slashing vulnerabilities (like smart contract errors) from those protocols which EigenLayr is unaware of and by default, inherits. Although, EigenLayr aims to avoid this by building new protocols which do not have these kinds of issues.

2. For the protocols: the growth of EigenLayr in number of validators poses a risk for attacks.

How? The more validators opt-in to offer services for those protocols, the higher chance they stand of being vulnerable to attacks.

For this, EigenLayr proposes that the protocols involved can increase their fees to reduce (leverage) the number of validators opting in.

EIGENDA

This year, EigenLayr plans to launch its own Data Availability (DA) layer for Ethereum called EigenDA.

Now, I guess the question on your mind is "what in Satoshi's name is data availability layer and why should I care about EigenDA?"

Not to worry, I'll break it down for you.

Normally, transactions that happen on the Ethereum blockchain (and other blockchains in general) are processed block by block. These blocks form a chain, hence the name "blockchain."

For those transactions to be executed, verified and stored on the blockchain, a number of network participants, otherwise called nodes have to come together to verify the accuracy of the transactions.

When a node (the first participant/block producer) executes the transactions for a block on the Ethereum blockchain, every other participating node has to re-execute and verify the data of those transactions.

It is a guarantee that the node (that block producer) executed all the transactions for the block and the other participating nodes verified those transactions.

The nodes verify these data to ensure that nothing is missing instead of having to trust that the block producer did his job. This is made possible simply because the data regarding those transactions were made available and accessible to the other nodes.

WHAT IS DATA AVAILABILITY?

Data Availability is basically the ability of a network nodes to access data stored on the blockchain. These data are made available to ensure the validation of transactions and to prevent malicious transactions from entering the blocks.

Technically, accessing these data requires the nodes downloading the entire blocks before re-executing and validating the transactions. This is obviously a limiting factor because it reduces the capacity at which the blockchain processes transactions.

There is a solution for this which is Data Availability (DA) layer.

WHAT IS DATA AVAILABILITY (DA) LAYER?

A Data Availability layer is a mechanism or system built to provide consensus/agreement that transactions data were indeed made available for the other nodes to verify.

This is an explanation of what EigenLayr is building with the EigenDA. However, the EigenDA will do without consensus.

How? Through the Data Availability Sampling (DAS) method.

The DAS method is a cryptographic way to guarantee data availability. Here, the nodes sample small, random portions of a block many times to confirm the data availability; that way, the nodes don't have to download the entire block.

The nodes do this simultaneously, thereby speeding up action and making it faster for the blockchain to process transactions. It is this DAS feature that EigenLayr embedded in its EigenDA layer. The EigenDAS approach aims to increase Ethereum's capacity by far.

In essence, what EigenLayr is trying to achieve with the EigenDA is getting Ethereum to a capacity of 15MB/s which is quite high compared to its current 80KB/s.

This is it guys! We’ve come to the end of this article. I really hope you were able to finally understand what Eigenlayr is.