What Is EigenLayer? A Comprehensive Guide to Ethereum’s Restaking Protocol

EigenLayer enhances Ethereum’s security and scalability by enabling ETH stakers to restake their assets on various decentralized applications, thus leveraging Ethereum's established trust network for multiple protocols without additional capital. Learn about its unique staking mechanisms and the impact on the Ethereum ecosystem.

Imagine a technology that bridges Ethereum's renowned security with emerging blockchain innovations. That's EigenLayer for you! It's a cutting-edge middleware designed on the Ethereum network, enhancing security and scalability by allowing ETH stakers to restake their assets on various decentralized applications (dApps). This breakthrough leverages Ethereum's established trust network across multiple protocols without additional capital investment.

Validators are pivotal in the Ethereum ecosystem. By staking their ETH, they participate in consensus activities like proposing and validating blocks, thus securing the network and maintaining blockchain integrity. As a reward, validators earn transaction fees and block rewards, motivating them to uphold network performance and security. EigenLayer taps into this robust system, enabling protocols to access Ethereum's trust without the hefty costs of setting up independent validator sets. This integration significantly reduces barriers for new protocols, paving the way for faster and cost-effective launches.

EigenLayer TVL | Source: DefiLlama

As of May 2024, EigenLayer boasts an impressive total value locked (TVL) of over $15 billion, according to DefiLlama. The platform's vibrant developer community is reflected in its monthly commits exceeding 530, signaling a high level of engagement and ongoing innovation within the EigenLayer ecosystem.

EigenLayer has successfully integrated with various protocols and dApps across the Ethereum ecosystem, using its restaking mechanism to boost security and scalability. Notably, it includes liquid restaking protocols like Ether.fi and Puffer, which hold a substantial part of EigenLayer's TVL. These integrations allow you to secure additional networks and services, such as rollups and oracles, using your staked ETH or liquid staking tokens (LSTs). Furthermore, EigenLayer partners with the AI platform Ritual to create AI-enabled dApps, leveraging Ethereum’s security for advanced computational tasks. Other partnerships include entities like Sofamon NFTs, Silence Laboratories, Polyhedra Network, Fhenix, De.Fi, AltLayer, Nethermind, NEAR Foundation, and Google Cloud. The recent $50 million Series A funding round underscores the blockchain community’s confidence in EigenLayer’s potential to transform Ethereum's scalability and security, promising accelerated development and expansion of its capabilities.

EigenLayer introduced its native token, EIGEN, to support its decentralized restaking protocol built on Ethereum. This token was launched in May 2024 with an initial total supply of over 1.67 billion tokens. The primary utility of the EIGEN token includes staking to secure EigenLayer’s data availability layer, EigenDA, and other Actively Validated Services (AVS), which enhances the overall security of the network. Upon its release, the EIGEN token was initially non-transferable to facilitate community consensus building around its utility and governance roles.

The introduction of the EIGEN token was accompanied by an airdrop mechanism targeted at users who had actively participated in restaking their liquid staking tokens (LSTs) on the EigenLayer platform as of March 15, 2024. This "stakedrop" allocated 5% of the initial EIGEN supply to eligible stakers, with the distribution occurring in two phases. The first phase started on May 10, 2024, allowing 90% of the airdropped tokens to be claimed over a 120-day window, while the remaining 10% became available a month later. The airdrop was designed to reward the community and incentivize participation in the protocol’s ecosystem.

Learn more about the EigenLayer airdrop and how to participate.

EigenLayer’s architecture | EigenLayer Docs

EigenLayer simplifies security for decentralized applications (dApps) and protocols. Normally, creating a trust mechanism requires substantial investment to set up a validator network. EigenLayer cuts these costs by using Ethereum's existing validators, making high security accessible to smaller projects without big budgets. The following are core features of the EigenLayer protocol:

Simplified Security for dApps and Protocols: Typically, creating a trust mechanism is costly, requiring substantial investment to establish a validator network. EigenLayer slashes these costs by utilizing Ethereum's existing validators, thereby democratizing high security for smaller projects without the need for large budgets.
Actively Validated Services (AVS): EigenLayer also introduces a marketplace for decentralized trust. Here, stakers can use their assets to secure other applications. This model commoditizes Ethereum's trust, allowing others to tap into its robust security features without the need to develop independent systems.

Staking on EigenLayer: The architecture of EigenLayer supports a variety of participation strategies, including native staking, where users directly restake their own staked ETH, and liquid staking, where users restake liquid staking tokens (LSTs) received from services like Lido or Rocket Pool. There’s also an option for stakers to restake liquidity provider tokens that involve ETH, which broadens the scope of what can be secured via EigenLayer.
EigenLayer’s Restaking Mechanism: EigenLayer’s "restaking collective" enhances Ethereum's ecosystem by allowing Ethereum stakers to restake their staked ETH. This system enables them to offer security and validation services to various software modules within the network, effectively broadening Ethereum's security mechanisms. Stakers can participate by operating their nodes or delegating responsibilities to other participants, which fosters a more flexible and inclusive network environment.
Flexible Governance Model: Additionally, EigenLayer introduces a flexible governance model that allows protocols to control the amount of security they require and validators to decide how much security they wish to provide, creating a dynamic and efficient security marketplace. This open market system enables validators to select which protocols they want to secure based on risk and reward criteria, promoting a competitive and decentralized environment.
Increased Staking Caps and Introduction of LSTs: EigenLayer has raised staking caps and introduced Liquid Staking Tokens (LSTs), signaling strong market confidence in its decentralized security model. This expansion allows for more assets to be staked, increasing network liquidity and capacity, which can lead to more robust security solutions and potentially higher returns for stakers.

EigenDA: Decentralized Data Availability Layer

How EigenDA - EigenLayer’s data availability layer, works | Source: EigenLayer Docs

EigenLayer's innovation continues with EigenDA, a decentralized data availability layer that enhances Layer 2 solutions on Ethereum. By providing a separate layer for data availability that leverages Ethereum’s security, EigenDA helps reduce transaction fees and increase throughput, boosting the scalability of the Ethereum network.

EigenLayer enhances Ethereum’s functionality by leveraging staked ETH for additional security purposes across the ecosystem, promoting more efficient use of capital and fostering greater innovation and security in the broader blockchain landscape. Through these features, EigenLayer not only supports the growth of new and existing protocols on Ethereum but also enhances the overall scalability and efficiency of the network. By reducing the redundancy of security efforts and lowering costs, it allows developers to focus more on innovation and development, accelerating the pace of blockchain technology advancement.

EigenLayer enhances Ethereum's security by letting you restake your ETH. This process supports the network's strength and brings new capabilities to different decentralized applications (dApps). You have a few ways to restake your ETH:

Native Restaking: Set your Ethereum validator's withdrawal credentials to work with EigenLayer's smart contracts. This is perfect if you manage your own Ethereum node and want to directly boost network security. You should have the technical skills and significant capital for this option.
Liquid Staking Tokens (LST) Restaking: Deposit tokens like Lido's stETH or Rocket Pool's rETH into EigenLayer's smart contracts. This method secures additional networks beyond Ethereum, increasing overall security and potentially earning you more rewards. It's great if you prefer a simpler way to help secure multiple protocols.
LP Token Restaking: If you've invested in liquidity pools on decentralized exchanges, you own liquidity provider tokens. These LP tokens reflect your share in the pool and its trading fees. By restaking these tokens, you enhance the liquidity and stability of various assets in the DeFi ecosystem. This method is ideal if you're deeply involved in DeFi and aim to use your capital efficiently.

Each restaking approach uses your capital more effectively by safeguarding different network layers, which can increase your rewards. However, remember that restaking also carries risks, including a higher chance of losing your staked ETH if the secured protocols are compromised.

Explore the top liquid restaking protocols on Ethereum.

EigenLayer introduces several risks and challenges that are inherent in its design and functionality:

Slashing Risks: The mechanism of restaking could expose stakers to heightened slashing risks. If a validator behaves maliciously or the protocols they secure are compromised, stakers might face significant losses, up to 100% of their staked ETH in severe cases.
Centralization Concerns: While EigenLayer aims to decentralize trust by allowing various protocols to leverage Ethereum's security, there is a risk of centralization. This can occur if a small number of validators or stakers control a large portion of the restaked ETH, which could create systemic risks for the Ethereum network.
Governance and Social Consensus: Relying on Ethereum's social consensus for decision-making within EigenLayer could lead to governance issues. Challenges may arise, especially during high-stakes decisions such as network upgrades or in response to security threats, which could affect the network's stability and trustworthiness.
Potential Yield Crisis: Due to rapid growth, EigenLayer may face a major yield reduction crisis as AVS may not require a significant portion of its TVL for security. Removing limits on LSTs could exacerbate the issue, leading to potential yield decrease and security concerns.
AVS Security Concerns: AVSs on EigenLayer may not need the current amount of staked Ether for security, posing a challenge for the protocol. The disconnect between stake value and security requirements could impact the future stability of EigenLayer.

EigenLayer is actively contributing to the enhancement of Ethereum's scalability and security. It improves the use of staked capital and expands security measures across multiple protocols, aiming to develop a more robust and scalable blockchain infrastructure.

Looking forward, EigenLayer is expected to introduce transformative applications within the blockchain ecosystem, notably through EigenDA. As a decentralized data availability layer, EigenDA improves the efficiency and accessibility of the blockchain by offering higher bandwidth and lower transaction fees than the Ethereum base layer, which could substantially reduce costs for Layer 2 solutions.

These enhancements could encourage a wider range of users and developers to engage with blockchain technology. Additionally, EigenLayer's relevance and potential for broader adoption are evident through partnerships with entities like Mantle, which has successfully reduced transaction fees by roughly 80% using EigenDA. Such collaborations underline the practical and significant impact of EigenLayer's technology in the blockchain domain, suggesting its capability to foster additional innovation and expansion.