Foreword
With the Cancun upgrade of Ethereum and the opening of OP STACK, all kinds of solutions around Rollup, such as DA layer and RaaS services, are emerging; on the other hand, the number of users and net worth of the LSD business have also risen dramatically. EigenLayer proposed the concept of resta king based on the LSD assets, which aimed at providing all kinds of rollup and middleware services. In March 2023, EigenLayer completed a $50 million Series A round of financing at a valuation of $500 million. With a16z throwing $100 million in EigenLayer's Series B round in February this year, as well as the various innovative paradigms it proposes, the project has continued to attract market attention, and the OTC price of the tokens has recently been rumored to reach a staggering $2 billion, rivaling the $2 price of the tokens. The OTC price of the token has recently been rumored to reach a staggering $2 billion, which is comparable to the valuation level of public chain projects. In this article, we will make an in-depth analysis of the restaking venue and its typical project, EigenLayer.
Key Takeaways
EigenLayer leverages the existing trust network to protect other infrastructure and middleware layers through restaking, which helps to significantly reduce security costs and system risks. Its main business can be understood as an intermediary providing AVS services. It acts as a platformparty to raise assets from LSD asset holders on the one hand, and on the other hand, it uses the raised LSD assets as collateral to provide low-cost AVS services to middleware rollups and other projects with AVS needs.
The "intersubjective work token" concept proposed by EigenLayer in April isvery forward-looking in token design and may even become a new paradigm for the future token model. Intersubjective tokens are tokens with no finalized legitimacy status and can be forked indefinitely, so that any AVS node or even any individual can fork the EigenLayer protocol, and the protocol that the majority of the people choose to support is ultimately the legitimate one. Such a design can effectively prevent EIGEN tokens from being speculated on, so that they can really have practical value.
The project's highlights include that it relies on the strong consensus of Ethereum, which already has huge restatement assets with high security; the team has a strong background and strong execution capacity; and its B round of financing has just gotten A16Z's $100 million investment, which is a strong financial strength that contributes to the project's rapid and stable development.
- Risks are as follows: From the demand side of AVS, it is difficult to estimate how much cost can be saved by purchasing services on the EigenLayer platform compared to building AVS networks on its own; and the use of other assets by the project as collateral for AVS will weaken the use of its own tokens in the scenario; Projects will be concerned that an over-reliance on EigenLayer will lead to passivity in the long term. From the supply side, although the number of ETH involved in resta king has seen explosive growth in the initial months of 2024 attracted by the expectation of the EIGEN Token, the room for growth of restaked ETH in the following years may be more limited.
1. Resta king Landscape
1. 1 Overview
Ethereum has transitioned from a PoW mechanism to a PoS consensus mechanism through a series of upgrades, and in the PoS mechanism, users secure and maintain the blockchain network by staking ETH. Essentially, these users become the verifiers that validate transactions and ensure network security, while the stakers receive incremental native tokens as revenue and rewards; at the same time, the assets of the stakers are forfeited (slashed) in whole or in part in the event of a problem with the verifying node they support. Staking is typically made through node operators, who are responsible for the operation of the node. However, given that the staked ETH is temporarily locked, there is a limit to how much it can be used and how much can be gained.
In addition to Ethereum, many blockchain networks also use a PoS-like mechanism to secure the network, usually consisting of a certain number of nodes and distributed operations. These networks also do not need a license, so they need a certain security mechanism to prevent the nodes from doing evil. But the problem is that most of these networks do not have their own native token, and even if they do, they have not formed a large enough scale of economic value, so it is difficult for them to directly adopt the PoS mechanism like Ethereum to guarantee the security of the network.
In 2021, when ETH had not yet completed its PoS migration, EigenLayer proposed the new concept of "cryptoeconomic security as a service", i.e., using the ETH restaking after participating in PoS staking to provide security for other networks in the Ethereum ecosystem (e.g., rollup, cross-chain bridge, oracle machine, etc.) to provide security with a mechanism similar to PoS, hoping to solve the pain point by reducing the cost of decentralized network security for these projects (compared to their own network).
After Ethereum moved to the PoS mechanism, a large amount of ETH was involved in staking, and these staked credentials can be returned to EigenLayer, through which they participate in the consensus mechanism of these service networks. In this case, EigenLayer acts as a connector connecting three parties: resta king participants, AVS developers, and node operators. Let's assume that there are currently 13 million pieces of ETH staked in total, valued at $37 billion. If 10% of that amount were to participate in the validation of a new functional network, the new network would be backed by $3.7 billion in security with an economic value that would be far greater than any other similar network. Restaking participants receive bonus but, of course, suffer financial penalties in the event of node problems.
1.2 What Problem is Solved by Resta King?
Demand Side
When developing a smart contract-based Dapp on Ethereum, one can conveniently secure the applications by doing their best to ensure that the contract itself is not vulnerable, as these applications will directly inherit the security and decentralization of the main Ethereum network. This is not the case for middleware providers, most of which cannot adopt a pure smart contract approach and must build up their own distributed network of nodes to ensure security. For example, for Rollup, it needs to include a node network consisting of full nodes, light nodes, and sequencers to form its trust network; for DA layer service providers, they need to establish their own node network, where nodes run by node operators are responsible for services such as data storage, validation, and retrieval, and security mechanisms are needed to prevent malicious node attacks. The establishment of a large network of nodes is indispensable to the security of middleware, but it is very difficult and costly, resulting in a low degree of decentralization of many middleware projects in the current Ethernet ecosystem. As the Ethereum Rollup ecosystem continues to flourish, the demand for DAs, decentralized sequencers, ZK proof computation, and interoperability of modular blockchains continues to increase.
Supply Side
The increase in the Ethereum staking rate and the rise in the number of staking users provide ample LSD assets and the size of the holders, who have a strong desire to improve the funding efficiency and returns on their LSD assets.
1.3 Strengths and risks
The advantages of resta king include, among others:
The owner of the restaked assets could theoretically participate in the validation of multiple networks and thus obtain higher resta king proceeds, with, of course, a corresponding increase in the risk of slashing of their assets;
The ability of node operators to run multiple networks at the same time expands the scale effect of the node's own operations while increasing competition between operators, as competitive operators receive more restatement support, which contributes significantly to the healthy operation of the network.
Challenges include:
For the demand side of AVS, how much cost can be reduced by procuring the combined services of collateralized assets and professional verification nodes on the EigenLayer platform? It's hard to say using Ethereum LSD assets as collateral doesn't mean that this directly inherits the security of Ethereum’s tens of billions of dollars. billions of dollars; in fact, the economic security of projects is determined by the total size of the rented Ethereum LSD assets plus the quality of operation of the validation nodes, which may be quicker and easier than building an AVS from scratch by yourself, but the ratio of the cost saved may not be too much.
Project parties using LSD collateral as a security stake need to consider the credit and security risks of the LSD platform itself, stacking up a layer of risk.
2. EigenLayer Business Logic
Before combing through the business logic of EigenLayer, let's give a brief introduction to the following concepts that will appear with high frequency:
LSD: Liquid Staking Derivatives.
AVS: Actively Validated Services, i.e., a distributed node system that provides security and decentralized guarantees for projects, such as the PoS system of public chains;
Middleware: it refers to the services between the underlying blockchain services and the Dapp, such as the oracle machine, the bridge across the two, the indexer, the DID, the DA layer, and so on;
Data availability mainly means that the project backs up its own transaction data in the DA layer so that all historical transaction records can be accessed and recovered from the DA layer when there is a subsequent need.
2. 1 Project Overview
EigenLayer's main business can be understood as a middleman providing AVS services. It acts as a platform party to raise assets from LSD asset holders on the one hand, and on the other hand, it uses the raised LSD assets as collateral to provide low-cost AVS services to AVS-demanding projects, such as middleware or Rollups. What EigenLayer does is match the demand between LSD providers and AVS demanders, and a specialized staking service provider is responsible for the specific staking security services.
Users can stake their assets on the main Ethereum network, such as stETH, rETH, etc., to the EigenLayer platform on a secondary basis, and the staking service provider is responsible for matching the user's tokens with the corresponding demand side of the security network to provide AVS services.The underlying asset of AVS is the user's tokens staked to the EigenLayer.
EigenLayer's user groups include:
LSD Asset Providers: the demand of this type of users is to obtain higher returns in addition to the underlying PoS rewards and lease their LSD assets to node operators as staked assets while needing to bear the risk of possible slashing;
Node Operators: they provide node services and earn revenue from node rewards and fees provided by project parties that require AVS services;
AVS demand side: mainly various Rollups that need AVS to provide security for themselves but don't want to pay high cost to operate and maintain their PoS nodes.
The solutions offered by rental platforms such as EigenLayer offer the following benefits to all parties:
For the project side, to reduce AVS costs, independently building blocks of their own PoS node network is costly for small and medium-sized projects, which can instead choose to pay directly for the staked assets and node operators provided by the EigenLayer platform;
To Ethereum: expand the use of LSD, make ETH the cybersecurity collateral for more projects, create more token application scenarios for ETH, and increase the demand for ETH;
For LSD asset holders: enhance capital efficiency and returns.
2.2 Development history
In June 2021, founder Sreeram Kannan published the paper "EigenLayer: The Restaking Collaborative", which introduced two main concepts: restatement and Active Verification Service (AVS);
In August 2022, EigenLayer closed a seed round led by Polychain.
In March 2023, Coin base led the Series A round.
In January 2023, the project published a cryptoeconomics article on slashing at a16z, further illustrating that restatement and slashing mechanisms can be used to provide security for decentralization.
In June 2023, the first phase of the main network was launched with a resta king webpage, but only accepting individual LSTs and implementing Resta King cap limits.
In February 2024, a16z Fund led a $100 million Series B investment;
In April 2024, the main AVS network will be capped, some AVS will be officially operational, and the main EigenDA network will be online.
In May 2024, the EIGEN token was launched and a new concept of work token was introduced.
2.3 Project Status
As of July 19, 2024, the TVLs in EigenLayer were $15.595. The percentages of staking are as follows:
Image Source:https://defillama.com/protocol/eigenlayer#tvl-charts
According to DefiLlama, its stake has increased fivefold since February 2024, as shown in the chart below:
2.4 Project Risks
Projects using other assets as collateral for AVS will weaken the scenario of their own tokens. Although EigenLayer supports a mixed staking model of the project party's own tokens + EigenLayer, it still creates a considerable barrier to service adoption.
The project owner adopts EigenLayer to build AVS and is worried that due to its dependence on EigenLayer, it will be passive in long-term development and may be "strangled" in the future. When the project matures, it may switch to using its own tokens as staking assets for cybersecurity.
3. Main Business
3. Restaking
As shown in the figure below, EigenLayer aggregates restaked ETH to provide trust services for the middleware. The security of DApps in Ethereum does not only depend on the smart contracts deployed on the platform, i.e., on the security of the Ethereum network, but they also usually use a variety of middleware, such as at least node API services, oracle services, data indexing services, etc., and the increased security and decentralization of these middleware also benefits DApps and the vast number of Web 3.0 end-users.
Restaking users can participate directly through the EigenLayer web app, which works like most defi apps: ETH staking credentials can be deposited and withdrawn after connecting to a wallet. Currently, EigenLayer supports 13 types of credentials, of which more than 60% are native ETH.
Restaking asset holders can delegate their restaked assets to an Operator, who runs the AVS service and receives the corresponding revenue. During the resta king period, a participant's contribution to security is calculated in terms of "Restaked Points", e.g., if a user restakes 1 ETH for 10 days, he will accrue 240 Restaked Points during this period (1 ETH × 10 days × 24 hrs/day = 240 ETH . hour).
EigenLayer refers to middleware applications that utilize repledged assets on their platform as Active Verification Services (AVS). They develop some kind of service, such as DA, sequencer, oracles and other clients, with multiple node operators running a distributed network to provide some kind of service for participation in the blockchain ecosystem. The security of the AVS's distributed network is guaranteed by the restaked ETH.
3.2. AVS Services
3.2. 1 AVS Overview
Simply understood, AVS (Active Verification Service) is to screen out some nodes from the tens of thousands of node operators of Ethereum and do some corresponding software, hardware and technical capacity enhancement so that these validators can maintain the consensus of Ethereum on the basis of the new expansion of some of the network security to maintain other networks so as to obtain additional revenue. AVS network can be interpreted as a middleware service enhancement on the Ethereum infra layer, which allows some nodes to join together to encapsulate and export the service capabilities of decentralized sequencer, decentralized oracle machines, etc. Theoretically, as long as the AVS can be used, it is not necessary for it to be used as a middleware service. Theoretically speaking, as long as the ability of the nodes under the jurisdiction of AVS is large enough, the landing scenario will be very considerable within the consensus framework of Ethereum.
3.2.2 Node Landscape
The restaking data and node operators for the first AVSs to go live at EigenLayer in April 2024 are shown in the table below:
These operators, as promised by the repledge narrative, have adopted the AVS architecture to build their distributed network of nodes, and there are the following advantages of operating in AVS form:
Higher PoS-staked assets are available;
has a higher degree of decentralization and security.
Among the AVSs that are already live, one of them is MACH by RaaS provider Altlayer, which offers a service that focuses on allowing customers to visually organize Rollup components and create their own Rollup chains on the web side. Its combination with EigenLayer has led to the introduction of Re-Pledge Rollup, which is to operate some of the Rollup components as an AVS, allowing these components to be decentralized and secure.
3.2.3 EigenDA: Template Application for AVS
In the modular blockchain track, although there are a variety of modular components, the only one that can already form a layer independently is the DA layer (Data Availability Layer).EigenLayer chose to launch EigenDA as a sample scenario for AVS, competing directly with Celestia, Near DA and so on. And with the current data of resta king, the network has already gained 2.82 million ETH, and the network security of EigenDA has an absolute advantage in theory. As of May 28, 2024, EigenDA's network of nodes has 249 operators, 134,952 stakers, and total remaining assets of 2,828,400 ETH.
4. EIGEN Token Design
In April 2024, EigenLayer launched the EIGEN Token and defined it as an Intersubjective Work Token. Intersubjective is a kind of fact between objective fact and subjective fact. For example, objective fact: BTC is a public chain; subjective fact: BTC, BCH, and BSV all claim to be the public chain that best represents the future of Bitcoin; and Intersubjective fact: it depends on which "longest chain" the "public" miner is on. In the end, the original BTC chain won out and became the irreplaceable Bitcoin of the masses.
Just as BTC is constantly undergoing various small "forks" and only the "longest chain" is ultimately legitimate, with short-lived forks being discarded, intersubjective tokens can be forked indefinitely. Intersubjective tokens can also be forked indefinitely. In simple terms, it is a token without a finalized legal status, and any AVS node or even any individual can fork the EigenLayer protocol, and ultimately the protocol that the majority of people choose to support is the final legal one.
The concept of a work token was first introduced by Multicoin Capital in 2018, "In the Work Token model, a service provider stakes the network's native token to earn the right to work for the network." The work token, i.e. is an entry requirement to penalize participants through its entry. Eigen Labs further expands on this concept by considering four types of failures in the network:
Objectively attributable faults are mathematically and cryptographically
explicable, e.g., Rollup execution validity;
intersubjectively Intersubjectively attributable faults, i.e., subjective judgments that are inconsistent across subjects, e.g., data concealment;
Subjective judgment faults (Subjuctice faults), which are not errors but refer to observers making their own judgments, e.g., which is the best restaurant in New York City;
Non-attributable faults (NFs) cannot be determined for anyone, the victim thinks.
Among them, subjective judgment faults are usually handled by court-like mechanisms, while objective faults, on which inter-subjects cannot agree, can be coordinated by mathematically, cryptographically or economically based mechanisms. The practical implication of inter-subjective failure to agree faults is the question of how all participants reach consensus. The consensus of a group of stakeholders can be called the "social consensus" of a network, as opposed to the mathematical or cryptographic consensus, which can be called the mathematical consensus of a network. We can even say that PoW is a mathematical consensus and PoS is a social consensus.
When encountering failures where inter-subjective agreement cannot be reached, there are three current mainstream solutions:
(a) Majority principle: If it appears that some operators respond to the task differently from the majority, they are slashed, i.e., the minority follows the majority;
(b) Committee mechanism: a committee to determine what the "true" answer is and slash to operators who do not agree with it;
(c) Fork mechanism: A slashing mechanism is applied to staked assets through forking. Challengers are in the minority, but they can still initiate challenges. This can be understood in terms of a fork of a chain, where assets in the abandoned chain are effectively slashed.
Eigen argues that mechanisms (a) and (b) cannot handle scenarios in which the majority of participants in a network are evil, whereas mechanism (c) can better drive the social consensus of a network. That is, even if the majority of malicious participants control the ecosystem, the challenger can still have mechanisms to shape a better social consensus in the network.
Previously, when double pledging using ETH re-pledging versus one's own native network token, the usual distinction was that ETH provided the underlying economic security and one's own network token staking provided higher incentives for participants. Eigen Labs, on the other hand, gives a new idea of the distinction: the restaking ETH is used for mathematical consensus, while the resta king EIGEN is used for social consensus. Any failure of an objective nature can be resolved by an on-chain mechanism, and this part of the network failure is guarded against by the restaked ETH, whereas the restaked EIGEN introduces a complementary mechanism aimed at specifically resolving failures of inconsistent judgment between subjects.
There are two mechanisms for EIGEN staking to function. One is the slashing that everyone is already familiar with, which partially or completely slashes the staked token, thus punishing the operator and staker who made the error, and the other is the so-called token forking, which is similar to the chain's hard fork mechanism, which punishes the evil doer. Token Forking is a new crypto-economic punishment mechanism proposed by EigenLayer. The core idea is that, assuming that an error is triggered due to the misbehavior of the EIGEN Token holders (more than half of them), the challengers can all create a forked token, thus attempting to punish the malicious participants. Next, users and AVSs can decide on their own to adopt either the new token or the original token. if the majority supports the new Token , the malicious participant will be penalized for holding the original token due to the fact that the malicious participant is not assigned any new token. This mechanism is known as the fork penalty.
It is important to note that in the EigenLayer ecosystem, there are actually two EIGEN Token types (as shown in the figure) that provide a clever segregation of internal and external.
bEIGEN, which is the actual Token, is used for staking in the network, consensus runs, and can be fork penalized.
EIGEN, which is wrapped bEIGEN, can be used for external DeFi protocols, and those who hold it need not be concerned about internal forks.
Personally, I believe that the design of EIGEN tokens as an “ uncertain state” demonstrates a great philosophy behind the design of tokenomics, which is very forward-looking and can effectively prevent EIGEN tokens from being speculated on so that they can truly play their practical value.
5. Team and Financing
5. 1 Team and Core Members
Linkedin shows that there are currently 66 members of the EigenLayer team, the vast majority of whom are located in the United States, with backgrounds mostly from MIT, Stanford, Berkeley, Carnegie Mellon and other Ivy League schools, with a focus on computer science majors, and the team's overall technical strength is strong. The core founders include the following:.
Sreeram Kannan, Founder of EigenLayer, is an Associate Professor in the Department of Computer Engineering at the University of Washington and serves as the head of the University of Washington Blockchain Lab (UW-Blockchain-Lab).
Calvin Liu, Chief Strategy Officer at EigenLayer, majored in Philosophy and Economics at Cornell University and was formerly Head of Strategy at Compound Labs.
Chris Dury, COO of EigenLayer, is a graduate of NYU Stern School of Business and joined EigenLayer in 2022 after 5 years as a Director at AWS. He also served as Director of Product for Domino Data Lab, a machine learning platform.
5.2 Financing
There have been three rounds of funding completed. In February this year, Eigen Layer's latest Series B round got $100M invested by a16z, and the previous two rounds were $14.5M in the 22-year seed round and $50M (valued at $500M) in the Series A round that closed in March 23rd.
The main investment organizations are listed below:
6. Summary
In the summary section of the EigenLayer whitepaper, it describes itself this way: EigenLayer is a set of smart contracts on Ethereum that allow stakers of consensus layer ETH to opt-in to validate new software modules built into the Ethereum ecosystem. Stakers provide cryptoeconomic security by imposing additional slashing conditions on their restaked ETH to join through EigenLayer smart contracts. Stakers can validate many types of modules, including consensus protocols, data availability layers, virtual machines, keeper networks, oracle networks, cross-chain bridges, threshold cryptography schemes, TEE execution environments, and more.
Currently, the restaking narrative is focused on the Ethereum ecosystem, and since the BTC ecosystem uses the PoW mechanism without staking, Babylon can only be considered a restaking-like solution. The restaking narrative is likely to overtake Ethereum in the future, and its innovative objective/subjective token and token fork mechanisms, among others, are also likely to become a new paradigm for future token models.
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