EigenLayer Simply Explained
Setting the Context
Today’s Web3 landscape is teeming with innovation, particularly in the realm of decentralized applications (dApps). In the early days, creating a dApp meant building a new blockchain from scratch — a daunting task fraught with challenges. However, Ethereum changed the game by allowing developers to launch applications on it, thereby inheriting Ethereum’s robust decentralization and security features.
In essence, Ethereum offers what can be described as TRUST as a service to APPs built on its platform. This was a revolutionary concept, as it provided a solid foundation for applications like Aave and Uniswap, which couldn’t have been built on platforms like Bitcoin.
Yet, a significant challenge persists for new infrastructure projects in the Web3 space. These projects, which might involve creating a new oracle protocol or any foundational blockchain service, face the daunting task of building a decentralized validator set from the ground up. This is where EigenLayer steps in as a game-changer.
What is Eigenlayer
EigenLayer is a protocol on Ethereum that allows these infrastructure projects to leverage Ethereum’s existing validator set. By restaking their ETH, validators can extend the trust and security of Ethereum to these new protocols. In other words, EigenLayer enables the Ethereum validator set to provide TRUST as a service to INFRASTRUCTURE projects, similar to what Ethereum is to apps. This is an important point to note! EigenLayer is for infrastructure projects, not for application projects; understanding this point will greatly accelerate your understanding of EigenLayer.
Why EigenLayer
You might wonder why new infrastructure projects would prefer leasing Ethereum’s security services instead of establishing their own validator sets. Drawing a comparison to the Web2 domain, where opting for cloud services like Google’s suite of services is favored over creating your own tools from scratch, can shed light on this. The driving factors in both scenarios — rapid innovation, cost savings, and scalability — share a remarkable resemblance across the Web3 and traditional Web2 domains.
By leveraging EigenLayer, protocols can quickly find validators, avoid the steep costs associated with attracting and maintaining a dedicated validator set, and scale their security needs in tandem with their growth. This not only fosters innovation but also ensures economic and decentralized trust.
How EigenLayer Works
Let’s use the diagram below to understand the various stakeholders involved in EigenLayer.
There are essentially 3 main stakeholders when it comes to EigenLayer. Let’s examine each stakeholder closely to understand how EigenLayer aligns their desires, fostering a mutually beneficial relationship among them 🤝
Stakeholder 1 — Infrastructure Project Dev
In the world before EigenLayer, if you’re a dev looking to start your own infrastructure project — assuming you’re running a Proof of Stake (PoS) consensus mechanism, what you’ll need to do is to go around trying to convince people to run nodes for your network. This would involve other complex things like tokenomics (no one is going to run your nodes if there’s no expected profit), sufficient number of nodes with decent decentralization, etc, and all that takes a lot of effort 😮💨
But in the world with EigenLayer, instead of going through all that hassle, what you can do is head to EigenLayer and apply to be an Actively Validated Service (AVS). On EigenLayer, there are already many node operators on standby, ready to opt into any new infrastructure projects looking to be an AVS on EigenLayer. This removes the need for the infrastructure project dev to run around looking for node operators as there’s already an existing marketplace on EigenLayer with plenty of node operators at the ready to run the new project’s node software.
Stakeholder 2 — Node Operators
Node operators (formally known as Operators), are entities that help to run AVS software in exchange for rewards. It’s actually very similar to how validator nodes participate in PoS blockchains; you can think of AVSs as PoS blockchains that Operators can opt in to participate as validator nodes for. Operators require a decent amount of skill as they need to be confident that they can successfully run the AVSs’ software on their machines, failing to do so will result in them getting slashed (similar to PoS blockchains).
Stakeholder 3 — Stakers
Majority of the individuals that interact with EigenLayer would fall under this category. Recall that in a PoS chain, nodes need to have capital staked in it to deter malicious node actions (i.e. perform the wrong action and your capital gets slashed, so better don’t misbehave). Stakers are essentially users that stake their ETH to node operators to earn extra yield on their ETH. Since node operators opt in to AVSs running on EigenLayer, they’ll earn rewards from participating in these networks, and will then share a portion of these rewards to stakers that have delegated ETH to them.
Note that since the node operators are the ones doing the heavy lifting of running the AVS software, all stakers need to do is to pick a node operator to stake their ETH to, they do NOT need to have any technical know-how.
Overview of Stakeholders
As you can see from this high level overview, EigenLayer creates an entirely new market by connecting the wants of different stakeholders. Similar to Uber, EigenLayer merely functions as a platform — instead of connecting drivers with passengers, EigenLayer connects new infrastructure protocols with node operators and stakers.
Things to Think About
Now that you have an overview of what EigenLayer is, here are some follow up questions you can go research on to gain a deeper understanding on EigenLayer.
- What are some examples of AVSs building on EigenLayer?
- Since we only need some form of capital to be staked in node operators, why does it have to be ETH? Why not other crypto assets like USDC?
- What are the risks of EigenLayer?
- Whats the difference between native ETH, liquid-staked ETH and liquid-restaked ETH?
- How does EigenLayer offer economic and decentralized trust?
- How does one participate in EigenLayer?
- What is the economic model behind EigenLayer?
Ending Thoughts
EigenLayer is a really interesting protocol building on Ethereum that’s looking to do something that has never been done before. It’s already the second largest TVL protocol ($12.3B at time of writing) and its core product hasn’t even gone live yet! EigenLayer can definitely be more challenging to grasp as compared to most other Web3 protocols, but once you start to form a mental picture of what it is/does, then learning about it gets much less daunting as you start to know about what you don’t know (if you get what I mean).
