EigenLayer review — part 1

What is EigenLayer?

EigenLayer is an Ethereum-based protocol that introduced the concept of restaking — a new primitive in cryptoeconomic security. The project is not a DeFi protocol, but rather a platform to bootstrap new Proof-of-Stake (PoS) systems, meaning that users cannot use it to engage in financial activities such as lending or swapping. EigenLayer was created by EigenLabs, which is a remote-friendly team based mostly out of Seattle, Washington.

The project was founded by Sreeram Kannan, a professor at the University of Washington and the Head of the UW Blockchain Lab. Through staking, the project allows the reuse of ETH on the consensus layer, meaning that users who stake ETH natively or with a liquid staking token can opt-in to EigenLayer smart contracts to restake their ETH or LST and extend cryptoeconomic security to additional applications. In doing so, they can earn additional rewards, and help secure numerous services, all by staking their staked ETH.

Risks

• Users who engage in staking are susceptible to slashing penalties from both ETH and Actively Validated Services (AVS).
• Incentivized by a rewards system, restakers might prioritize protocols with higher yields and ignore the rest.
• Using a centralized actor (CA) to coordinate and issue LSTs could introduce centralization within Ethereum’s validator set.
• There is a lack of immediate liquidity.

Benefits

• Users could get higher rewards through a combination of staking and staking ETH, including separate sets of perks.
• Improved capital efficiency, since instead of locking native ETH, staked ETH can be used to lend security to various protocols.
• Ensuring access to new AVS and dApps in the form of EigenDA’s data availability functionality
• The project’s data availability layer allows higher transaction throughput.
• Certain new protocols could result in lowering Ethereum’s gas fees.

What do the social networks say?

Content creator ZEU$ said:

Research analyst Kunal Goel commented:

The best insights come from the most difficult analyses. EigenLayer is the most anticipated protocol launch of 2024, and this is the most actionable insight for public market participants.

According to a crypto enthusiast called Sky_Run:

Post 1:

Post 2:

Camila Russo on X also feels enthusiasm about the project:

Eigenlayer introduced a new primitive to ethereum, and has the potential to make the ecosystem more efficient by allowing ethereum-based protocols to share the base layer security.

All the excitement really comes from traders wanting to earn ETH staking yield, layered with AVS (kind of like Eigenlayer-based dapps) staking yield, layered with “points” (aka potential future airdrops).

The key for all this to actually work and not be a giant smart contracts sandwich to farm airdrops, is that AVS (these protocols subcontracting Ethereum security via Eigenlayer) need to actually be able to produce real economic value, beyond the points/token incentives they may be giving out now. — I think it’s TBD whether that will be the case.