Deep Dive into Restaking: EigenLayer

EigenLayer re-staking

The re-staking (Re-staking) scheme proposed by Eigenlayer allows users to pledge ETH, lsdETH and LP Token on other public chains, oracles, middleware, etc., as nodes and get verification rewards, so that third-party projects can borrow ETH main The security of the network and the security of the ETH consensus layer are released.

Node network security comes from three aspects: asset value, attack cost, and number of nodes. The security of the consensus layer of the ETH network is guaranteed by the “potential confiscation risk” of pledged funds, which is what we often call violent means to maintain security.

L2 feeds transaction data back to the main network and checks to inherit security, while Eigenlayer becomes a verification node by pledging “ETH-like value assets”, and borrows the security of the main network through “violent means” of pledge and confiscation.

One way to think about EigenLayer is that it’s similar to Polkadot and Cosmos Interchain Security – extending the same set of validators to secure standalone applications or Active Validation Services (AVS). AVSs include other virtual machines, watcher networks, oracle networks, and bridges. Typically these AVS are secured by their own tokens, but with EigenLayer they will be able to rely on Ethereum validators (a more trusted set of validators).

Two main features of EigenLayer

1) Pooled security through restaking – enables modules to be secured by restaking ETH instead of their own tokens. Modules provide additional income to ETH validators and can impose additional staking conditions.
2) An open market mechanism under free market governance, where validators determine the risk/reward trade-off by opting in and out of modules built on EigenLayer.
EigenLayer will significantly increase the cost of module corruption. For example, a 51% attack on a cross-chain bridge would significantly increase costs while maintaining or even improving its decentralization.

Several restaking options supported by EigenLayer

1. Local re-pledging: the validator points its withdrawal credentials to the EigenLayer smart contract, allowing slashing
2. LSD re-pledging: Deposit Liquid Staking Derivatives (such as Lido stETH) into the EigenLayer smart contract
3. ETH LP re-pledging: the validator pledges the LP tokens of the AMM transaction pair containing ETH
4. LSD LP re-pledging: validators pledge LP tokens of AMM trading pairs including LSD ETH tokens (such as Curve’s stETH-ETH LP tokens)
Module developers will choose which of the aforementioned tokens to accept to secure their AVS. Allows flexibility in AVS design. For example, AVS could have a dual-staking model where a quorum is achieved through ETH re-stakers and $AVS stakers (AVS’ native token).

EigenLayer re-stakers can also delegate their ETH or LSD to other entities running EigenLayer operational nodes. Operators will be entitled to receive a portion of the fees for the Ethereum and modules in which the delegated tokens participate. This requires users to trust that the operators they entrust are performing tasks diligently and will not be penalized.

At a high level, EigenLayer allows ETH validators to reap the benefits of unused bandwidth, since Ethereum’s block limit is determined by the weakest node’s infrastructure (a minimum determined by the core developers).

EigenLayer can be an excellent infrastructure for the following applications

– Hyperscale data availability layer
– Decentralized sequencer
– light node bridge
– Quick mode bridge for rollups
– Oracle
– Opt-in – event-driven activation
– Opt-in-MEV Management
– Settlement chain with ultra-low latency
– Single socket finality
EigenLayer can also serve as a platform to test competing ideas before they are integrated into Ethereum, enabling rapid permissionless innovation while retaining Ethereum’s conservative governance.

EigenLayer helps LSD track

Eigenlayer can be used as a continuation of the LSD narrative, bringing DeFi Lego to a higher level, and the value capture of real benefits. If the pledge rate of the ETH main network reaches 50%, it is expected that the overall DeFi lockup volume U standard will expand by 10X. lsdETH acts as a loan in DeFi Assets>Trading assets, the upper limit of leveraged income is also limited, and the rate of return will gradually decrease with the size of TVL, so external income is needed to support such a large amount of locked positions.

Through the re-pledging scheme proposed by Eigenlayer, in addition to capturing income in the Ethereum system, liquidity tokens can also obtain income from other cross-chain bridges, oracle machines, etc. If the LP pledge of lsdETH is launched later, the trinity of income can be achieved.

1) Staking Ethereum earnings

2) Token rewards for node construction and verification of cooperative project parties

3) Liquidity Token pledge DeFi group LP rewards

Security Risks of EigenLayer

1. There is an extra layer of trust, and the risk of hacker attacks

2. The value capture of Ethereum increases, and the value capture ability of cooperative projects decreases

3. The sovereignty of the project party is lost, and the consensus layer is directly “outsourced”

4. Centralization risk, but the founder explained that Ethereum is only indirectly pledged on Eigenlayer and directly pledged on various projects

Eigenlayer is still in testing and development, and the main network is expected to be launched from May to July this year.

For more information, please refer to the EigenLayer white paper:

Source: The Way of DeFi

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