EigenLayer, which raised $64.5 million: a new narrative for the re-mortgage track

Written by: Yinan

background:

Bitcoin ushered in the era of decentralized trust, but its application-specific nature limits the development of new decentralized applications.

Through comprehensive programming and the concept of modular blockchain, Ethereum enables DApps to be built on top of its trust network without permission, decoupling innovation from trust, and promoting the development of a pseudo-anonymous economy. Then, when Ethereum shifted to a rollup-centric development path, the number of applications that could be built permissionlessly on top of it greatly increased. By outsourcing execution to a single node or a small group of nodes, but can absorb the trust of Ethereum by proving the computation to Ethereum, permissionless innovation is further promoted, giving birth to a prosperity of various proof technologies.

However, any module that cannot be deployed or proven on top of the EVM cannot absorb Ethereum’s collective trust. Such modules involve processing inputs from outside Ethereum, so their processing cannot be verified in the Ethereum internal protocol. Examples of such modules include sidechains based on new consensus protocols, data availability layers, new virtual machines, keeper networks, oracle networks, bridging, threshold encryption schemes, and trusted execution environments.

Typically, such modules require active validation services that have their own distributed validation semantics for validation. Typically, these Active Validation Services (“AVS”) are either secured by their own native tokens or are permissioned in nature.

The organization of the AVS ecosystem has four basic shortcomings:

• Boot problem with new AVS

Innovators wishing to develop new AVSs must start a new web of trust for security.

• Value leaked

Since each AVS develops its own trust pools, users not only pay fees to these pools, but also Ethereum transaction fees. This shift in the flow of fees leads to a leak in the value of Ethereum.

• burden of capital cost

Validators staking to secure new AVS must incur a capital cost, which equates to the opportunity cost and price risk of staking in the new system. Therefore, AVS must provide high enough staking returns to cover this cost. For most AVSs in operation today, the capital cost of staking is much higher than any operating costs. For example, consider a data availability layer secured by $10 billion in pledges, assuming the stakers expect an annualized rate of return (APR) of 5%. This AVS needs to return at least $500 million per year to stakers to compensate for capital costs. This is far greater than the operational costs associated with data storage or network costs.

• Low trust model for DApps

The current AVS ecosystem creates a highly suboptimal security dynamic: Generally speaking, any middleware dependency of a DApp can become a target of attack. Therefore, the cost of corruption for a DApp must generally be viewed as at least no more than the minimum cost of corrupting its dependencies.


Project Description

What is EigenLayer:

In official terms, EigenLayer is an Ethereum re-pledge collection, a set of smart contracts on Ethereum that allow pledgers of the consensus layer Ethereum (ETH) to choose to verify new software built on top of the Ethereum ecosystem module.

Stakers extend the security of the crypto-economy by authorizing the EigenLayer smart contract to impose additional penalty conditions on their pledged ETH (when participating in verification, making dishonest behavior will reduce the penalty risk of pledged ETH) to opt-in .

Stakers who choose to join EigenLayer can verify many types of modules, including consensus protocols, data availability layers, virtual machines, keeper networks, oracle networks, cross-chain bridges, threshold encryption schemes, and trusted execution environments. **

EigenLayer provides a new permissionless innovation platform, innovators do not need to build their own trust network to implement new distributed verification modules, but can rely on the security and decentralization provided by EIgenLayer through ETH re-pledgers, thus Achieve cost savings while enjoying the security on Ethereum.

**In summary: EigenLayer allows re-pledgers to participate in the verification of different networks and services through a set of smart contracts, saving costs for third-party agreements while enjoying the security of Ethereum, and providing re-pledgers with multiple benefits and flexibility. **

Object Orientation:

• Re-stakers: can earn rewards for helping to operate and secure various networks and services built on Ethereum such as data availability layers, decentralized serializers and bridges.
• Active Verification Service Party: Including consensus protocols, data availability layers, virtual machines, keeper networks, oracle networks, cross-chain bridges, threshold encryption schemes, and trusted execution environments and other third parties, such as Chainlink.

Risks to face:

• Many operators may collude to attack a group of AVS

In an ideal situation where all operators transfer their stake to all AVSs, the cost of corrupting any AVS on EigenLayer is now proportional to the total stake in EigenLayer. This is the best-case scenario one could hope for in terms of maximizing corruption costs. However, in a realistic situation where only a subset of operators choose to participate in a given AVS, then sophisticated attacks exist where some operators may collude to steal funds from a group of AVSs. Especially with only a small fraction of stakers participating in re-staking across multiple services, the system could become cryptoeconomically insecure.

One solution is to limit the PfC (Potential Financial Cost) of any particular AVS. For example, (1) a bridge can limit the value flow during a slash, (2) an oracle can have a bound on the total value during a transaction, etc. Another solution is that EigenLayer can actively increase the CoC (Cost of Corruption) of corrupted AVS.

• AVS built on EigenLayer may have unexpected clipping bugs

This is the risk of honest nodes being slashed. Such as creating an AVS with an unintentional slashing vulnerability (e.g., a programming error) that was triggered and resulted in the loss of honest users' funds. Here, the team proposes lines of defense: (1) security audits; (2) the ability to veto curtailment events.

• Eigenlayer's own smart contract risks

Example:

EigenLayer supports many use cases including MEV management, data availability layer (DA), decentralized sequencer, light node bridging and fast mode bridging, etc.

Staking options provided by the testnet:

Liquidity Re-staking: Liquidity staking is a service that allows users to deposit their ETH into a staking pool and receive a liquidity staking token in return (as offered by Lido and RocketPool). Stakers can deposit liquid staking tokens into EigenLayer. There are different options here, such as ETH LP re-staking.

Native Restaking: This option is suitable for individual stakers/family stakers who want to natively restake their same staked ETH. When they stake within the Ethereum protocol, they need to specify a withdrawal credential, which is the account authorized to withdraw the collateral. To participate in EigenLayer, you need to assign this credential to the EigenLayer smart contract. (L1 → EigenLayer)


Team:

The team is primarily based in Seattle, Washington. Founder Sreeram Kannan is a professor at the University of Washington and the director of the University of Washington Blockchain Lab. The first members of the team came from the lab.


Financing:

• A total of two rounds of financing, a total of financing of 64.5 million US dollars
• The seed round was announced in August 2022. The seed round financing led by polychain+etherealvc raised 14.5 million US dollars, and FigmentCapital, daofive, robotventures, P2Pvalidator, etc. participated in the investment. *A round of financing was announced in March 2023, led by blockchaincap to raise 50 million US dollars, ElectricCapital, polychaincap, hack_vc, FinalityCap, cbventures, etc. participated in the investment.


Project Process:

The project is currently in the first phase of the test network, and the launch of the first phase of the test network will be announced on April 6, 2023. (The article writes whether it is a non-incentive test network, judge by yourself)


The protocol will be launched in three phases: stakers, operators, and services. Currently the first phase is for stakers. Stakers can participate in liquidity re-staking and local re-staking. In the later stage, the pledger will be able to entrust his re-pledging to the operator without needing to verify it himself, which is similar to entrusted voting.

According to the latest community AMA session, the mainnet will launch soon. According to the Discord Mod reply, there is currently no token plan, so there is no token economics. (As a re-pledging agreement, financing tens of millions, if only relying on the value capture of the agreement itself to obtain income, there are not many projects that can do this at present)


Summarize:

With the increase in the pledge rate of Ethereum, the demand for re-pledging agreements is gradually increasing. The new re-pledging solution proposed by Eigenlayer is very good in vision, providing multiple benefits for re-pledging, and releasing higher benefits for protocol innovators. Security and cost saving, from the current testnet stage, only the stakers can operate.

The first project on Eigenlayer will also be EigenDA, a super-large data availability layer built by the team itself. Espresso s is developing Espresso Sequencer. They plan to use EigenLayer for re-staking. Mantle plans to use EigenLayer's data availability (DA) layer. And when these innovators come to deploy on Eigenlayer, they need to pay service fees to the verifiers and the security they enjoy is also affected by the number of nodes participating in the verification. Therefore, it is difficult to attract more protocol innovators or middleware in the future. Let’s just say, anyway, the narrative is pretty good, and it’s a bit of a nesting doll, but it’s not exactly the meaning of a nesting doll. In short, keep paying attention to the follow-up.

Related Links

Official website:

twitter：

Discord：

Documentation:

forum:

Testnet Tutorial:

related articles:

Reshaping and Expanding the Ethereum Ecosystem - Principles, Challenges and Use Cases of EigenLayer

FinalityCap Chinese Version Research Report

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