Exploring the Ethereum re-pledging protocol EigenLayer: Let the application chain share the ecological security of Ethereum

What EigenLayer needs to do is re-stake of funds, allowing users to repeatedly pledge funds to middleware, oracle machines, application chains, etc. in addition to ETH’s PoS pledge, thereby improving capital efficiency and ensuring the Ethereum network , The security of various protocols.

Written by: Bob Onion

After Ethereum 2.0, the consensus mechanism is directly changed from POW to POS, that is, proof of work is converted into proof of equity, that is, the Ethereum ecology no longer needs physical mining machines to provide security, but directly guarantees security through ETH asset pledge In order to maintain stability and security, it is necessary to pay high capital costs. For example, if the Ethereum beacon chain wants to maintain the current pledge volume, it must provide 3.9% APY for pledge users. What EigenLayer needs to do is to re-stake funds, allowing users to repeatedly pledge funds to middleware, oracle machines, application chains, etc. in addition to ETH's PoS pledge, thereby improving capital efficiency and ensuring the Ethereum network. , The security of various protocols.

1. Project Overview

Eigenlayer is a re-staking (Re-staking) protocol built on Ethereum. Ethereum nodes can use EigenLayer to re-stake the pledged ETH to obtain additional income. Externally, users are allowed to pledge ETH, LSDETH and LP Token in Other public chains, oracles, middleware, etc., serve as nodes and receive verification rewards, and third-party projects can also borrow the security of the ETH main network, and the security of the ETH consensus layer is released.

Although Rollup is an important direction for Ethereum performance expansion, and this expansion method is also based on people's trust in L2, but in the case of not using EVM to execute transactions, you still have to go back to Ethereum for settlement.

In other words, Ethereum only provides trust at the level of block generation, and any module that is not deployed or certified on the EVM cannot take advantage of the underlying security of Ethereum's trusted foundation. The only way is to build your own independent AVS active verification node system (full name Actively Validated Services, that is, have your own distributed verification nodes) to be responsible for your own system security.

For example, Middlewares (middlewares) such as side chains based on new consensus protocols, data availability layers (DA), new virtual machines, oracles, and trusted execution environments cannot use Ethereum's trust mechanism to create a broader Decentralized services, so you can use the AVS active verification node system to build your own trust network.

However, AVS also encounters several problems. First, developers need to introduce a new trust network to obtain security; second, users need to pay AVS fees other than Ethereum; third, for most AVS operating today Saying that, the capital cost of staking far outweighs any operating costs. For example, for a data availability layer with $10 billion pledged, assuming that the stakers expect an annual percentage return (APR) of 5%, AVS would need to repay the stakers at least $500 million per year to cover the capital cost of the pledge.

Finally, the dApps in AVS are all low-trust models. In other words, even if Ethereum provides strong security, it is meaningless, because dApp will depend on Ethereum and middleware at the same time, and middleware is a link with a lower attack cost.

Therefore, EigenLayer introduces two new concepts, which help to extend the security of Ethereum to any system through "re-pledging" and "free market governance", and eliminate the inefficiency of the existing rigid governance structure.

1. Re-staking: EigenLayer provides a new security mechanism that allows modules to be protected by users re-staking ETH. And according to the white paper, EigenLayer also plans to re-stake the ETH extracted from the beacon chain after the Shapella upgrade.

“Ethereum validators can set their beacon chain withdrawal credentials to the EigenLayer smart contract and opt-in to new modules built on top of EigenLayer.”

2. Free market: EigenLayer provides an open market mechanism, allowing verifiers to freely choose which modules to participate in according to their own risk preferences, but the premise for verifiers to make profits is to ensure safety. And this governance model has two advantages. The first is to integrate the robust underlying blockchain into fast and efficient elements. The second is the optional verifier mode that enables new modules to compete for other resources among verifiers. , so as to better balance security and performance.

By combining the above methods, AVS on EigenLayer can rent the security services of Ethereum verifiers to solve various problems in the AVS system highlighted above. First, AVS can enhance economic security through Ethereum's verifiers; second, the security model in EigenLayer increases the cost of destruction ($13 billion); third, ETH stakers can obtain the benefits in AVS.

Competitive Advantage

Then, in terms of features and advantages, it can be divided into ETH holders and application protocols. First of all, for ETH holders, EigenLayer can bring more benefits to users through re-pledging. In addition to obtaining the pledge income on the Ethereum mainnet, it can also obtain additional income on the second pledge agreement.

For the application protocol, Eigenlayer brings more governance security to the protocol. In the blockchain using the PoS protocol, pledge is the core mechanism. The more assets pledged, the more likely the protocol will be attacked in terms of governance. The less critical, because the cost of attack becomes higher. Finally, it brings economic benefits to the agreement. EigenLayer provides blockchain node verification services for the agreement through re-pledging, and directly adopts the pledge verification platform provided by EigenLayer. The agreement no longer needs to establish its own verification platform and pool. More focus on developing the core functions of the protocol and improving user experience.

Various application scenarios

EigenLayer supports many types of protocols by providing AVS services, including: data availability layer, decentralized sequencer (sequencer), light node bridge connecting Ethereum, faster bridge between Rollup, oracle, event-driven activation functions, MEV management, low-latency sidechains, helping Ethereum achieve single slot finality, etc.

1. Take advantage of the heterogeneity of stakers to greatly expand the block space

Not only that, Ethereum nodes also have heterogeneity in terms of computing power, risk-return preference, and characteristics, so the "heterogeneity of pledgers" can be used to greatly expand the block space. To put it simply, in order to decentralize the blockchain, block limits will be set according to the performance of the weakest node, and nodes with stronger performance can provide excess resources to other protocols through EigenLayer, so nodes with higher risk preferences can Choosing an agreement with greater risk, less liquidity but higher yield provides verification.

In other words, as long as technologies such as verifiable credentials (Verifiable Credentials) and SBT are combined, different protocols can select more suitable nodes to provide verification according to node characteristics.

2. Promote the decentralization of Ethereum stakers

EigenLayer provides AVS with a market for decentralized monetization. AVS can specify that only Ethereum personal nodes (home validators) can participate in tasks, which can help AVS maintain decentralization. At the same time, personal nodes can obtain additional benefits, which can encourage more users to run Ethereum personal nodes and improve the degree of decentralization of the main network.

3. Support multi-token node groups

EigenLayer allows the AVS of the protocol to designate its own node group (quorums) to run together with the node group that re-stakes ETH. For example, protocol A can choose to use two node groups, one node group needs to re-stake ETH, and the other node group needs a pledge agreement Token $A, when both nodes and the node group agree that a certain matter is valid, protocol A finally agrees that the matter will take effect. Such a mechanism can help the protocol token $A gain utility and accumulate value for the protocol.

EigenLayer supports multiple pledge modes

Provide a variety of pledge methods similar to Lido's Liquid Staking and Superfluid Staking, where Superfluid Staking can allow LP pairs to pledge.

1. Direct pledge: directly pledge the ETH pledged on Ethereum to EigenLayer, which is equivalent to the pledge of L1→EigenLayer income.

2. LSD re-pledging: Assets that have been pledged in Lido or Rocket Pool are re-pledged to EigenLayer, which is equivalent to DeFi → EigenLayer income pledge.

3. LSD LP pledge: For example, Curve's stETH-ETH LP Token is pledged to EigenLayer again, which is equivalent to L1→DeFi→Ethereum execution layer (EL) revenue pledge.

4. ETH LP pledge: Pledge the LP Token pledged in the DeFi protocol to EigenLayer again, which is equivalent to DeFi→Ethereum execution layer (EL) revenue pledge.

2 Business model (target user group, main source of income)

The business models that can be adopted by the protocol using EigenLayer include:

1. Pure wallet mode: In this mode, the protocol deploys AVS on top of EigenLayer as a commercial service. Users who use AVS pay fees, some of these fees go to the protocol wallet to pay for their services, and the rest goes to EigenLayer and ETH re-stakers in EigenLayer. This in turn enables a purely company-based business model and allows AVS to build a SaaS economy on the chain.

2. Tokenized fee model: In this model, the protocol deploys AVS on top of EigenLayer to run as a protocol (rather than as a commercial service). Users who use AVS need to pay fees, part of which is used for the node group of AVS token holders (AVS's native token) stipulated in the agreement, and the rest of the fees are used for EigenLayer and ETH re-pledgers in the EigenLayer agreement.

3. Using AVS' native token payment model: In this model, AVS operates as a protocol, and users need to pay fees in specific tokens issued by AVS. The value of this token depends on the expectation of continued profitable operation of AVS in the future. Part of the fee goes to the node group of token holders stipulated in the agreement, and the rest of the fee is used for ETH re-pledgers in EigenLayer and EigenLayer agreement.

4. Dual pledge mode: In this mode, the agreement specifies that two node groups of the protocol token and ETH will run together. The first node group consists of ETH re-stakers, and the second node group consists of AVS stakers. In the two-node group model, security is the better of the two node groups, and activity is the worst of the two node groups. Anyone who owns ETH or AVS can provide security for AVS through EigenLayer by Pledge ETH or pledge AVS in the respective node groups.

EigenLayer Internal Risk Management Mechanism

First, EigenLayer has established a committee governance internally composed of well-known figures in Ethereum and EigenLayer communities. This committee will be responsible for upgrading the EigenLayer contract, reviewing and vetoing slashing events, and allowing new AVS to enter the slashing review process.

AVS can use this committee to reassure remortgagers in EigenLayer that they will not be subject to malicious or false slashing. At the same time, AVS developers can conduct real-world tests on the AVS-related codebase, and once mature and trusted by re-stakers, AVS can stop using the committee as a fallback. Also, when AVS is created on EigenLayer, the committee may also need to conduct security audits and other investigations, including checking the system requirements of validators serving AVS, etc.

The slashing mechanism design mentioned above is the design of EigenLayer to increase the cost of destruction (when the cost of destruction is greater than the possible benefits of destruction, the system can obtain strong security) and make the encrypted network more secure.

In the Forfeiture Mechanism, there are still a few points to note:

1. Unlike other encryption projects, EigenLayer does not use homogeneous warrants. Because each user can choose different delegation pledge methods, the risk of slashing is also different. Homogeneous tokens may cause conflicts between position owners and node operators, so choose not to use them.

2. EigenLayer's re-staking concept is similar to the merged mining concept of Bitcoin, Namecoin, etc., but there are also differences. When the verifier is verifying on multiple chains at the same time, if an attack occurs, EigenLayer can protect the economic security by punishing the malicious verifier on the main chain. For the PoW public chain, even if all miners on the main chain choose to merge the chain of mining, there is no significant cryptoeconomic security. The main reason is the inability to take the option of slashing - failure to slash would result in the malicious miner's mining hardware being disabled or removed, but the miner's hardware would still have value.

Finally, EigenLayer aims at maximizing security while minimizing the management risk of centralization:

When all the ETH remortgaged with EigenLayer is used to protect an AVS, the AVS can achieve maximum security. However, there are two questions: "Whether the expected income of AVS to operators can be higher than the operating costs" and "Whether operators have enough computing resources to participate in the verification of AVS". EigenLayer proposes two possible module design patterns to solve this problem.

First, hyperscale AVS (Hyperscale AVS): In hyperscale AVS, the total computing workload is distributed to all N participating operators, so that storage costs and node throughput requirements will be reduced, and the system itself can be aggregated by aggregating multiple Node performance to achieve high throughput.

Second, Lightweight AVS (Lightweight AVS): Some tasks are very low-cost and require low computing infrastructure, and tasks can be performed redundantly by operators, such as verifying zk-proof, etc.

3 Operation Status

According to the latest announcement of EigenLayer 4/7, the first phase of the testnet has been launched. The testnet is built on the Ethereum Goerli network and currently only supports liquidity re-pledging and native re-pledging.

EigenLayer will be divided into three stages:

Phase 1: Stakers – Stakers will join EigenLayer for re-staking.

Phase 2: Operators – Open Node Operators join and accept delegation from re-stakers.

Phase 3: Services – The first service to be authenticated on EigenLayer will be enabled.

At present, the first phase of the test network has opened two re-pledging methods for pledge users, namely LSD re-pledging (users who pledge through LSD protocols such as Lido and Rocket Pool choose this method) and Native re-pledging (not through LSD Users who pledge ETH by the protocol themselves choose this method).

Finally, as of 4/30, the total number of EigenLayer addresses is 120,799 (above). The official website also mentions that the Rocket Pool ETH (rETH) TVL, the liquid pledge token in the Rocket Pool protocol, is 50,939.46. Since Q1 2023, rETH has 2,224 node operators running an average of 6 validators each. Therefore, it is necessary to re-mortgage rETH, users can deposit tokens into the EigenLayer contract.

Lido Staked Ether TVL is 135,791.13. As of Q1 2023, stETH has 30 node operators, and each node runs an average of 5885 validators. Therefore, to re-mortgage stETH, users can deposit tokens into the EigenLayer contract.

However, the EigenLayer team currently emphasizes that the current testnet is in the early stage and has a non-incentive mechanism, so participants will not receive any rewards, but there are still many people who still do not want to miss the opportunity to get airdrops.

4 Team and investment institutions

EigenLabs, the team behind EigenLayer, completed a $14.5 million seed round led by Polychain Capital and Ethereal Ventures last year. At the end of March this year, EigenLayer completed another US$50 million Series A financing led by Blockchain Capital, with participation from Coinbase Ventures, Polychain Capital, Hack VC, Electric Capital, and IOSG Ventures.

Founder Sreeram Kannan, who has been an associate professor of artificial intelligence and blockchain applications at the University of Washington for more than 8 years, said EigenLabs' mission is to build protocols and infrastructure that promote open innovation. And Sreeram Kannan's research at the university focuses on distributed computing related theories of blockchain systems. He is also the head of the University of Washington Blockchain Laboratory (UW-Blockchain-Lab), and has published more than 20 blockchain-related papers.

The rest of the team includes Soubhik Deb, a Ph.D student at the University of Washington and a researcher at the University of Washington Blockchain Laboratory, Robert Raynor, a Ph. Architect Jeffrey Commons, Gautham Anant, a computer professional developer at the University of Washington, and Vyas Krishnan, a full-stack software developer at the University of Illinois.

EigenLayer Development Roadmap

In April 2022, EigenLayer started internal testnet testing, participated in the Ethereum DevConnect developer conference roadshow and ZK summit roadshow in May of the following year, and registered a Twitter account in July. In February 2023, the project white paper will be released, and in April this year, the first phase of the test network will be released.

5 Possible problems and risks

Internal Risk

There are two types of risks in EigenLayer. First, many operators may collude to attack a group of AVS at the same time; second, AVS may have unexpected slashing vulnerabilities, such as honest nodes may be slashed.

First of all, we will focus on the first type of risk, because in reality only some operators will choose to join a given AVS, and some of these operators may collude to steal funds from a group of AVSs, resulting in complex attacks. There are several solutions to this, first, limit any particular AVS destruction gain.

For example, the oracle machine can limit the total value of transactions in this cycle; second, EigenLayer can actively increase the destruction cost of AVS, which means that EigenLayer can create an open source dashboard, and AVS built on EigenLayer can monitor and participate in its verification tasks Whether any set of operators in the AVS is also re-staked in other AVSs, then the AVS can specify in its contract that only incentivizes EigenLayer operators that participate in a small number of AVSs.

External risk or potential future risk

1. Centralization risk: If EigenLayer develops into a major re-pledging platform in the future, it may cause everyone to have the same concerns about Lido, because the ETH pledged on Lido has accounted for 32% of the ETH in the Ethereum beacon chain. Allayed everyone's concerns about over-centralization.

2. Other vulnerability security risks: The second pledge increases the risk exposed by the pledged assets. In addition to the risk of the first pledge, it is also protected by the assets re-pledged agreement. These agreements include data availability layer, middleware, side chain, oracle machine , various bridges, etc., if there are security loopholes in these protocols, it will lead to the loss of the second pledger.

3. Risk of excessive dependence: If the agreement adopts EigenLayer's pledge platform, the independence and security of the agreement itself will be affected by EigenLayer, and the agreement will be highly dependent on EigenLayer.

4. The risk of weakening the value of native tokens: The pledge verifier provided by EigenLayer may reduce the value of the protocol’s own tokens, because part of the value of the tokens comes from the role it can play in the pledge network. When ETH pledge is introduced, This part of the role of native tokens may be weakened.