As crypto adoption grows worldwide, staking has also evolved over the time with various platforms offering unique benefits to users to participate in securing the network while earning rewards in exchange. While there are several staking platforms available in the crypto ecosystem, EigenLayer has earned a reputation for being the most innovative infrastructure for allowing ETH staking. This novel DeFi protocol takes the staking game further by implementing the “restaking” method.
In this article, we will find out all about EigenLayer and how it became a leading DeFi protocol in a short time among well-established staking projects.
What is EigenLayer?
EigenLayer is an innovative DeFi protocol that introduces “restaking”, a crypto staking mechanism that allows ETH and Liquid Staking Tokens (LSTs) to be reused. It enables native staking for ETH as well as stETH, rETH, cbETH and other liquid staking derivatives.
This innovation allows Ethereum stakers to reallocate and re-use their staked ETH, essentially improving economic security across various applications while earning additional rewards.
EigenLayer was launched in April 2024 and has gained significant attention in the Ethereum ecosystem. With the novel staking mechanism, it represents a notable shift in refining Ethereum’s staking infrastructure and upscale cryptocurrency ecosystem.
The core advantage of EigenLayer is its ability to diversify Ethereum’s security. As stakers can restake their ETH or liquid ETH derivatives, it contributes to the security for multiple staking platforms at the same time.
This not only reduces the financial burden on participants, but also increases the reliability of individual staking service providers that play a vital role in the Ethereum ecosystem.
According to data from DeFiLlama, EigenLayer has garnered a TVL of over $16 billion while confirming ETH staker’s immense enthusiasm for re-staking.
What is ETH Restaking?
Ethereum restaking is a concept proposed by EigenLayer. It enable users to stake their ETH or liquid staking derivatives (such as stETH and rETH) to secure staking ecosystem and earn additional rewards. EigenLayer is the first and the only decentralized platform that offers restaking.
How EigenLayer Works?
When users stake their ETH or LSDs on EigenLayer, they receive liquid restaked tokens (LRT) which represent their fund deposits in the protocol. Users can trade or spend these LRT tokens to keep their LSD assets liquid and locked into the yield bearing smart contracts. While the assets are staked in EigenLayer, users can still use the liquidity to enhance the market and leverage decentralized ethos for security and transparency.
This way, EigenLayer has opened up new opportunities for ETH capital to enhance the security of the network. It gives developers a safer, more efficient, and more dynamic environment to build and innovate decentralized staking applications.
The two core Eigenlayer functions are pooled security through restake and an open marketplace.
Pooled security
Pooled Security refers to the Eigenlayer protocol pooling security from users and validators who restake their assets. Ethereum validators can set their stake payment address to Eigenlayer’s smart contract and choose which AVS – staking networks using EigenLayer – they want to validate. This allows the validator to start providing security through self-layer restake.
Validators earn additional revenue by providing security services to the selected AVS. However, if a validator fails to meet its obligations, AVS can immediately withdraw the additional ETH. This creates a risk for both parties, which is mitigated by the open marketplace.
Open marketplace
Open marketplace unleashes numerous options on how AVS and Validators want to utilize the collective security of the EigenLayer. Under the staking mechanism, validators can choose which AVS suits their risk-to-benefit ratio desires. This is important for validators as there is a severe risk of being slashed on the network if they do not perform duties.
Benefits for ETH Stakers
Restaking with EigenLayer is an attractive way for users to earn more profits than regular staking. By participating in restaking, users can earn higher profits to offset the increased risk associated with penalty reduction. The protocol is currently also offering points to users for its second airdrop. It currently supports numerous assets including Ether (ETH), Lido’s stETH, Rocket Pool’s rETH, Coinbase’s cbETH and other major Liquid Staking Tokens (LST).
EigenDA
Developed by EigenLabs, EigenDA is a decentralized data availability (DA) service integrated into the Ethereum blockchain via the EigenLayer protocol. As the first Actively Validated Service (AVS) on EigenLayer, EigenDA’s primary goal is to ensure secure, efficient and scalable data storage and accessibility. This is facilitated by the fact that restakers can delegate the operation of validation tasks to node operators in exchange for payment for the service. This mechanism increases transaction throughput and cost efficiency, and ensures robust composability within the EigenLayer ecosystem that can scale with network participation.
Team Behind EigenLayer
EigenLabs is the developer entity behind the EigenLayer DeFi protocol. The team is led by Sreeram Kannan – a former professor and director of the Blockchain Institute at the University of Washington – indicating that the project has a strong academic foundation. Other key team members include Robert Raynor, Soubik Deb, Bowen Xue as software engineers and Vyas Krishnan as chief of product.
This team has secured significant investment from the industry leaders and prominent venture capital (VC) investors like a16z and Blockchain Capital. The involvement of such big investors demonstrates their confidence in EigenLayer’s potential. It raised $50 million in a Series A funding round following a $14.5 million initial seed round. This funding supports the development and gradual launch of the EigenLayer protocol aimed at improving Ethereum staking infrastructure.
Conclusion
Eigenlayer is a middleware protocol that features the innovative DeFi instrument of restaking. It also provides an alternative security solution for new networks at a lower cost. By enabling stakers to support multiple applications and services, EigenLayer enhances efficiency and fosters a more interconnected blockchain environment. This protocol is poised to be a cornerstone in the evolution of the Ethereum and DeFi ecosystem while promoting a more secure, versatile, and collaborative future.
