What is EigenLayer?

Ethereum transitioned from a Proof-of-Work (PoW) model to a Proof-of-Stake (PoS) system through a series of upgrades. In a PoS system, users can stake ETH tokens to protect network security. Essentially, these users become validators who validate transactions and ensure the integrity of the network. In return, stakers receive rewards.

However, given that staked ETH is temporarily locked, its use will be limited. And this is where EigenLayer and its innovative approach come into play. This article will give you a brief introduction to EigenLayer, its core features and pros and cons, as well as the main differences between traditional staking and EigenLayer staking.

What is EigenLayer?

EigenLayer is a protocol built on the Ethereum blockchain. It introduces a concept called “restaking sets” that allow ETH stakers to power applications within the Ethereum ecosystem.

EigenLayer creates a vibrant market for decentralized trust. Developers benefit from the security provided by a pool of stakers, and stakers can support the development of their projects.

How does EigenLayer work?

Modules

EigenLayer introduces a modular approach to security. It allows stakers to contribute their ETH as a way to ensure the security of specific functions in the network. These functions are often called modules.

For example, a module might be dedicated to securing a decentralized storage solution like Arweave. Some modules ensure the security of in-game items on the blockchain, while others build trust in DeFi apps like Aave.

Smart Contracts

Ethereum stakers can re-pledge their pledged ETH through EigenLayer smart contracts, providing a new set of security and verification services for specific modules in the network. This is possible because the EigenLayer contract has the ability to set certain conditions on the pledged assets.

Re-staking

Users can achieve EigenLayer re-staking in the following two different ways:

1.Independent staking. Users can run their own nodes and actively verify module transactions. This method is more suitable for advanced users.

2.Delegation. Users can also delegate node operations to other participants within the network. This approach provides a convenient option for users who want to contribute to EigenLayer but don't want to manage the technical issues.

Stakeholder Diversity

EigenLayer realizes that stakers may have different preferences and abilities. Some stakers may have powerful computers suitable for independent staking, while other stakers may prioritize convenience and participate in staking through delegation.

In addition, stakers may have different risk tolerances. The EigenLayer module increases the network’s flexibility by adjusting its requirements based on a specific staker’s risk tolerance.

Comparison between traditional staking and EigenLayer staking

EigenLayer subverts traditional staking on Ethereum and provides a unique staking method with its "re-staking set" concept. Below you will find the main differences between traditional staking and EigenLayer staking.

Liquidity

In traditional staking, the staked ETH will be temporarily locked and cannot be used by the staker. In EigenLayer staking, although the underlying ETH assets are also in a pledged state, users can use them for other purposes. For example, stakers can use these pledged ETH to improve the security of various apps on Ethereum.

Participation methods and rewards

The participation method of traditional staking is relatively simple. Essentially, users lock up their ETH holdings and earn rewards based on the staking protocol of their choice.

In contrast, EigenLayer provides a wider range of staking participation options. Users can choose to pledge independently or entrust. Delegation may be a better option for users without advanced technical knowledge of cryptocurrencies.

In addition, the rewards provided by EigenLayer staking may be even more generous. This is because modules have higher security requirements and may provide greater rewards to stakers for ensuring module security.

Key security issues

In traditional staking, staking ETH directly provides guarantee for the security of the Ethereum blockchain. And in EigenLayer staking, security becomes modular. Users can provide guarantees for the security of specific modules in the Ethereum ecosystem. The overall security of a module often depends on the collective staking power that backs it up.

Advantages and disadvantages of EigenLayer

Advantages

1. Improving the security of DApp. EigenLayer can leverage a validator pool for multiple modules to improve the overall security of decentralized applications (DApps) built on these modules. This creates a more trustworthy environment for users interacting with the DApp.

2. Act as a testing ground. EigenLayer serves as a platform for testing and validating new Ethereum features, which can be fully tested on EigenLayer before being integrated into the Ethereum mainnet. This allows developers to boldly experiment with innovative ideas, such as danksharding, a core feature of the Ethereum Cancun upgrade.

3. Enable permissionless innovation. Developers no longer need to build their own set of validators to ensure app security. Instead, they can leverage the existing pool of secure validators provided by EigenLayer by re-staking. This move tends to lower the barrier to entry for developers and drive innovation on Ethereum.

Disadvantages

1. Complexity Challenge. EigenLayer adds another layer of complexity to the Ethereum ecosystem. For some users, understanding how restaking works, choosing the right modules to participate in restaking, and managing the technical aspects (for independent stakers) can be challenging.

2. Centralization risk. Although EigenLayer advocates decentralized trust, there may be situations where a few staking pools dominate, leading to centralization within the re-staking collection to a certain extent.

3. Risk of module collusion. ​​Although EigenLayer’s modular design provides flexibility, it also brings the potential risk of malicious actors colluding by controlling multiple modules.

Conclusion

EigenLayer’s “re-pledge collection” is expected to completely change the rules of the game for decentralized trust on Ethereum. EigenLayer is expected to play a key role in shaping the future of robust, secure and scalable DApps by enabling permissionless innovation and providing a testing ground for new features in Ethereum.

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