EigenLayer First Look: Unleashing Ethereum’s Trust Layer

November 15, 2023

TLDR:

  • Restaking allows Ethereum stakers to earn additional rewards by delegating their ‘restaked ETH’ to AVS operators, who run infrastructure for Actively Validated Services (AVSs)
  • There are two stages to restaking – staking on Ethereum + delegating to operators
  • Restakers can either engage in direct ETH staking or deposit Liquid Staking Tokens (LSTs), such as stETH, rETH, cbETH
  • EigenLayer makes restaking possible on Ethereum by intercepting stake before it is passed on to restakers’ withdrawal address
  • Today, users can engage in the first step of restaking – staking on the base layer of Ethereum; delegating to operators on mainnet will likely be in Q1 of next year
  • Warning: Do not set feeRecipient to an EigenPod address (i.e., Validators SHOULD NOT direct execution layer rewards to their EigenPod. These funds may be irretrievably stuck)

EigenLayer is a multi-sided coordination marketplace where stakers, operators, and services come together. It is the first restaking protocol built on Ethereum and allows staked Ether (ETH) to be “reused” on other protocols. The ability to intercept stake before it goes back to the staker’s account is what makes EigenLayer possible (more on that below).

Ethereum is the largest Proof-of-Stake network by value of staked tokens. EigenLayer more directly recognizes the value of this so-called ‘trust layer,’ acting as a staking marketplace between ETH stakers and builders.

An Actively Validated Service (AVS) is a label that can be applied to a broad range of applications. They can range from relatively simple apps or services to complicated protocols that more closely resemble an independant L1. The commonality across these is the need for applying penalties (i.e., slashing capabilities) in the event that operators misbehave. Operators are understood to be running software on behalf of the AVSs. 

What are the Benefits of EigenLayer?

For Ethereum stakers, restaking provides an opportunity to earn additional rewards. Another way to look at this is to recognize that EigenLayer makes staking more efficient – using staked ETH to secure more than just Ethereum.

EigenLayer lets builders bootstrap a trust network, creating an environment where developers can secure their infrastructure without needing to create their own validator sets, set up complex consensus mechanisms, or launch native tokens – unless they choose to do so. 

EigenLayer’s shared security entices more developers to build on top of Ethereum, with network effects that attract more users, as well as ETH stakers and builders. This creates a faster-growing, more dynamic, and diverse ecosystem of dApps and protocols, to the benefit of Ethereum users. By using Ethereum as the source of cryptoeconomic trust, EigenLayer enables this growth to be decentralized and secure, driving increased user adoption and engagement.

EigenLayer enables Ethereum stakers to secure numerous services simultaneously by restaking their staked ETH, creating pooled security. This reduces capital costs for stakers while significantly increasing trust guarantees for individual services. This groundbreaking approach solves the problem of trust network fragmentation and bootstrapping by allowing any service, regardless of composition, to access Ethereum’s pooled staker security. 

EigenLayer establishes a platform for the exchange of decentralized trust, offering validators, stakers, and developers incentives such as enhanced capital efficiency through restaking options for stakers and reduced cost for AVS to secure their networks, ultimately fostering protocol-level innovation.

Lastly, EigenLayer has the ability to incentivize improvements that are much more difficult to achieve on the base layer. For instance, a mechanism to diversify Ethereum (by geographic location, client, etc) could be created. Achieving the same thing on the base layer of Ethereum is much more complicated.

How EigenLayer Works

From a restaker’s perspective engaging with EigenLayer will look different depending on what they are holding – for those with liquid staking tokens (LSTs) restakers deposit their LSTs into a smart contract; for those with ETH (i.e., ‘native restakers’), an EigenPod must be created and the restaker’s withdrawal credentials must be pointed at the EigenPod’s address.

To begin restaking ETH holders must create an EigenPod and then stake their ETH on Ethereum in a method of their choosing (for instance by using the Ethereum staking launchpad), making sure to use the EigenPod address for withdrawal credentials. It is important not to set the feeRecipient address to the EigenPod. EigenLayer was not designed to receive execution layer (EL) rewards.

For native restakers (those holding ETH and staking directly on Ethereum), there is a delay between staking on Ethereum and being permitted to restake on EigenLayer – this delay is to give EigenLayer time to verify the stake through their oracle.

Once stake on Ethereum is confirmed (in roughly 4 hours), restakers are then able to delegate to operators on EigenLayer. These operators are the ones that are running programs on behalf of AVSs. Note that this capability is not yet live, though, it will be live on testnet in a few weeks (see Timeline section below).

It’s important to appreciate that until a delegation has been made from the restaker to an operator, the position looks very similar to regular staking on Ethereum with the difference being that, upon withdrawal, both consensus layer rewards and stake go through the EigenPod before being sent to the restaker’s address.

For consensus layer rewards that are occasionally swept to the EigenPod, restakers are able to withdraw them, i.e., have them sent to their withdrawal address, restake them (effectively adding to their existing position), or leave them in the EigenPod.

What Stakers Need to Know

There are two stages to restaking – staking on Ethereum and then delegating to an operator, which runs software for AVSs. As emphasized above, there is still a lot of work being done and any estimates of potential reward rates are mostly speculative. That said, EigenLayer could very well be the focus of the ecosystem in 2024. EigenLayer already has over 173,000 ETH restaked, even before any AVSs are live:

(source)

Builders are actively working on AVSs and many of these will begin testing and going live over the next few months.

Each AVS will have its own risks and rewards as well as operational load (both people and hardware requirements). When assessing each AVS, restakers would do well to treat each like a new network in terms of the required diligence and analysis.

Timeline

The first step of using EigenLayer, i.e., staking on Ethereum, is available already:

(Source)

There will be a testnet this month, which will enable Operators to register to the network, and begin validating for the first AVS, EigenDA. In addition, it enables rollups seeking cheap, high throughput data availability to integrate with EigenDA in advance of a future mainnet. And finally, it enables restakers to delegate their restake to operators, providing cryptoeconomic security to EigenDA and its integrated rollups. During the first quarter of 2024 the ability to delegate to operators (i.e., restake) and some AVSs will be live.

Figment & EigenLayer

Figment is well-positioned to be a leading supporter of EigenLayer as it develops and grows. 

Having already assisted customers with getting started on EigenLayer, Figment plans to continue onboarding more users wishing to leverage EigenLayer’s capabilities. 

As an early tester, Figment will provide valuable feedback to improve EigenLayer and AVSs based on real-world experience operating AVSs, including through partnerships. Figment’s role transcends mere participation; it envisions being a cornerstone in the EigenLayer’s architecture by providing robust support and insightful feedback. The symbiotic relationship between Figment and EigenLayer is forged through a shared vision of an innovative, secure, and more rewarding staking environment.

As pioneers in the staking service domain, Figment’s commitment to EigenLayer’s growth is unwavering. With both technical and financial backing through Figment Capital’s investment, Figment is committed to seeing EigenLayer succeed and will remain an active participant in its ecosystem.

What’s Next for EigenLayer

EigenLayer represents an exciting new capability being introduced to Ethereum – the ability to reuse staked ETH to secure additional services beyond the base layer. This ‘restaking’ through EigenLayer unlocks new opportunities for Ethereum stakers to earn additional rewards as well as for builders looking to incorporate staking economics into their applications. 

With the groundwork being laid in 2023, 2024 is shaping up to be a big year for EigenLayer as operators come online and the first AVSs launch. For ETH stakers interested in maximizing rewards, setting up an EigenPod now is recommended to be ready to delegate and start restaking as soon as possible next year. As a leading staking-as-a-service provider, Figment is well-positioned to support the EigenLayer ecosystem and help users take advantage of restaking. Reach out to learn more about how Figment can assist with leveraging EigenLayer.

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