In the Web3 and DeFi world, restaking Ether (ETH) with EigenLayer is one of the latest trends. We tested it and read the documentation. Now we are introducing you to EigenLayer – which is much more than just a bonus on the interest.

When you stake Ether, you often receive Liquid Staking Tokens (LST), such as stETH, which sit nicely in your wallet and accumulate interest. But if the tokens are already liquid, wouldn’t it be nice to stake them again to get even more yield, i.e. interest?

That is exactly what Eigenlayer promises. But the platform is more than that. The bonus on the interest is more of a byproduct of an idea. Because above all else, Eigenlayer creates its very own layer that uses the security inherent in the value of the ETH tokens to secure other decentralized projects – from which the stakers can of course benefit.

By June 2024, over 5 million ETH, or more than $20 billion, had been restaked via EigenLayer. Restaking is a big topic – and it’s time we addressed it.

Recycle safety

Once you understand Eigenlayer, everything is clear and simple. But you have to get there first. What doesn’t help is that most of the articles you read about it confuse rather than enlighten.

The basic idea is that Ethereum stakers can do more than just validate the Ethereum blockchain. If you already have a mechanism that takes billions of dollars of value as weight to validate consensus, why shouldn’t it validate even more? You could simply offer stakers the opportunity to add additional mechanisms to secure other blockchains and projects, similar to how plugins in the browser use its infrastructure to communicate with the Internet.

In essence, Eigenlayer is reviving the old idea of ​​merged mining that Satoshi had already proposed for Bitcoin. With merged mining, Bitcoin miners also validate other coins, such as Namecoin, and sidechains, such as Roostock, which is a win, but its effect remains rather manageable.

Restaking brings this concept to Ethereum — and there it encounters a world of Web3, smart contracts, oracles, tokens, rollups and sidechains.

The short walkthrough

Now, let’s get down to business: how do you benefit from it? How can you make more out of your Ethereum staking? Basically, it’s simple:

1. You have Liquid Staking Tokens (LST) like stETH. You get them by putting your Ether into a staking pool that supports LSTs. You can also buy them directly. One stETH is equivalent to one Ether, with the advantage that it earns interest through staking.

2. You deposit your LST on the Eigenlayer platform using the “Restaking” function. There you can select which LST you want to restake. Pure ETH is also possible, but then you have to stake it yourself. As soon as you have done that, the tokens appear in your dashboard and you collect “Restaked Points”. These are automatically distributed in relation to the duration of the staking; they determine whether and to what extent you will participate in future airdrops.

But in order to collect ongoing income, one step is still missing:

3. You delegate the LST. To do this, you select a node operator who secures various projects. The whole thing is relatively confusing. Some concentrate on specific projects, others look specifically for airdrops, and others distribute their tokens like an investment fund across a variety of projects. You don’t know in advance how high the returns will be.

4. Before you start restaking in the dark, you should read this article to the end. This will help you understand whether Eigenlayer is simply making up the interest bonus for the stakes or whether the returns are based on a solid foundation.

The components of the EigenLayer

Eigenlayer is a layer of its own. You could say it is a layer zero, a layer 0, because it is not built on Ethereum, but starts before it, but draws its security from the same source – the value of the staked Ether.

Eigenlayer is not a blockchain, a sidechain, a rollup, a consensus model or anything like that. This makes it difficult to understand. Eigenlayer is rather a protocol that allows projects to use the security of Ethereum stakers.

These projects are called “Actively Validated Services (AVS).” It’s a pretty diverse mix, and the projects usually connect to Ethereum and do something better, such as rollups, oracles, and other services. You can best imagine them as decentralized infrastructure service providers.

If you validate yourself, you can also allocate your stakes to AVS yourself. However, most users will not stake themselves, but will use the tokens they received from a staking pool. To do this, you must delegate these to a node operator. You are essentially instructing a staker to restake your tokens using their own layers.

But there are also risks. Any intervention in the block validation can lead to an error. If a staker makes a consensus-relevant error because the Eigenlayer plugin had a bug – just as a browser plugin can have a bug – the protocol threatens to impose a penalty. The technical term is “slashing”; you lose a portion of the staked Ether.

The task of the delegates is now, also in their own interest, to critically examine the AVS in order to minimize the risk of slashing.

The AVS that protects restaking

The AVS have only been live since April 2024. The ecosystem around them has only just begun to develop, you can expect a lot, but certainly not market-ready apps. Nevertheless, there are some interesting examples that show the direction in which things are heading:

  • EigenDA, a “Data Availability Provider” for rollups – a piece of infrastructure that is supposed to make rollups better.
  • eoracle, an oracle network that provides real-world data for smart contracts in a decentralized manner.
  • the Witness Chain, a network for coordinating the DePIN ecosystem
  • Brevis, a tool to help smart contracts read data from the entire blockchain using zero-knowledge proofs
  • AltLayer MACH, a tool to accelerate the finality of rollups such as Arbitrum and Optimism

Do you kind of understand what the pattern is? They are quite technical, sometimes esoteric projects that even crypto nerds don’t know straight away what they’re about. Overall, they’re more like tools that help improve individual elements of Ethereum, like NPM for Node or PIP for Python, and I imagine that a rollup, for example, will be faster with MACH, a smart contract will pull data with eoracle, or past transactions will be read more effectively with Brevis.

Another way to look at it is to outsource a bit of protocol development by offering functionality that some people would like to have but others find too risky in a modular way and as a plugin to stakers, so that they, and not the protocol, bear the risk if the functionality causes a consensus failure.

Overall, a refreshing new architecture! However, there is not much to say about its success yet. I don’t know whether any of the projects are actually being used yet; Optimism has at least tried out AltLayer on the testnet. The rewards so far are also rather stochastic, if they exist at all.

A short history of EigenLayer

EigenLayer started operations in mid-2023. Initially, the number of Ether or LST on the platform was limited, which is why not everyone could participate for a long time. During this time, restaking mainly consisted of collecting points.

In May, this phase ended with the airdrop of the EIGEN token, which was distributed depending on restaking points. It is a utility token that helps secure networks like EigenDA. In the future, airdrops will continue to reward users of the platform who have collected a corresponding number of restaking points.

Shortly before, AVS were allowed, and around the same time, the maximum restaking limit was lifted, causing the number of Ether in the EigenLayer ecosystem to explode. This leads to fears that the returns from EigenLayer will collapse because the AVS that are currently docked to stakes are not generating enough, if anything at all.

The ecosystem is simply too young to reliably provide yield. The idea is good, and it is far too early to write it off or declare victory. But at the moment, restaking via the own layer is primarily about collecting points for the aidrop and a bet that more will come out of it.

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