Ethereum has come a long way since it launched in 2015. It has held its position as the most influential blockchain and managed to transition from proof-of-work (PoW) to proof-of-stake (PoS). Also, it is the foundation for most innovative crypto projects.
On its part, EigenLayer wants to eliminate an important barrier most new dApps face by offering developers an established security infrastructure. EigenLayer is a decentralized Ethereum staking protocol that offers developers an established security pool. This EigenLayer explanation highlights staking and other important parts of the Ethereum staking protocol.
How EigenLayer Operates
Notably, the EigenLayer protocol is Ethereum-based and aims to enhance the network’s PoS consensus via a process known as Ethereum restaking. The EigenLayer team alleges to solve most existing Ethereum security inefficiencies, including the need for every protocol to manage its security and scalability processes.
Nonetheless, before discussing the EigenLayer restaking process, it is important to know what Ethereum staking is all about.
Staking is one of the crypto’s most popular features that offers traders a reliable passive income stream. It features locking one’s crypto in a staking pool, exchange, or smart contract. A user earns interest on their staked assets, and in turn, the network uses the assets to cultivate network security. The more funds a user stakes, the more passive income they make.
The high-value stakeholders mostly become validators who participate in transaction validation and vote on forthcoming and existing proposals to enhance the network. The idea is that stakers are more invested in the protection of the blockchain network and might not become bad actors. Moreover, staking incentivizes good behavior too. Validator rewards on Ethereum are cut if a validator fails to participate in the network’s best interest.
Staking on Ethereum resembles holding a savings account in a traditional bank and needs a lot less effort from the user. Due to the advent of staking pools, even those users who do not have much money to spare can start their staking journey.
What Is Restaking And How Does EigenLayer Support It?
Restaking is EigenLayer’s take on traditional staking. It offers new ways for users to generate passive income while increasing network security.
Restaking, in the case of EigenLayer, is the act of taking staked Ethereum and repurposing it to boost security on other protocols. This essentially creates a pool of restaked assets from which the other decentralized applications (dApps) can pull. Users get to opt-in to EigenLayer’s restaking smart contract using their staked Ether (ETH) or via a liquid staking token (LST).
Whenever the user stakes funds on an Ethereum protocol, most of the projects offer liquid staking tokens to represent the staked assets, which is a type of receipt. The tokens let users keep using their funds in other ways, including restaking them via EigenLayer through a process known as LST restaking without having to unstake their original assets.
On the other hand, users can enable EigenLayer’s smart contracts to work with their already-staked ETH. Restaking with the already-staked ETH is known as native restaking. In case a user participates in native restaking the network will add the assets to the protocol’s security pool. EigenLayer is about as secure as the size of its security pool.
Applications powered by EigenLayer are known as actively validated services (AVSs) and can be anything ranging from a bridge to a dApp to an oracle. Developing on EigenLayer is cheaper and highly efficient than developing on another protocol, as EigenLayer has an established trust network in place via restakers. Developing elsewhere needs building a trust network from the foundation.
With that stated, AVSs are not randomly harnessing services from EigenLayer. Instead, there is an intermediary known as a node operator, a volunteer who opts to help manage the network. Just like an Ethereum validator, an operator can be a single user or an organization.
Operators can build their AVSs or offer services to other existing AVSs while getting rewards in return. Nonetheless, operators are also subjected to an AVS’s slashing requirements in case they fail to perform their duties.
Furthermore, the operators can be restakers, or the restakers can decide to delegate their restaked assets to an operator. Nonetheless, restakers have total control over what services their assets are sent to. As a result, EigenLayer develops a form of free-market governance network. Developers mainly develop on EigenLayer to utilize its enhanced security, while the operators and restakers earn rewards for offering and managing the said security.
