TL;DR
EigenLayer enables any new protocol or application, regardless of whether it’s Ethereum-compatible, to tap into the pooled security of Ethereum’s stakers. This creates an environment that encourages bootstrapping new applications. Also, it allows Ether stakers to gain some juicy yield on the side. But stakers spreading their tentacles outside the Ethereum ecosystem doesn’t come without risks…
Imagine you’re a billionaire and just bought an island. You want to establish a nation on it. The first pressing question you will be faced with is: how to protect that island from invaders? You could either fund and train an army or… become friends with a superpower like the United States.
Now picture trying to build a new decentralized app. Instead of funding your security budget… you could become friends with… Ethereum. That’s what EigenLayer makes possible. A bit like the United States Navy can use the same vessel to protect both its shore and a friendly neighboring island nation, so Ethereum stakers can choose to stake their Ether a second time to a network they want to support. The same stake to secure the Ethereum network can be re-used to secure other networks. EigenLayer is the tech that intermediates.
What is EigenLayer?
EigenLayer is not to be confused with Layer 2 but is more akin to liquid staking. It is a series of smart contracts which interact with staking. You can stake in Ethereum and then also specify to the EigenLayer contracts that you allow your ETH to be staked a second time – and third, and fourth, and… as many times as there are applications that invite you. This allows you to reap some extra staking rewards. You get paid for the opportunity to validate other chains/networks. Of course, this also makes you vulnerable to a second round of slashing. No extra rewards without extra risks.
In practice, it means EigenLayer essentially adds one more step to your staked ETH withdrawal flow. So instead of directly going into your wallet upon withdrawal, your staked ETH is going to a contract that is partly controlled by you and partly has the slashing power given to it by the EigenLayer contracts.
EigenLayer as a New Marketplace for Decentralized Trust
In a similar way to how MEV created a new market (making money from arbitraging the Ethereum mempool) EigenLayer will create a ‘marketplace for decentralized trust’, in the words of Sreeram Kannan, founder of EigenLayer.
Taking a step back to understand what this means, let’s ask ourselves: what is it that Ethereum (or any other blockchain) sells? When you pay gas fees, what do you pay for? To get a transaction through. In other words, you pay to be included in a block. You compete to be included in a block. So, the product shipped by a blockchain is blockspace.
Considering that ‘storage fees’ for Ethereum blocks are orders of magnitude higher than for conventional databases, why do people pay so much for Ethereum storage space? Because they value the decentralized, non-censorable nature of this special type of storage space.
But, argues the founder of EigenLayer, decentralized trust can be supplied in a much more ‘raw’ form. What builders of new apps and protocols might desire, is not necessarily blockspace, but the foundation that secures this blockspace: the trust that their apps are tied to a decentralized…
Erik started as a freelance writer around the time Satoshi was brewing on the whitepaper.
As a crypto investor, he is class of 2020. More of a holder than a trader, but never shy to experiment with new protocols.
