What is EigenLayer

EigenLayer is an Ethereum-based Restaking protocol. It can be viewed as an intermediary platform connecting stakers, AVS, and application chains.

Stakers, also known as Restakers, are users who stake assets on EigenLayer.

AVS, Actively Validated Services, are security service protocols integrated into EigenLayer, which can be simply understood as node operators.

Application chains are small to medium-sized blockchain networks with node validation requirements.

The main role of EigenLayer is to serve as a platform connecting these three entities. It can:

• Provide stakers with opportunities for repeated staking and earning additional staking rewards
• Offer staked assets to AVS
• Provide application chains with options to select AVS and purchase validation services

EigenLayer Business Model

EigenLayer’s business model revolves around stakers, AVS, and application chains. The specific operation process is as follows:

• Users repeatedly stake LSD on EigenLayer.
• The staked assets are provided to AVS for protection.
• AVS provides validation services for application chains.
• Application chains pay service fees. These fees are divided into three parts, serving as staking rewards, service income, and protocol revenue distributed to stakers, AVS, and EigenLayer.

EigenLayer Business Model

EigenLayer Restaking

EigenLayer’s Restaking service launched on the Ethereum mainnet on June 14, 2023, currently offering two re-staking schemes:

• ETH Re-staking: Users re-stake Ethereum native assets, Beacon Chain ETH
• LSD Re-staking: Users re-stake LSD, which are derivative tokens generated from staking on liquid staking platforms like Lido Finance and Rocket Pool

EigenLayer Restake Official Website Interface

According to data from the EigenLayer official website, as of now, EigenLayer has undergone three expansions of re-staking limits, with total staked amount exceeding 177K ETH. The protocol currently supports re-staking four assets: Lido Staked Ether (stETH), Rocket Pool Ether (rETH), Coinbase Staked Ether (cbETH), and Beacon Chain ETH. Among these, stETH accounts for the largest share, over 60% of the staking portion.

Why EigenLayer is Worth Attention

From both the project’s perspective and the macro cryptocurrency market, there are three main reasons to pay attention to EigenLayer:

• Its Restaking mechanism can address the fragmentation of Ethereum network security
• The potential of the LSDFi sector is huge, and EigenLayer’s Restaking mechanism can unlock significant liquidity from LSD
• As a Restaking project integrating numerous validation protocols, EigenLayer has a high likelihood of issuing tokens in the future

Security Fragmentation

According to EigenLayer, its Restaking mechanism can solve the current security fragmentation problem of the Ethereum network.

Security fragmentation mainly refers to the security incompatibility between the Ethereum mainnet and non-EVM compatible application chains.

We all know that Ethereum, as one of the most prominent networks in the blockchain space, boasts strong security and high decentralization. It is based on PoS consensus, with over 10,000 nodes and a staking amount of over 25 million ETH. Therefore, Ethereum’s security coefficient is very high. Application chains built on EVM inherit Ethereum’s underlying security.

On the other hand, non-EVM compatible application chains cannot enjoy Ethereum’s security. They must establish their own trust networks, deploying their own nodes or relying on third-party validation nodes to ensure network security. This means each application chain’s security is independent and fragmented. Compared to EVM-compatible chains, non-EVM chains are more vulnerable to attacks and more costly to maintain securely.

EigenLayer can address this issue through Restaking. By re-staking, the staked LSD assets can be used across multiple validation protocols (Actively Validated Services, AVS) to provide collective security for non-EVM compatible application chains.

These AVS are integrated into EigenLayer, forming a decentralized AVS marketplace. Users can choose different AVS protocols for re-staking based on rewards, security, and other factors. These AVS protocols will serve as a decentralized validation network, providing collective security for non-EVM compatible application chains, effectively solving the security fragmentation problem.

In simple terms, attacking the network previously required attacking a single AVS; now, it requires attacking multiple AVS simultaneously. This increases attack costs and enhances security.

EigenLayer Pooled Security, Source: EigenLayer White Paper

LSD Liquidity Release

EigenLayer’s Restaking mechanism will continue to release large amounts of liquidity from LSD in the future.

Since the Ethereum Shapella upgrade in April, ETH staking has increased significantly. According to TokenUnlocks data, within one month after the upgrade, ETH staked amount increased by nearly 500,000, with about 3.04 million ETH staked, accounting for 16% of the total ETH circulation at that time.

Currently, Ethereum’s staking rate is around 20% and continues to rise. Compared to other Layer 1 blockchains like Avalanche (62%) and Tron (47%), this number has considerable room for growth.

As ETH staking rate increases and the entire ETH staking market expands, the scale of liquid staking protocols like Lido Finance and Rocket Pool will also grow. The quantities of LSD tokens like stETH and rETH will rise with ETH staking. The entire LSD sector has enormous potential.

This means EigenLayer’s Restaking mechanism can unlock significant liquidity from these LSD tokens.

Historical data shows that within less than three months of EigenLayer’s mainnet launch, the protocol has raised the LSD re-staking limit three times. The LSD re-staking limit increased from an initial 3,200 to 100,000. Each time, the limit was nearly reached within two to three days. As more LSD types become available for re-staking and the LSD market expands, EigenLayer is likely to raise the limit again, releasing more liquidity from LSD.

Future Token Issuance Possibilities

As a Restaking project integrating numerous validation protocols, EigenLayer is highly likely to issue its native token in the future.

EigenLayer has integrated many AVS protocols and formed its own validation service ecosystem. Although EigenLayer is still in the early development stage and has not established a complete governance model, decisions regarding AVS protocol selection and core reward mechanisms depend on governance participation. Therefore, it is reasonable to believe that EigenLayer will issue its own native token in the future, used for governance, rewards, and other purposes to support project development.

Meanwhile, EigenLayer, as a pioneer in Restaking, has many well-known early investors such as Blockchain Capital, Polychain, Coinbase Venture, etc. This also increases the likelihood of EigenLayer issuing tokens in the future. **$NEIROCTO **$HEI **$EIGEN **