Eigenlayer: The Next Big Blockchain Protocol?

One of the biggest issues plaguing the interconnected Ethereum ecosystem is the many different entities with their own networks of trust. The collapse of some of these trust layers, such as a bridge between different blockchains, has caused numerous exploits and hacks that have a long-lasting and far-reaching impact. Eigenlayer is a solution aiming to hyperscale Ethereum by creating a new security primitive: re-staking.

To understand Eigenlayer and its purpose, it is important to understand the current state of blockchain security. One of the main innovations of Ethereum was its ability to allow applications and smart contracts to be built on top of it and leverage its blockchain security. Anyone can trust that an application built on Ethereum, at its base smart contract level, will do exactly as its published code says it will. For example, exchanging one asset for another on an exchange like Uniswap will occur without the need for a middleman and without the possibility of the Uniswap team stealing the funds.

While this was an incredible innovation with far-reaching consequences, it has its limits. Only smart contracts and data that can be published to Ethereum and is compatible with Ethereum’s computation engine, the Ethereum Virtual Machine. However, several applications are incompatible with the EVM or need their own validation system. For example, blockchain bridges connect two trust layers and thus need their own validation system independent of either blockchain. Additionally, oracles that bring real-world data onto the blockchain also need some sort of trust layer to ensure that the data being brought off-chain to on-chain is valid.

This fragmented security model threatens the entire Ethereum ecosystem. Instead of having one strong trust layer, several smaller trust bubbles could be exploited and severely impact the entire chain, even if the Ethereum blockchain remains unaffected. Additionally, applications requiring outside validation must create their consensus mechanism and incentivize users to secure their network, which is both technically and monetarily expensive.

Eigenlayer hopes to solve this problem by utilizing the security of Ethereum to secure these other validation layers. Instead of staking directly on Ethereum, users could stake into Eigenlayer’s smart contract, and then they can re-stake to other protocols like bridges and oracles. This would provide significantly more application security, as the ETH validators providing security would have to be compromised to exploit a protocol successfully. Additionally, ETH stakers could earn a much higher yield for providing security, as they get the ETH staking rewards and whatever rewards the protocol they choose to support supplies. It creates a win-win mechanism with greater security for the entire ecosystem, greater rewards for ETH validators, and more efficiency for non-EVM protocols. Moreover, new protocols can buy security from Ethereum and immediately create a secure application.

The main risk of Eigenlayer is also its largest benefit: shared security. An exploit on a protocol utilizing Eigenlayer could result in a loss or slashing of an ETH validator’s funds. For this reason, it is critical that an Eigenlayer validator diligently chooses which protocols to provide security for.

Eigenlayer’s lofty goal of creating pooled security across the entire Ethereum ecosystem could create a much more resilient and valuable settlement layer. Its public testnet is planned to release in late Q1 2023, with a mainnet sometime in Q2. The possibility of reusing staked Ethereum to support other applications would create an ever greater value proposition for the digital asset and could help it become the standard global settlement layer.

By Lincoln Murr

--

--

Get the Medium app

A button that says 'Download on the App Store', and if clicked it will lead you to the iOS App store
A button that says 'Get it on, Google Play', and if clicked it will lead you to the Google Play store
Bitpush News

New York-based blockchain media company covering everything crypto. Check us out at https://en.bitpush.news