EigenLayer: An Explanation of Ethereum’s Restaking Process. EigenLayer aims to provide developers with a well-established security framework, thus removing a significant obstacle that many new DApps encounter. Since its inception in 2015, Ethereum has made tremendous strides. It has maintained its status as the most important blockchain, switched from proof-of-work (PoW) to proof-of-stake (PoS), and is the basis for numerous groundbreaking cryptocurrency initiatives.
For example, developers have an established security pool thanks to EigenLayer, a decentralized staking mechanism for Ethereum. In this EigenLayer tutorial, we cover all the essentials of the Ethereum staking protocol, including staking.
One project built on Ethereum, the EigenLayer protocol, is working on a way to retake Ethereum to make the network’s PoS consensus better. The EigenLayer group asserts that it would address numerous security issues plaguing Ethereum, such as the fact that each protocol must handle its scalability and security procedures. But we first define the regular Ethereum staking procedure before discussing EigenLayer restaking.
What is Staking?
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One of the most well-liked aspects of cryptocurrencies is staking, which allows traders to earn money without actively doing anything. Cryptocurrency can be “staked” by depositing it into a staking pool, an exchange, or a smart contract. Users receive income on their staked assets, which the network then uses to strengthen security. A user’s passive income grows in direct proportion to the dollars they stake.
Validators, who are high-value stakeholders, take part in transaction validation and cast votes on network improvement suggestions, both current and future. The premise is that stakeholders will be vested in keeping the blockchain secure and less prone to engage in malicious behavior. Staking also encourages appropriate conduct. If an Ethereum validator does not act in the network’s best interest, their benefits will be reduced.
Compared to proof-of-work (PoW), decentralized staking is considered the more user-friendly method of validating transactions. Miners in a Proof-of-Work network race must validate blocks to earn a reward. Those who invest the most in mining hardware end up with the highest hash rates, as miners shell out thousands of dollars to get a competitive edge. New miners will find it even more challenging to join the fray as these users keep hoarding tokens.
With Ethereum, staking is as easy as keeping money in a savings account at a regular bank. Users without a large starting capital can now embark on their staking journey with the help of staking pools.
EigenLayer Supports Restaking—What is it?
An EigenLayer spin on the classic staking method is restaking. In addition to bolstering network security, it offers users new passive revenue opportunities. To strengthen the security of other protocols, EigenLayer users can engage in a practice known as restaking. This creates a pool of assets that other decentralized apps (DApps) can tap into. Users can use their previously staked Ether (ETH) or a liquid staking token (LST) to opt-in to EigenLayer’s restaking smart contract.
Most Ethereum projects offer liquid staking tokens as a receipt for staked funds. These token holders can restake their currency utilizing EigenLayer’s LST restaking without unstaking their original assets. However, users can connect their staked ETH with EigenLayer’s smart contracts. Native restaking uses staked ETH. Network nodes will add user-participated native restaking assets to protocol security.
Actively verified services (AVSs) include bridges, decentralized applications (DApps), and even oracles based on EigenLayer. Since EigenLayer already has a trust network in place thanks to restakers, developing on it is more efficient and cost-effective than creating on a separate protocol. To develop in a different place, you must establish a trust network.
However, AVSs aren’t just haphazardly using EigenLayer’s services. A node operator, a volunteer who chooses to assist with network management, acts as an intermediate instead. An operator, like an Ethereum validator, can be an individual user or a group.
In this paradigm, operators build or serve preexisting AVSs for rewards. AVSs can also cut operators if they don’t do their jobs. Restakers can also designate operators to manage their restaked assets. Restakers can give assets to any service. EigenLayer establishes free-market governance. Developers use EigenLayer to leverage security incentives. The security also benefits operators and restakers.
Restaker Assets: How Do they Manage?
With EigenPod, EigenLayer simplifies asset management. To withdraw a token from EigenLayer, users must first link their wallet to the app. Before putting money into EigenLayer’s restaking contract, first-time restakers must approve the procedure.
During the initial restaking process, a restaker creates an EigenPod, a smart contract that allows them to manage their restaked assets. Restakers can control restaking procedures, withdrawals, and more from a central hub called an EigenPod. Each Ethereum wallet address is limited to a single EigenPod.
The restaked points in EigenLayer allow restakers to see how they’ve contributed to the network. Starting from their restaking date onward, users will get resteaked points with each validated block. EigenLayer uses a secret method that takes into account the amount of restaked assets and the length of time they’ve been locked in to determine a user’s restaked points. Restaked LST and native restaked ETH are treated identically by the formula.
On EigenLayer, users can withdraw either a portion or all of their staking rewards. There is a partial withdrawal procedure for restakers who wish to cash out some of their incentives but keep delivering services. Partial withdrawals incur gas expenses and necessitate on-chain verification, which can be costly. Withdrawals made by restakers are subject to an extra escrow period before they reach their wallets; each partial withdrawal request must be submitted every four to five days.
Restakers who no longer wish to offer services might complete a full withdrawal. Aside from the escrow time and on-chain verification, the procedure is the same as a partial withdrawal. A restaker can redelegate their assets using EigenPod’s “redeposit” option if they inadvertently trigger a full withdrawal. Initiating either withdrawal process is possible for restakers in the “Unstake” section of their EigenPod.
Pros and Cons of EigenLayer
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This Ethereum network upgrade brings its own issues, but EigenLayer includes novel answers. EigenLayer intends to improve upon Ethereum’s proof-of-stake functionality, which has been successful in the past. That is, to a certain extent, what it is doing. The improvements it introduces, however, aren’t without flaws and may cause additional issues.
Pros
Additional passive revenue
Restakers can earn more than traditional staking methods since they can use their staked assets more.
Improving developer success rates
One major obstacle that many new applications have is now gone, thanks to EigenLayer’s security pool. Developers no longer need to worry about building trust to focus on creating excellent services. Using EigenLayer could result in truly unique layer-2 initiatives by eliminating a major obstacle that younger projects encounter.
Cons
Higher barrier to entry
While EigenLayer helps new DApps by giving them access to existing security, some users may find it overwhelming to join the network again. Network users can save time and effort on node creation and maintenance thanks to the built-in staking feature offered by several cryptocurrency exchanges. Having that level of accessibility requires less technical knowledge. Less technically savvy individuals are not likely to want to restake if they are already familiar with staking.
Increased risk
Compared to conventional staking, the slashing rules of EigenLayer AVSs are distinct. When restakers fail to fulfill their responsibilities, they increase their slicing risk twice because their assets are held in standard staking and restaking avenues.
Restakers are doubly vulnerable to security issues because of this. When they stake assets on Ethereum, stakers put their faith in the smart contract code. To restake, they are putting their faith in EigenLayer’s development abilities. Not to mention how good EigenLayer AVSs are. Thankfully, the source code for both Ethereum and EigenLayer is freely available to everybody. Before putting their funds in danger, knowledgeable engineers can evaluate this code.