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EigenLayer staking: potential wealth code or hidden risk?

BlockBeats2024/05/21 10:39
By:BlockBeats
Original title: "EigenLayer Staking: Potential Wealth Code or Hidden Risk?"
Original author: Fishery, Biteye core contributor


Recently, EigenLayer launched the first phase of the Eigen airdrop event, which was very popular in the market and was regarded as the leader of the re-staking track in this bull market.


Currently, Eigen has only enabled the staking function, and transfer transactions are not yet possible. Therefore, whether to participate in staking Eigen is a hot topic in the market.


In order to help everyone understand, this article will clarify the mechanism of EigenLayer staking, as well as the rewards and potential risks that may be obtained by staking. At the end of the article, the author will also talk about his own views on whether EIGEN should be pledged.


First of all, it should be made clear that the staking mechanism of EigenLayer is very different from the staking mechanism of PoS on the ETH mainnet. It is more like the staking logic of the Cosmos community. Whether it is the structure of the staking interface or the marketing of node airdrops, it is full of the shadow of Cosmos, so to a certain extent, you can refer to the gameplay strategy of Cosmos.


01 EigenLayer: Ethereum Restaking


Restaking refers to the reuse of ETH that has been staked on the Ethereum mainnet to support the security of other projects. In this way, users can not only get returns from the original stake, but also increase potential rewards by supporting more projects.


EigenLayer was founded in 2021 and is a pioneer in the concept of restaking. It is a middleware platform that sits between the Ethereum mainnet and other applications. The platform deploys a mainnet smart contract that allows stakers to re-stake their ETH and ETH staking derivative tokens (LST) on EigenLayer.


Since its launch in June 2023, EigenLayer has experienced rapid growth, with a total staking value of over $10 billion, making it one of the largest blockchain protocols on the market, with a total staking value that even exceeds many major decentralized finance (DeFi) platforms such as Aave, Rocket Pool, and Uniswap.


Double Staking


Now that $Eigen tokens are available, the staking assets accepted by EigenLayer are no longer limited to the re-staking business of ETH and ETH LSTs, but also include the staking services of $Eigen and the native tokens issued by various AVS in the future.


This is the dual staking concept innovated by EigenLayer: the "re-staking" service of ETH series tokens and the "staking" service of Eigen series tokens are responsible for maintaining the security of EigenLayer as a whole.



To understand dual staking, you must first understand Quorum (literal translation: legal number of people).


In the context of EigenLayer, Quorum specifically refers to a group of assets (re-staking/staking assets) for shared security adopted by AVS.


Node (Opreator) operators can choose to join the Quorum of one or more tokens based on the composition of the assets staked to their nodes and the design of AVS.


According to the official introduction, the AVS team can decide the numerical settings and asset composition in "Quorum", and the settings of Quorum are not immutable and can be changed after AVS goes online to adapt to the market environment in a timely manner.


The innovation of double pledge effectively alleviates the network security problems caused by the large amount of local tokens in the traditional proof-of-stake (PoS) network by introducing more stable assets as security guarantees. Double pledge provides continuous economic support for the network by introducing external tokens with relatively stable market conditions such as Ethereum, thereby maintaining the overall security and stability of the PoS network.


After the network runs smoothly, it is possible to consider adjusting the tendency of the two tokens in the pledge ratio, that is, increasing the proportion of native tokens to enhance the autonomy and independence of the network.


Although double pledge improves the network's risk resistance and provides project parties with a richer economic toolbox, it also brings new challenges and risks.


First, this mechanism denies the sovereignty of the project tokens to a certain extent, weakening the value and use of the original tokens of the network, so more empowerment may be needed to offset the negative impact of losing sovereignty.


In addition, this staking mechanism that increases flexibility also introduces certain centralization risks, especially the modification decisions of quorum may not be completely transparent or widely participated by the community, and may involve centralized decision-making.


As for the EigenLayer project itself, in the same double-staking scenario, the native token Eigen is also treated differently from the ETH-based tokens in terms of unstaking time.


The EigenLayer mainnet contract sets a 7-day delayed withdrawal period for LST tokens and ETH re-staking, while the withdrawal window for EIGEN tokens is 24 days.


The team explained the difference in withdrawal time by saying that EIGEN will be given more unique features in the future (requiring longer unlocking time), but it is still unknown what specific features will make EIGEN's unlocking time three times longer than ETH.


This mechanism of setting an extremely long unlocking time without a transparent mechanism will undoubtedly bring huge risks to EIGEN pledgers.


In short, it has made some achievements from the economic level and provided the project team with a high degree of flexibility and scalability, but retail investors need to carefully identify and guard against risks in actual operations, especially in the important protocol parameter settings and changes in the unlocking mechanism, and pay more attention to the centralized risks.


02 EigenDA


EigenDA is a data availability storage solution developed by EigenLabs and built on the EigenLayer platform. The system has been online on the mainnet since the second quarter of 2024.


Since the EigenLayer document does not provide a detailed introduction to the avs pledge parameters. As EigenDA is the first avs, we can get a glimpse of the pledge parameter setting ideas of EigenLayer avs through the parameters of EigenDA.


EigenDA is limited to 200 active operator nodes on the mainnet and Holesky testnet. According to the document, this limitation is due to the cost of bridging EigenDA's availability proof to Ethereum L1. It is expected that with technological improvements, this cost will be reduced, which is expected to relax the restrictions on the number of operators.


The document has requirements for the minimum pledged assets of nodes:


Operators joining Ethereum (ETH) need to pledge at least 96 ETH; and operators joining the EIGEN group need to pledge at least 1 EIGEN.


Compared to the newly launched PoS public chains, EigenDA does not have many nodes, which is at the same order of magnitude as Cosmos, and has set an upper limit on the number of nodes.


In contrast, other well-known PoS public chains do not limit the number of nodes, but choose to set a lower limit of pledged assets. For example, Solana and Avalanche both have more than 1,700 nodes, while Ethereum has more than one million validators.


EigenDA restricts node groups from both asset and quantity levels. Under such strict conditions, it is not difficult to expect that there will be a situation where the number of nodes that meet the asset requirements is less than the upper limit of 200 set by AVS. For example, now, EigenDA has only 147 active nodes.


Of course, the number of nodes and network security are not completely related, and are only for your reference and horizontal comparison.


When the number of operators reaches the upper limit (200), the newly added operator must have a group weight that is 1.1 times greater than the current operator with the lowest weight in order to replace the operator.


And there is a big problem hidden here, which is also one of the core problems that restakeing needs to solve:


Ordinary PoS chains can easily audit the status of native assets in the nodes and update the valid node set autonomously according to the rules, but EigenLayer is different, because the re-pledged assets are in the Ethereum mainnet, and the EL nodes cannot directly obtain the dynamics of the Ethereum mainnet.


Therefore, a safe and decentralized means is needed to prove that the upper node meets the requirements.


If this step cannot be decentralized, then the bad guys may illegally replace the regular nodes and attack the EL consensus.


The difficulty is that it is unrealistic to consider using smart contracts to solve this problem, because the computational cost and complexity of sorting or maintaining priority queues on the chain are very high.


To solve this problem, EigenLayer has adopted the second best method and introduced a combination of off-chain personnel authorizer (Churn Approver) and on-chain smart contract checks.


When the network reaches the operator limit, if a new operator wants to join, the new operator can apply for a signature from the "personnel authorizer", which will check whether the new operator meets the funding requirements, and then provide a signature. Finally, the signature and operator change information will be entered into the EigenDA smart contract on the main network.


Although this mechanism that relies on off-chain signatures provides convenience and flexibility in operation, it also introduces certain centralization risks.


The off-chain signature process may be affected by improper operation of the approver or system security vulnerabilities, thereby affecting the decentralization and security of the entire network.


In addition, the document does not mention the risk of the personnel authorizer going offline. If the off-chain validator does not respond to the online request of the new node, the EigenDA validator cannot be replaced according to the rules, and the validator that needs to be excluded can still participate in the verification, which is a very dangerous thing.


Therefore, all links that introduce off-chain mechanisms require users to pay special attention.


03 Disappearing Slash Reward Mechanism and Staking Strategy


The Slash Reward mechanism is the core mechanism of all PoS networks, but due to the hasty launch of EigenLayer, the reward and punishment function has not yet been completed.


Everyone should be familiar with the reward part, which is the output of apr, plus the expectation of airdrop. The punishment (slashing, slashing) part is more complicated. If the operator fails to fulfill its obligations, such as the node being down/offline for a period of time, or secondary signatures, the user funds entrusted to this node will be deducted by a percentage, and the node apr emission may also be shut down.


Please note that EigenLayer has not yet announced the details. The above introduction to the reward and punishment mechanism is summarized with reference to other PoS projects.


In my opinion, this operation is quite outrageous, because when users participate in re-staking, these rules have not yet been launched, and most of them do not know the existence of Slashing. In the future, if the node delegated by the user does evil or fails, the user will lose funds without knowing it.


If the re-staking user considers the security of funds, he should try to disperse the pledge among different operators. In this way, the risk can be dispersed, and if Slashing occurs, only a part of the funds will be lost.


According to the marketing reward direction of the EigenLayer ecosystem, choosing the most well-known node with a points airdrop plan for re-staking can obviously obtain the maximum expected return, and this incentive is contrary to the original intention of maintaining decentralization.


04 Conclusion


As an emerging technology, re-staking is attracting widespread attention from both inside and outside the industry. In particular, according to reports on March 15, the co-founders of Lido, the largest Ethereum mainnet staking protocol, and Paradigm are secretly funding a new project called Symbiotic to enter the re-staking field, which is enough to confirm the trend of the industry.


However, despite the huge development potential of the re-staking market, the technical challenges faced by EigenLayer discussed in this article cannot be underestimated. Especially since the Ethereum mainnet has not included re-staking in the EIP.


Currently, the proposal on how to allow the mainnet to obtain EigenLayer exit validators has not been finalized, which brings certain uncertainties. The imperfection of technology increases the risk of participating in re-staking, especially in the scenario where assets may be slashed.


At present, EigenLayer's design is more inclined to economic benefits rather than technology. If the technical problems can be solved, projects that specialize in economic benefits will inevitably bring significant returns.


Overall, EigenLayer has shown great market potential and room for growth in the wave of re-staking. Although it currently faces some technical and standardization challenges, these are stepping stones on the road to growth.


As these problems are gradually resolved, we have reason to believe that EigenLayer will be able to achieve its long-term economic goals while accelerating innovation.


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Disclaimer: The content of this article solely reflects the author's opinion and does not represent the platform in any capacity. This article is not intended to serve as a reference for making investment decisions.

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