Original author: tiezhusun
Original source: Wild Flowers
1. Background of re-pledge: Under the POS mechanism, network verification has become a pain point
Since Buterin proposed the blockchain worldimpossible triangleFinally, decentralization, security and high performance cannot be achieved at the same time. So far, all innovations in the infrastructure of the crypto world have revolved around these three points, and there is still no project that has broken this law. In Buterins grand vision for Ethereum, decentralization and security have always been firmly grasped on the main Ethereum blockchain, and the performance level is solved through the off-chain Layer 2 layer. In September 2022, Ethereum’s security architecture changed fromPOWAfter switching to POS, the staking ecosystem has gradually become more active. After all, the more nodes that serve as network validators, the higher the security and decentralization of the Ethereum ecosystem, and the more it can attract the ecosystem to continue to grow.
However, compared to the large number of network validators on the main block of Ethereum to maintain transaction security, others such as oracles, defi, DALayer, etc. also require security. For project parties who are not short of money, such as DYDX and Chainlink, they can spend money to build a new public chain and spend time and energy to build their own network verification nodes. However, in the real world, most project parties not only have doubts about their technical strength , and even more so without money, its security has been put to the test. This can be said to be a more prominent pain point demand in cross-chain bridge projects.
In this context, Eigenlayer first proposed the concept of Restaking, whose core narrative lies in safe sharing.
2. How the Eigenlayer protocol operates: secondary staking and building a secure sharing system
1. Re-pledge mode
The original meaning of re-pledge is to pledge the assets that have been pledged for a second time, but these pledge plans are run on another platform or protocol. Therefore, if you want to discuss re-staking, you need to conduct a brief review of the Ethereum staking track.
In the traditional sense, the Ethereum staking track is essentially Staking based on network validators. Its biggest disadvantages are the high threshold (32 ETH) and the lock-in period. In other words, these pledged ETH are theoretically locked. The dormant state of the market gave birth to derivatives (LSD) based on liquidity staking. Currently, the largest TVL is Lido, which almost occupies more than 70% of the market share.
The basic business of the liquidity pledge agreement is to form a pool of ETH pledged by individual retail investors to meet the requirement of 32 ETH for the Ethereum verification node. In return for users depositing ETH, they are ERC-20 derivative tokens minted by the agreement, with a distribution ratio of 1:1, such as stETH issued by Lido, if the user wants to withdraw ETH, the derivative token will be returned (destroyed), and at the same time, he will receive the same share of pledged ETH and rewards.
The above is a typical liquidity staking process, and Eigenlayer re-pledge goes a step further on this basis. The pledge certificates in LSD can be re-pledged on Eigenlayer.
It is worth noting that if you cancel the pledge, you need to wait for the end of the 7-day escrow period. In addition, native re-staking of Ethereum verification nodes is also provided, and this type of operation needs to be performed on the Ethereum validator.
In general, Eigenlayer provides four re-staking modes:
1. Native re-pledge. Ethereum base network validators can re-stake their staked ETH by pointing their withdrawal credentials to the EigenLayer contract
2.LST is heavily pledged. Validators can re-stake by staking their LST, and ETH has been re-staking through protocols such as Lido and Rocket Pool, transferring their LSD into the EigenLayer smart contract.
3. ETH LP re-pledged. Validators stake a pair of LP tokens including ETH.
4. LST LP re-pledge. Validators stake a pair of LP tokens, which include liquid staked ETH tokens such as Curve’s stETH-ETH LP tokens.
2. Eigenlayer security sharing implementation mechanism: pooled security and free market
Eigenlayers re-pledge serves to share the security of the Ethereum base layer, and its implementation mainly relies on the two mechanisms of Pooled security and Open marketplace.
The main operating principle of Pooled security is: Ethereum validators can set their beacon chain withdrawal credentials to EigenLayer smart contracts, and choose to build new modules based on EigenLayer. These modules can verify the validity of the validators who choose to join the module. The staked ETH imposes additional slashing conditions, and in return, validators receive rewards from the staked credentials on the one hand, and additional income from projects using AVS (Active Verification Service) services.
Free market governance (Open marketplace): EigenLayers open market mechanism, mainly used to manage how validators provide their pooled security and how AVS uses its pooled security, where validators can choose whether to join or exit building based on EigenLayer For each module, individual modules need to be fully incentivized for validators to allocate re-collateralized Eth to their modules, and validators will help determine which modules are worthy of allocating additional pool security, given the possibility of additional slashing. In other words, the original intention of free market governance is to establish a competitive market determined by supply and demand. To put it bluntly, verifiers can freely choose which protocols to serve based on their own risks and rewards.
In addition, in terms of punishment mechanism, Eigenlayer has also significantly increased the cost of malicious attacks. The entire punishment is executed by smart contracts, and can punish malicious investors up to 50% of the ETH.
3. The operation of Eigenlayer: the three-party relationship between pledgers, operators, and AVS service demanders
For most re-staking users, it is a good investment to obtain rewards through re-staking on the Eigenlayer platform, but if you need to provide AVS services at the same time, it may not be considered. Eigenlayer is obviously aware of this and has also provided corresponding services. The service and platform protocol introduces the role of an operator. On this basis, it is divided into two operating modes.
1) Solo Staking: One situation is that the re-pledger canopt-inAVS on the platform directly provides verification services for it; in another case, the re-pledger can entrust the operation of the eigenlayer platform to other entities and give rewards, and continue to perform verification responsibilities on the Ethereum mainnet.
2) Delegation Model: This model is similar to full custody. Under the delegation model, the rights and interests of the re-pledger are fully entrusted to a third-party operator. If the entrusted operator fails to perform its duties, not only the operators own shares will be affected. Penalties are reduced and re-stakers themselves are penalized, so the platform recommends reputable operators with successful records.
Regarding the specific charging model, there is a free entrustment market between re-pledgers and operators. In other words, the proportion of entrustment fees is determined by both parties, but the overall fee is provided by projects that require AVS services.
existtrust modelIn fact, the trust between re-pledgers and operators mainly relies on the community of interests, in other words, mutual trust by default, similar to LSD pledge; operators and AVS mainly rely on the penalty mechanism.
3. Eigenlayer ecological gameplay: the positive significance outweighs the potential risks, and potential projects deserve great attention
1. Risk: Logical and profit problems of safe sharing
In essence, the Eigenlayer project is the matryoshka doll project of the Ethereum ecosystem. Assuming that according to this safe sharing logic, infinite matryoshka dolls can be theoretically created, and it has a highly similar structure to the root cause of the 2008 subprime mortgage crisis. This is also an important reason why Buterin is worried about the risk of re-pledge. In other words, the re-pledge protocol relies on the underlying consensus of Ethereum in the event of major losses. This impact will be transmitted to the layer 1 network, thus triggering a normative conflict in the layer 1 network itself. , which is the so-called consensus overload problem. In the words of the financial world, excessive leverage on the consensus itself may lead to the collapse of the consensus itself.
The matryoshka properties of Eigenlayer cannot be denied, but on the basis of limited matryoshka dolls, this is indeed not only a way to improve the efficiency of asset operation on Ethereum, but also moderately extends the security consensus on the Ethereum main chain, which is indeed very It is conducive to the prosperity of the Ethereum ecosystem itself. As far as the nature of the project is concerned, it provides SaaS services, although some people call itRaaS. If we look forward to the future of the encryption world, one obvious trend is that public chain competition has entered the Spring and Autumn Period and the Warring States Period. Multiple chains are shining, Daaps are emerging one after another, and the few high-level security consensuses in the encryption world have become popular. This is the stage for projects like Eigenlayer. From this perspective, its positive significance outweighs the potential dangers.
From a risk perspective, the biggest potential risk of the Eigenlayer project is the logical difficulty of the concept of safe sharing itself. Those who have the ability to ensure security do not need to share, but those who need to share are extremely unsafe and are likely to be hit by thunderstorms. Therefore, from a business model perspective, Eigenlayer still has a long way to go, especially for re-stakers. Without high returns or airdrops, it is basically impossible to engage in re-staking. Will it be able to make stable profits in the future? There is a question mark, but at least in the short term, with the support of top investment institutions and concepts, there is no problem with market value expectations. In the long run, Eigenlayers model is likely to work, especially in a world where modularity is becoming increasingly popular. This fast, convenient, and low-cost deployment method is a very imaginative narrative.
