Quick Overview of the EigenLayer White Paper: Scaling the Consensus Layer

Author: Bixin Ventures

On the afternoon of February 21, Beijing time, Eigenlayer, which is regarded by many leading investment research institutions as the most important innovation for Ethereum in 2023 and has the potential to open up new narrative directions for Ethereum, finally disclosed its V1 white paper.

Eigenlayer is a re-staking protocol built on Ethereum, allowing Ethereum nodes to re-stake their staked ETH through EigenLayer to earn additional rewards. It also enables the utility of Ethereum's consensus layer to be transmitted to various middleware, data availability layers, sidechains, and other protocols, allowing them to enjoy Ethereum-level security at a lower cost.

Bixin Ventures promptly interpreted this long-awaited white paper, focusing on the core content of Eigenlayer's basic principles, operational mechanisms, security guarantees, governance framework, application scenarios, and commercialization prospects. We will also conduct a more in-depth analysis of EigenLayer, and you are welcome to subscribe to Bixin Ventures' Twitter and Medium column to receive more in-depth interpretations and firsthand research on various projects in a timely manner.

With the release of the white paper, EigenLayer also plans to organize a community Space tomorrow morning at 9 AM (PT), where everyone can ask questions and learn more about EigenLayer.

1) Fragmented Trust Network

Currently, thousands of decentralized applications (DApps) are built on Ethereum, and the entire ecosystem continues to grow. The value foundation of a trusted decentralized underlying network comes from: developers can have their DApps adopted by anyone who trusts and verifies the underlying blockchain without needing any reputation or trust. Rollups are an important direction for Ethereum's performance scaling: transactions are not executed using EVM but ultimately settled back on Ethereum. Although different Layer 2 solutions adopt different security verification methods, people trust Layer 2 solutions based on Ethereum.

However, any module that is not deployed or proven on EVM cannot leverage the security of Ethereum's trusted underlying layer, such as sidechains based on new consensus protocols, data availability layers (DA), new virtual machines, oracles, and trusted execution environments. Generally, they need to build their own independent AVS (Active Verification System) and take responsibility for their system's security. The current AVS ecosystem has some drawbacks:

• Building a new AVS means creating a new trusted network, which is not an easy task;
• A new AVS means that users need to pay an additional AVS fee on top of the Ethereum interaction fees, leading to value loss;
• For validators, entering a new verification system means bearing certain opportunity costs and risk exposure;
• The current AVS system weakens the security factor for some DApps. This is reflected in the fact that the security of some DApps relying on middleware is compromised due to their simultaneous reliance on the trust assumptions of both Ethereum and the middleware, increasing the likelihood of risks due to the low cost of attacking the middleware.

2) Re-staking and Free Market Governance

EigenLayer introduces two new concepts, re-staking and free market governance, to extend Ethereum's security to other systems and enhance governance efficiency.

• Re-staking

EigenLayer allows users to re-stake their ETH staked on Ethereum on EigenLayer, and these re-staked assets can be used for data availability layers, oracles, middleware, Layer 2, etc. Validators can also earn corresponding rewards by providing security and verification services.

• Free Market Governance

EigenLayer allows validators to freely choose which modules to participate in based on their risk preferences, but the premise for validators to earn profits is to ensure security. EigenLayer's governance model has two benefits: first, it integrates a robust underlying blockchain with fast and efficient elements; second, the optional validator model allows new modules to compete for other resources among validators, thus better balancing security and performance.

The AVS on EigenLayer can rent the security services of Ethereum validators, with the following benefits:

• A new AVS can enhance economic security through Ethereum's validators
• The overall cost of using Ethereum's security enhancement is the lowest
• The security model of EigenLayer increases the cost of destruction ($13 billion)
• Value accumulation: allowing ETH stakers to earn returns from the AVS

2.1 Support for Multiple Staking Models

EigenLayer offers various staking methods similar to Lido's liquid staking and superfluid staking, where superfluid staking allows LPs to stake, specifically:

• Direct staking: Directly staking ETH staked on Ethereum to EigenLayer
• LSD staking: Re-staking assets already staked in Lido or Rocket Pool to EigenLayer
• ETH LP staking: Re-staking LP Tokens staked in DeFi protocols to EigenLayer
• LSD LP staking: For example, re-staking Curve's stETH-ETH LP Token to EigenLayer

2.2 Delegators

For those interested in EigenLayer but do not want to operate as node operators, they can delegate their rights to other node operators, who will then stake the tokens on Ethereum and distribute the earnings to these re-stakers. EigenLayer provides two models:

• Individual staking model: Stakers provide verification services and can either join the AVS directly or delegate operations to other operators while continuing to verify for Ethereum
• Trust model: Choose a trusted operator to operate; if the chosen operator fails to execute as agreed, the interests of the delegator will be penalized. Additionally, re-stakers need to consider the fee ratio with the delegators, which is expected to form a new market where each EigenLayer operator will establish a delegation contract on Ethereum, specifying how to allocate fees to delegators.

3) Slashing

3.1 Slashing Mechanism Design

The security of the crypto economy quantifies the cost of attacking the network, referred to as the "Cost-of-Corruption." When the cost of corruption exceeds the potential profit from corruption, the system gains strong security. EigenLayer's slashing mechanism will increase the cost of destruction and make the crypto network more secure.

3.2 No Use of Homogeneous Tokens

EigenLayer will not issue homogeneous tokens as staking certificates because each user may have different delegated staking choices, thus having different slashing risks; at the same time, using homogeneous tokens to ensure the transparency of each position could create conflicts between the position holders and node operators.

3.3 Similarities and Differences with Merged Mining

The concept of re-staking in EigenLayer is similar to the merged mining concepts of Bitcoin/Namecoin, Bitcoin/Elastos, Bitcoin/RSK, and Litecoin/Dogecoin. Merged mining can save a lot of costs because miners can mine different PoW blockchains simultaneously under the same cryptographic mechanism. For PoS blockchains, the biggest cost for validators is the staking cost, while re-staking allows staking funds to be utilized across different execution layers.

However, the similarities between merged mining and re-staking end there. Suppose that for both PoS and PoW, some main chain validators are also validators for multiple chains (i.e., merged mining occurs for PoW, and re-staking occurs for PoS). When they attack a smaller public chain (for example, intentionally signing an incorrect state root leading to cross-chain asset issues), two scenarios can occur:

In the PoS chain merged through re-staking, the following measures can be taken: fraudulent proofs can be published on the main chain for incorrect state transition roots, and the staking funds of malicious validators will be slashed.

For PoW public chains, even if all miners on the main chain choose to merge mine the chain, there is no significant cryptoeconomic security. The main reason is that the option of slashing cannot be taken— we cannot slash the mining hardware of malicious miners, which would become ineffective or be removed; the miners' hardware will still retain value.

3.4 Risk Management

There are two types of risks in EigenLayer:

• Many operators may collude to attack a group of AVS simultaneously;
• AVS may have unexpected slashing vulnerabilities, such as honest nodes being slashed.

3.4.1 Operator Collusion

In reality, only a portion of operators choose to join a given AVS, and some of these operators may collude to steal funds from a group of AVS, leading to complex attacks.

• One solution is to limit the profit from destruction for any specific AVS. This solution depends on the designers of those AVS. For example,
• Bridges can limit the flow of value during the slashing period,
• Oracles can limit the total value of transactions during that period, etc.
• Another solution is that EigenLayer can actively increase the cost of destruction for AVS. EigenLayer creates an open-source dashboard that allows AVS built on EigenLayer to monitor whether a group of operators participating in its verification tasks is also re-staking in many other AVS. AVS can establish norms in their contracts that only incentivize EigenLayer operators participating in a few AVS.

3.4.2 Unexpected Slashing

Before the AVS and its related infrastructure and contracts are practically tested, many slashing risks need to be controlled to avoid larger cumulative risks. One risk is unexpected slashing vulnerabilities when creating AVS (e.g., code bugs), which, once triggered, could lead to losses for honest operators.

We propose two solutions here:

• Security Audits: AVS codebases must be audited like smart contracts.
• Veto Power over Slashing: EigenLayer has a governance layer primarily composed of important members from the Ethereum and EigenLayer communities, which has the ability to veto slashing decisions through multi-signature.

3.5 Governance Framework

EigenLayer uses a reputation-based committee for governance, composed of prominent figures from the Ethereum and EigenLayer communities. This committee will be responsible for upgrading EigenLayer contracts, reviewing and vetoing slashing events, and allowing new AVS to enter the slashing review process.

AVS can leverage this committee to assure re-stakers in EigenLayer that they will not be subject to malicious or erroneous slashing. At the same time, AVS developers can conduct practical tests on the codebase related to AVS. Once mature and trusted by re-stakers, AVS can stop using the committee as a backup. AVS may require the committee for security audits and other due diligence when created on EigenLayer, including checking the system requirements for validators serving AVS.

3.6 Maximizing Security While Minimizing Centralization Risks

We note that when all ETH re-staked using EigenLayer is used to protect an AVS, this AVS can achieve maximum security. However, there are two obstacles:

• Whether the expected income from AVS for operators can exceed operating costs;
• Whether operators have sufficient computational resources to participate in AVS verification.

EigenLayer proposes two possible module design patterns to alleviate these concerns:

• Hyperscale AVS: In hyperscale AVS, the total computational workload is distributed among all N participating operators. This reduces storage costs and node throughput requirements, while the system itself can achieve high throughput by aggregating the performance of multiple nodes.
• Lightweight AVS: Some tasks have very low costs and require minimal computational infrastructure, and tasks can be redundantly executed by operators, such as verifying zk-proofs, etc.

4) EigenLayer Ecosystem

4.1 Implementing New Application Scenarios

EigenLayer can support many types of protocols by providing AVS services, including: data availability layers, decentralized sequencers, light node bridges connecting Ethereum, faster bridges between Rollups, oracles, event-driven activation functions, MEV management, low-latency sidechains, and helping Ethereum achieve single-slot finality, etc.

4.2 Leveraging the Heterogeneity of Stakers to Significantly Expand Block Space

Ethereum nodes exhibit heterogeneity in computing power, risk-return preferences, and characteristics:

• To consider decentralization, blockchains set block limits based on the weakest node performance, while more powerful nodes can provide excess resources to other protocols through EigenLayer.
• Nodes with a higher risk preference can choose to provide verification for protocols with higher risks, lower liquidity, but higher returns.
• By combining technologies like verifiable credentials and SBTs, different protocols can select more suitable nodes for verification based on node characteristics.

4.3 Breaking the Balance Between Democracy and Flexibility

Ethereum's updates are currently progressing slowly through a robust off-chain democratic governance model. EigenLayer can enable rapid deployment of innovations on Ethereum's trusted layer, providing testing and experience for innovations on Ethereum's mainnet like a testnet, avoiding the trade-off between rapid innovation and democratic governance.

4.4 Advancing the Decentralization Process of Ethereum Stakers

EigenLayer provides a market for monetizing decentralization for AVS, allowing AVS to specify that only individual Ethereum nodes (home validators) can participate in tasks, helping AVS maintain decentralization. At the same time, individual nodes can earn additional rewards, incentivizing more users to run individual Ethereum nodes and increasing the decentralization of the mainnet.

4.5 Supporting Multi-Token Node Quorums

EigenLayer allows the AVS of protocols to specify their own node quorums to operate alongside the re-staking ETH node quorums. For example, Protocol A can choose to use two node quorums, one requiring re-staked ETH and the other requiring staking of the protocol token $A. When both node quorums agree on a matter, Protocol A ultimately agrees for that matter to take effect. This mechanism can help the protocol token $A gain utility and accumulate value for the protocol.

4.6 Business Models

The business models that protocols can adopt using EigenLayer include:

• Pure wallet model: The protocol deploys an AVS on EigenLayer to provide services, users pay fees to obtain services, with part of the income going to the protocol's wallet and another part to the ETH re-stakers in EigenLayer.
• Tokenized fees: The protocol deploys an AVS on EigenLayer as a protocol, users pay fees to obtain services, with part of the income going to protocol token holders and another part to ETH re-stakers in EigenLayer.
• Payment using the protocol's native token: The protocol deploys an AVS on EigenLayer as a protocol, users need to pay with the protocol token to obtain services, with part of the income going to protocol token holders and another part to ETH re-stakers in EigenLayer.
• Dual-token staking: The protocol specifies two node quorums for the protocol token and ETH to operate together, helping the protocol token gain utility while using ETH to prevent damage to economic security when the protocol token price declines.