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Ethereum transitioned from a Proof-of-Work (PoW) model to a Proof-of-Stake (PoS) system through a series of upgrades. In PoS, users stake their ETH tokens to secure the network. Essentially, they become validators who verify transactions and ensure network integrity. In return for their contribution, stakers earn rewards.
However, staked ETH is temporarily locked, limiting its accessibility. This is where EigenLayer steps in with its innovative approach. This article provides a quick overview of EigenLayer, its core functionalities, pros and cons, and the key differences between traditional staking and EigenLayer staking.
What Is EigenLayer?
EigenLayer is a protocol built on top of the Ethereum blockchain. It introduced a concept called “restaking collective,” allowing ETH stakers to support applications within the Ethereum ecosystem.
EigenLayer creates a dynamic marketplace for decentralized trust. Developers can benefit from the security provided by the collective pool of stakers, while stakers can support the development of their projects.
How Does EigenLayer Work?
Modules
EigenLayer introduces a modular security approach. It allows stakers to contribute their ETH to secure specific functionalities within the network. These functionalities are generally referred to as modules.
For example, a module might be dedicated to securing decentralized storage solutions like Arweave. Some modules could secure in-game items within blockchain-based games. Others could foster trust within DeFi applications like Aave.
Smart contracts
Ethereum stakers can restake their staked ETH via EigenLayer smart contracts, offering a new set of security and validation services to specific modules in the network. This is achieved by granting EigenLayer contracts the ability to set certain conditions on staked assets.
Restaking
EigenLayer restaking can be done in two different ways:
1. Solo staking. Users can operate their own nodes and actively validate transactions for the modules. This method is more suitable for advanced users.
2. Delegation. EigenLayer also allows delegating the node operation to other participants within the network. This is a convenient option for users who want to contribute to EigenLayer while avoiding the technical aspects.
Staker diversity
EigenLayer recognizes that stakers may have different preferences and capabilities. Some can have powerful computers suitable for solo staking, while others may prioritize convenience through delegation.
Additionally, stakers may have different risk tolerance levels. EigenLayer allows modules to adjust their requirements to match specific stakers, fostering a more flexible network.
Traditional Staking vs. EigenLayer Staking
EigenLayer disrupts the traditional staking on Ethereum, offering a unique approach with its “restaking collective” concept. Let’s take a look at the key differences between traditional staking and EigenLayer staking.
Liquidity
In traditional staking, staked ETH becomes temporarily locked. While the staked ETH is locked, stakers can’t use it. In contrast, while the underlying ETH remains staked, EigenLayer allows users to leverage it for additional purposes. For example, stakers may use it to increase the security of various applications being built on Ethereum.
Participation and rewards
When it comes to traditional staking, participation is relatively straightforward. Essentially, users lock up their ETH and earn rewards based on the staking protocol they choose.
In contrast, EigenLayer offers a wider range of participation options. Users can choose between solo staking or delegation. Delegation might be a better choice for users who don’t have advanced technical knowledge of cryptocurrencies.
In addition, EigenLayer staking can potentially be more rewarding. Modules with higher security needs might offer greater rewards for stakers who secure them.
Security focus
In traditional staking, staked ETH directly contributes to the security of the Ethereum blockchain. In EigenLayer staking, security becomes modular. Users can contribute to the security of specific modules within the Ethereum ecosystem. The overall security of a module generally depends on the collective staking power directed towards it.
Pros and Cons of EigenLayer
Pros
1. Enhanced security for DApps. By leveraging a pool of validators for various modules, EigenLayer strengthens the overall security of decentralized applications (DApps) built on those modules. This fosters a more trustworthy environment for users interacting with DApps.
2. Testing ground. EigenLayer acts as a platform for testing and validating new Ethereum functionalities before integrating them into the mainnet. This lets developers experiment with innovative ideas like danksharding, a core feature of the Ethereum Cancun upgrade.
3. Permissionless innovation. Developers no longer need to build their own validator sets to secure their applications. Instead, they can leverage the existing pool of secure validators offered by EigenLayer through restaking. This generally lowers the entry barrier for developers and fosters more innovation on Ethereum.
Cons
1. Complexity. EigenLayer introduces a new layer of complexity to the Ethereum ecosystem. Understanding how restaking works, choosing the right modules to participate in, and managing the technical aspects (for solo stakers) can be challenging for some users.
2. Centralization risks. While EigenLayer promotes decentralized trust, a few dominant staking pools may emerge, leading to a degree of centralization within the restaking collective.
3. Module collusion risks. The modular design of EigenLayer offers flexibility but also introduces a potential risk of collusion between malicious actors controlling multiple modules.
Closing Thoughts
EigenLayer’s “restaking collective” serves as a potential game-changer for decentralized trust on Ethereum. By enabling permissionless innovation and providing a testing ground for Ethereum features, EigenLayer may play a crucial role in shaping a future of robust, secure, and scalable decentralized applications.
