- Use Cases
By Pat Doyle
EigenLayer is a groundbreaking protocol that introduces the concept of “re-staking,” which aims to enhance the utility and security of Ethereum’s staking infrastructure This new crypto-economic primitive allows users to stake ETH or a liquid staking token (LST) into an EigenLayer contract which then can extend the security of Ethereum to other networks.
Users opt-in to re-stake their ETH and by doing so open up a new path for security across other applications. This new layer of re-staked ETH now allows for a staking marketplace for security. Validators and protocols alike can decide to which protocols they want to extend the Ethereum security. Similarly to the ETH consensus layer, EigenLayer also has slashing conditions that will penalize malicious behavior, allowing a level of security to this second-layered staked ETH.
Just like everything else in crypto, the EigenLayer protocol comes with trade-offs that are important to consider. On the positive side:
- This allows new EVM and non-EVM compatible protocols to leverage the security of the Ethereum network to bootstrap their protocol. This concept is not foreign to blockchain, it mirrors a similar pattern for networks like Cosmos.
- This can end up increasing the demand for ETH as the yield it produces could increase drastically while minimizing the fragmentation of liquidity across other chains.
- EigenLayer slashing aligns participants to act in the best interest of protocols.
On the flip side, there are always risks when it comes to re-staking ETH:
- There is always an inherent smart contract risk. Smart contracts are only as “smart” as they are developed to be. For example, much of EigenLayer depends on its rebalancing algorithm. Failures in the algorithm could open up unforeseen attack vectors
- EigenLayer can be seen as a rehypothecation of ETH which can lead to a potential cascading effect. For example, if a bug were to occur in the stETH contract, this would cause a cascading effect on the value being secured via the EigenLayer. Vitalik discusses these risks in detail in this post.
- Because EigenLayer’s re-staking mechanism ensures security by largely increasing the cost of malicious attacks, protocols that are built through EigenLayer and not properly audited could introduce unintended slashing vulnerabilities leading to users losing their staked ETH or LSTs. It is important to note that for non-attributable slashing (not cryptographically provable) there are plans for a slashing veto committee that can curb a lot of this risk.
While there are no guarantees in crypto, I remain optimistic about EigenLayer and their respective team. Not only is Eigenlayer a unique approach to the value accumulation of Ethereum and an elegant approach to sharing the security of the network, but it is also a catalyst for innovation. By allowing developers to dedicate more resources to product development instead of focusing on securing their networks, we are going to start seeing a more vibrant and diverse ecosystem of applications being built
Let’s look into the data a bit further. Looking at some of the higher-level metrics, we can see that the EigenLayer contracts have amassed a lot of Liquid Staking Tokens (LSTs). Currently, there are 461,000 liquid-staked ETH or roughly $1,003,000,000.
Below we can see that the TVL is primarily composed of stETH (Lido), swETH (Swell), and rETH (Rocket Pool).
We can see that stETH is the primary asset that is being staked with the EigenLayer. However, the cumulative daily amount of tokens such as rETH and swETH has been growing since mid-December as pictured below.
The other side of the EigenLayer that is important to analyze is the Native ETH stakers. This would be the population of stakers that are running nodes themselves. Validators can assign their Beacon Chain withdrawal credentials to an EigenLayer Pod to natively stake their ETH.
We can see that native ETH staking on EigenLayer has seen a wave of growth since December.
Currently, there are just under 6,000 EigenLayer pods created. When we look at the estimated TVL of the EigenLayer pods there is roughly ~$753,000,000 of ETH staked.
There is a clear growth in interest in the EigenLayer and a large uptick in activity across the board in Q4-2023. I anticipate continued growth in the re-staking world, especially when we start to see protocols begin to build on top of EigenLayer.
Contracts for Reference:
Contract: 0x858646372cc42e1a627fce94aa7a7033e7cf075a - EigenLayer Strategy Manager
Contract: 0x91E677b07F7AF907ec9a428aafA9fc14a0d3A338 - EigenLayer Pod Manager