EigenLayer Explained
Sometimes analogies help
Vitalik’s recent post has brought the spotlight to Bloccelerate's recent investment - EigenLayer.
While the post could be interpreted as both in favor of and against the company, it clearly indicated the consequential nature this project could have on the ecosystem. In an effort to bring clarity, I wanted to add a helpful analogy to assist you on your journey of understanding this project.
So, what exactly is EigenLayer?
If you listen to Sreeram, founder and CEO of EigenLayer, talk about the project, you will hear “hyperscaling Ethereum”, “enhancing social consensus”, “leveraging ETH security” as its primary value propositions.
To help understand what this means, I propose an analogy that leverages a widely known application, Uber.
Today, Uber boasts some 4 million drivers. These drivers are vetted by a local office. They show up with a valid ID, prove a clean criminal record, and demonstrate they have a car that meets certain standards.
Drivers can be removed from the system if they turn out to be “bad actors” or don’t comply with the rules. Upon signing up, drivers use a free-to-download application to find jobs and deliver a standardized service. The app maintains quality verification by collecting feedback from the riders.
Now, imagine if in order to be an Uber driver, you needed to put $32K into an escrow, lock it up, and in so doing you would demonstrably pledge that you will be a value-add partner to the network before joining.
This value at stake would serve as a bond: if you, as a driver, did not meet the quality standards (say, your rating drops below 4 stars due to repeatedly unsafe driving), part of your $32K could be slashed (ie. taken away by a predetermined algorithm).
$32K is a lot of money for most Uber drivers! But that is exactly the point.
This amount would incentivize the drivers to be even more committed to providing a good service due to a two-part incentive mechanism. Drivers would have “a carrot” — the ability to participate in the Uber network and earn money. The same drivers would also face “a stick” — a financial stake that could be partially confiscated/slashed.
Let’s take this one step further.
Say, Uber rolls out an extension to its platform called “UberXtend”, which allows these drivers with value at stake to provide new services like UberEats deliveries or services of platforms like Instacart or DoorDash, while still working as an Uber driver.
New services that are looking for a network of distributed service providers could very easily leverage Uber’s extensive driver network. Afterall, it is already composed of trusted, and more importantly, “punishable” players.
For example, an Uber driver in the UberXtend program could now pick up groceries for an Instacart customer, help an Airbnb host check guests in and out, or make a DoorDash delivery, all while continuing to take rides for Uber.
In other words, the very same drivers would be providing services across multiple platforms, using the same hardware (the car and their phones) and financial value at stake (the $32K).
The new networks could effectively onboard service providers and outline quality standards required. The new networks could also outline the quality requirements to keep the pledged funds intact (free from slashing). If an Uber driver fails to deliver a satisfactory service, they could be penalized through slashing of the agreed upon amount.
What the extended Uber model does for Uber drivers is what the EigenLayer model does for Ethereum validators, who already have 32 ETH staked in the Ethereum consensus.
So, you can think of EigenLayer as “UberXtend” for Ethereum. In the case of this hypothetical UberXtend, we can see how:
a) new platforms would be able to onboard a mass network of drivers fast with some quality standards declared and upheld
b) the drivers would be able to sign up for the new revenue sources
In the case of EigenLayer, you can see how:
a) new applications and protocols can easily onboard Ethereum validators as service providers (with a mechanism of quality guarantee)
b) Ethereum validators can easily sign up to provide additional services using the same hardware and value at risk
So what is Vitalik concerned about?
Vitalik outlines a variety of “high-risk” approaches that I would call “toxicity spill-over” effects. In the post, he gives examples of how add-on services may end up creating problems for the main Ethereum network.
Using the UberXtend example, if Instacart’s rules were unrealistic (or predatory), they may heavily penalize all drivers on the platform, causing them to lose a portion of their $32K. If they dip too far below $32K value at stake, they couldn’t drive for Uber.
Clearly, if this happens at a large enough scale, it could cause a disruption to Uber's service.
The impacted Uber drivers would also be unhappy and may lobby for changes to the Uber platform or rules.
Vitalik, seeing this as a possibility, has proactively stated that there will not be changes to the Ethereum network to compensate for any adverse restaking outcomes. By making this post, he has declared that any projects or stakers who want to use EigenLayer should not rely on changes to validator requirements or any “hard forks” of the network to recover lost funds. I.e. if you choose to participate in additional new networks, you bear the additional new risk.
By making this post, Vitalik has drawn clear lines to limit restaking’s risk while also validating its usefulness.
In conclusion, EigenLayer’s design provides a unique solution to enhance the functionality of the Ethereum ecosystem. Just like our UberXtend analogy, it leverages the trust of a well-established network to enable additional services, while also maintaining a high level of accountability and security for all involved.
It seems that the ETH validators have taken a liking to extending and expanding their services.
EigenLayer has started onboarding node operators and the initial launch has been subscribed to capacity within a day.
To join the movement, you can restake your ETH here. If you're interested in scaling Ethereum, leveraging restaking, or otherwise building in the space please reach out to us at this email or on our website.
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