EigenLayer Explained: Restaking, AVSs, EIGEN & More

What is EigenLayer?

EigenLayer is a protocol built on Ethereum that introduces a new feature called restaking. This lets Ethereum stakers reuse their ETH or liquid staking tokens (LSTs) to secure additional decentralized services. By doing so, stakers can earn extra rewards while providing security for new projects without needing more capital.

At its core, EigenLayer pools Ethereum’s existing security and makes it available to various services, solving the issue of fragmented trust networks. Instead of each project building its own security system or issuing its own token to incentivise validation, developers can leverage Ethereum’s proven security by integrating with EigenLayer.

Currently, EigenLayer is the third-largest protocol by total value locked (TVL), with $12 billion staked in ETH (4.7m ETH) and popular LSTs like stETH, rETH, cbETH, and others.

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How Does EigenLayer Work?

EigenLayer operates by allowing Ethereum stakers to “restake” their ETH or Liquid Staking Tokens (LSTs) to secure additional decentralized services built on the protocol, called Actively Validated Services (AVSs). 

It extends Ethereum’s cryptoeconomic security to these services through a process of delegation and validation, while stakers earn additional rewards for their participation. Here's a technical breakdown of how it works:

• Restaking: Stakers can restake their ETH or LSTs into EigenLayer, effectively reusing their stake to secure multiple services simultaneously.
• Delegation: Stakers can delegate their restaked assets to operators who run off-chain software for AVSs, or they can run the validation themselves. This is a mutual agreement between stakers and operators.
• Actively Validated Services (AVSs): AVSs are decentralized applications or services that rely on EigenLayer’s shared security model, benefiting from Ethereum's pooled staking power.
• Operators: Node operators validate AVS tasks by running specific off-chain software, contributing to the security and performance of the network.
• Slashing and Rewards: Misbehaving operators face penalties through slashing mechanisms, while honest participants (stakers and operators) are rewarded based on their contribution to the network’s security.

This modular security framework enables decentralized services to leverage Ethereum's established security without needing to build their own from scratch.

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EigenLayer AVS Use Cases

EigenLayer’s Actively Validated Services (AVSs) unlock a wide range of use cases by extending Ethereum’s security to decentralized applications. Here are some key ways AVSs are being used:

• Sidechains and Rollups: Leverage EigenLayer’s security to ensure data integrity and transaction validity for Ethereum Layer 2 solutions, without needing to build isolated trust networks.
• Data Availability Layers: Ensure the availability of off-chain data for rollups and other blockchain applications using EigenLayer’s decentralized validation (e.g. EigenDA).
• Oracle Networks: Provide trusted, real-world data to blockchain applications with EigenLayer securing oracle accuracy and reliability.
• Bridges: Enable secure cross-chain bridging transfers by extending EigenLayer’s security model to ensure the safety of assets moved between different blockchains.
• AI Model Validation: Secure the results of AI inference and data models by using EigenLayer to verify accuracy and ensure trust in the outputs.
• Gaming Virtual Machines: Ensure the validity and performance of gaming environments on the blockchain, securing virtual economies and in-game transactions.
• Prediction Markets: Enhance decentralized prediction markets by ensuring the trustworthiness of their outcomes through EigenLayer’s shared security.

Users can check out the AVS dashboard on EigenLayer to discover all of the applications using restaked ETH to secure their services.

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What is EigenDA?

EigenDA is a decentralized data availability layer built for Ethereum rollups, offering high-throughput and scalable data storage. It enables rollups to store their transaction data off-chain while ensuring that the data remains accessible and verifiable when needed. This improves scalability by reducing the amount of data that needs to be stored on-chain.

The system taps into EigenLayer’s restaking model, using staked ETH and Liquid Staking Tokens (LSTs) to secure its operations. EigenDA’s operators run software that stores and retrieves data, backed by Ethereum’s pooled security. This ensures that data is reliably available without the need for every node to replicate it.

The EigenDA AVS currently has 59M EIGEN and 3.44M ETH restaked and is secured by 215 operators and over 97,000 unique stakers.

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EigenLayer Token (EIGEN)

The EIGEN token is the core staking and work token within the EigenLayer ecosystem, securing decentralized services like oracles and data availability layers. While ETH restaking focuses on Ethereum's consensus, EIGEN addresses intersubjective faults, which are issues that can’t be resolved purely on-chain but are evident to external observers.

EIGEN allows operators and stakers to secure these services by staking, earning rewards while ensuring network security through slashing mechanisms. It also supports forking in case of intersubjective faults, allowing the EigenLayer community to resolve disputes without affecting Ethereum’s main chain.

The token’s value lies in its ability to extend Ethereum's security model to more decentralized applications. By staking EIGEN, participants contribute to the ecosystem’s security and earn rewards, aligning incentives across stakers, operators, and developers.

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EIGEN Tokenomics

EIGEN tokenomics are designed to support the security, governance, and growth of the EigenLayer ecosystem. Through staking, rewards, and slashing mechanisms, EIGEN ensures aligned incentives for participants. Here’s a breakdown of its tokenomics:

• Total Supply: The initial supply is 1.67 billion tokens with an initial circulating supply of 200 million EIGEN and a fixed annual inflation rate of 4%.
• Allocation: 45% is allocated for community initiatives like stakedrops and grants, while the rest is for investors, contributors, and ecosystem development.
• Stakedrops: 15% of the total supply is dedicated to stakedrops, distributed over several seasons to reward stakers and key participants.
• Investor Unlock: Tokens for investors and contributors are locked for one year, with a gradual 4% monthly unlock afterward.
• Inflationary Rewards: Inflation distributes new tokens to stakers and operators to maintain economic incentives.
• Slashing: Misbehaving participants risk slashing, where EIGEN tokens are deducted to uphold network security.
• Non-Transferable Period: Initially, EIGEN tokens are non-transferable to stabilize the ecosystem and allow for key governance decisions.

This tokenomics model incentivizes secure participation while ensuring EigenLayer’s long-term growth and sustainability.

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Founder Profile: Sreeram Kannan

Sreeram Kannan, consideredthe father of Ethereum restaking, is the founder and CEO of EigenLayer. He’s also an Associate Professor at the University of Washington, where he has led research in blockchain, cryptography AI, and computational biology for 10 years.

Before starting EigenLayer in 2021, Sreeram held research positions at UC Berkeley and the University of Illinois, focusing on information theory. He’s published over 60 papers on topics like blockchain scalability and AI, and under his leadership, EigenLayer has raised $171 million, cementing its role in the Ethereum ecosystem.

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Bottom Line

EigenLayer is transforming Ethereum staking by allowing restaking to secure new decentralized services, all while using Ethereum’s existing security. This gives projects an easier path to scale without needing to build their own security layers, and rewards stakers for their participation. 

Whether it's securing oracles, rollups, or other services, EigenLayer is making Ethereum more scalable and efficient, with the recently launched EIGEN token playing a key role in driving and incentivizing growth.