Layer 1 blockchains are famous for struggling with the blockchain trilemma of decentralization, scalability, and security. A Layer 1 blockchain platform can typically only achieve one or two of these but not all three.
Most Layer 1 blockchains like Bitcoin and Ethereum are designed to focus on security and decentralization. Their design makes it difficult for an individual or group to control the ledge and protects against various attacks, such as rewriting history or performing a Denial of Service (DoS) attack against the network. However, this comes at the cost of limited scalability.
Blockchain projects like EigenLayer address the scalability limitations of Layer 1 blockchains by building up. These projects are built on top of Layer 1 blockchains — inheriting their decentralization and security benefits — while offering enhanced scalability.
EigenLayer provides additional scalability and other benefits by implementing restaking on Ethereum. By allowing Ethereum validators to also use their stake to validate other projects, it enhances the security of these projects and the utility of staked ETH.
What is EigenLayer and How Does It Work?
EigenLayer is a protocol built on top of Ethereum that enables restaking of a user’s staked ETH to secure other applications. Ethereum uses the Proof of Stake (PoS) consensus algorithm, where validators lock up ETH in return for the right to create blocks and earn block rewards. However, under the standard PoS consensus model, this ETH — and the value it represents — can only be used to secure and decentralize Ethereum.
EigenLayer builds on top of the Ethereum Layer 1 and introduces the concept of restaking ETH. Ethereum validators can opt into EigenLayer, which allows them to use their same existing stake to also participate as validators for other protocols.
Like other PoS protocols, EigenLayer incorporates a slashing mechanism to protect against malicious validators. This mechanism causes the user to lose their stake if they endorse an invalid block.
EigenLayer implements restaking, so users don’t directly lock ETH with EigenLayer to gain the ability to validate transactions for other applications. To gain the ability to perform slashing, EigenLayer requires users to grant it control over their staked ETH so that it can meet the slashing requirements of the other applications using the restaked ETH.
How EigenLayer Enhances Blockchain Scalability
Ethereum’s PoS consensus layer is a key component for achieving security and scalability. With a large, healthy pool of validators, it is likely unprofitable to purchase and stake enough ETH to perform a 51% attack and rewrite the history of Ethereum’s ledger. Ethereum’s slashing mechanisms also incentivize its validators to behave since anyone caught endorsing invalid blocks would be penalized.
However, these benefits only apply to data that is written to Ethereum’s digital ledger. Protocols and applications that can’t be implemented in the EVM for some reason can’t benefit from Ethereum’s security and decentralization. Additionally, there is only so much data that can be written in each Ethereum block, which limits the scalability of the protocol and higher-layer protocols built on top of it.
EigenLayer increases blockchain scalability by allowing the same staked ETH to be used to secure multiple different protocols, improving scalability. For example, two parallel versions of the Ethereum blockchain with the same validator pool would double the capacity of Ethereum. Using restaked ETH to secure other applications and protocols unlocks other potential use cases and the potential for even greater scalability.
Other Benefits of EigenLayer
Scalability is one of the biggest potential benefits of the EigenLayer protocol. However, it also provides numerous other advantages, including:
Increased Profitability: With Ethereum’s PoS algorithm, validators can earn rewards by staking ETH and creating new blocks. EigenLayer’s restaking offers the potential to use the same stake to secure multiple protocols, enabling a validator to earn rewards from multiple different sources, increasing their overall rewards.
Enhanced Security: Ethereum’s PoS system helps to secure the Ethereum blockchain and only the Ethereum blockchain. Building such a large and robust pool of validators is difficult, which means that younger blockchains and applications often have weaker security. Restaking ETH to secure multiple different protocols enables these projects to piggyback off of Ethereum’s validator pool and better protect themselves against attack.
Wider Application Support: DApps built on Ethereum need to be compatible with the Ethereum Virtual Machine (EVM), which limits their capabilities. EigenLayer enables applications and protocols to take advantage of Ethereum’s robust consensus pool without being constrained by the requirements and capabilities of the EVM.
Competitive Innovation: EigenLayer doesn’t automatically enroll Ethereum validators to act as validators for other applications; it’s an opt-in process. This provides protocols with an incentive to demonstrate value to potential validators, promoting innovation.
Centralized Staking: PoS consensus algorithms grow more effective and secure as the quantity of staked assets increases. The more stake in the system, the more expensive it is for an attacker to perform a 51% attack. EigenLayer enables smaller groups of validators securing specific applications to converge on Ethereum — strengthening its security — while also supporting other protocols and applications.
All of these various benefits contribute to the growing success of EigenLayer. Currently, EigenLayer includes fourteen actively validated services (AVS). However, dozens of other projects have also applied to become an AVS.
Conclusion
EigenLayer is designed to improve Ethereum’s scalability and the security of other protocols through restaking ETH. Instead of a user’s stake only being used for Ethereum’s PoS consensus algorithm and securing the Ethereum blockchain, EigenLayer enables other protocols to access this validator set and more quickly roll out robust, secure consensus algorithms. EigenLayer also provides validators with the ability to access greater rewards than if they were solely acting as Ethereum validators.
EigenLayer has its benefits, but there are also security considerations associated with it as well. For example, to implement slashing, EigenLayer requires access to some portion of a user’s staked ETH. If many validators use EigenLayer for restaking, then the protocol could have access to and control over a massive amount of staked ETH. This creates serious risks for users and the Ethereum ecosystem as a whole if EigenLayer were compromised by an attacker.