In this edition, we’re briefing you on EigenLayer, the Ethereum restaking platform.
Learn how the platform allows protocols to leverage the security of staked $ETH, the risks EigenLayer could propose to Ethereum, and more…
Over and out ⬇
News:
- Major Token Unlocks in November: Crypto projects Aptos, Avalanche, and Hashflow prepare for significant token unlocks, totaling over $320 million.
- Onyx DeFi Protocol Exploited: Onyx suffers a security breach, resulting in a loss of over $2.1 million due to a specific "precision loss" vulnerability.
- Unibot Confirms Token Approval Exploit: After a security breach affecting around $580,000 in crypto, Unibot assures compensation and emphasizes the safety of user keys and wallets.
- Argent Shifts Focus from zkSync Era to Starknet: After a six-month alpha phase, DeFi wallet developer Argent decides to prioritize Starknet over zkSync Era development.
- Circle Ends Support for Consumer Circle Mint Accounts: The stablecoin issuer is phasing out legacy consumer accounts, emphasizing its focus on institutional accounts.
- Tether's Q3 Report Highlights Record Cash Reserves: Tether's attestation reveals 85.7% of its reserves in cash and cash equivalents, marking its highest percentage ever.
- SEC Chair Gensler's Halloween Message to Crypto Firms: In a Halloween post, Gensler warns crypto companies about compliance and evokes Bitcoin's creator, Satoshi Nakamoto.
- Big Firms Discuss Liquidity for BlackRock's Bitcoin ETF: Trading giants are in talks to provide liquidity for BlackRock's proposed spot bitcoin ETF, pending regulatory approval.
Crypto Market Update:
- Top Gainer (24H) in the top 50 mcap: Injective $INJ increased in price by 9.6%.
- Top Loser (24H) in the top 50 mcap: $ATOM is down -5.9%.
- The total crypto market cap has seen a increase by 0.4% to stand at $1.26T.
- BTC dominance in the market is currently at 53.8%.
- The median gas price on Ethereum over the past 24 hours has been 22 gwei.
Observations:
- $UNIBOT, after its recent hack news, saw a price drop from $60 to the $30s but has attracted smart money buying.
- Tokens like $SOLANA, $JOE ,$IMGNAI, $MOG, Real Smurf Cat, $SPX, and $BANANA have 9+ smart holders and $150k+ of smart holdings.
Background on EigenLayer
Restaking is permissionless, programmable staking.
In a typical proof-of-stake blockchain, people put down a stake and promise to validate the blockchain correctly.
Restaking allows for programmable staking, meaning stakeholders can opt into new protocols and services, thus adding new slashing conditions.
This is beneficial because they receive additional fees for providing these services.
There are two sides to this: the stakers who can opt into new protocols, and the service providers who build these new actively validated services.
These services could range from Data Availability protocols to Oracles to bridges.
Restaking works in EigenLayer via two mechanisms:
native restaking, where you stake in Ethereum and set the withdrawal credentials to the EigenLayer contracts, and
liquid restaking, which involves depositing a liquid Staking token into EigenLayer contracts
EigenLayer allows for solutions to various bottlenecks in Ethereum’s roadmap.
Data Availability services in EigenDA could increase the total available data bandwidth on Ethereum from 80 KB/s to 10 MB/s.
Other Rollup-adjacent services like decentralized sequencing to prevent censorship and bridging solutions for faster transactions between roll-ups.
A faster finalization layer to reduce Ethereum’s 12-minute finalization time to seconds.
MEV optimization for roll-ups includes different ordering methods that could be applied, saying these are all services adjacent to the Rollup ecosystem.
Ethereum And EigenLayer: Use Cases & Incentives
Block space ordering utilities and different auction methods could be implemented for Ethereum’s layer-1.
Liquidation processes could be made more efficient in lending protocols, for example.
EigenLayer Co-Founder Sreeram explains another category of services involving advanced cryptography.
He describes secret sharing and multi-party computation, where the state of the protocol itself can be a secret.
Sreeram explains specialized hardware like Trusted Execution Environments can be used for privacy and program integrity. He says these can be part of a committee of trusted nodes on EigenLayer.
Sreeram talks about AI-driven services that can automatically update key parameters in DeFi protocols based on machine learning algorithms.
These are examples of systems that are being built on EigenLayer.
Builders focused on long-term adoption may choose Ethereum because of its extensive ecosystem.
Some protocols initially designed as layer-1s are shifting to become layer-2s on Ethereum.
Ethereum provides builders with features, liquidity, and attention.
Staking options include dual Staking, which allows projects to stake both native and Ethereum tokens.
This flexibility is another incentive for builders.
Risks
Sreeram differentiates between the risk profiles of validating services and DeFi. He emphasizes that stakers control validation risks, making them inherently less risky than market-driven DeFi services.
Sreeram has also mentioned the importance of code vetting to avoid bugs in the slashing contracts.
There is a slashing veto committee to add an extra layer of protection against accidental losses for stakers.
Anti-slasher technology is designed to verify the correctness of a signature before it is issued, thereby reducing the risk of accidental slashing.
Both social and technological mechanisms are in place to mitigate risks, and as the protocol matures, some of these may become less necessary.
Applications built on EigenLayer have to be cautious about shared pool security risks.
An attacker could exploit the common pool of staked tokens to attack multiple services at once.
Current slashing rules don’t allow for attributing the slashed funds to specific protocols.
The platform allows staking to multiple protocols simultaneously, minimizing the risk of users leaving a protocol.
EigenLayer’s Role & Risks to Ethereum
Sreeram believes that EigenLayer isn’t introducing new risks that don’t already exist with simple Staking.
Their goal is to encourage a larger, more decentralized group of people to participate in Staking.
Sreeram identifies the primary concern as the impact on Ethereum’s decentralization.
However, he sees EigenLayer as a platform that can actually incentivize more decentralized validation.
A service called ‘proof of location’ is being built, which aims to measure the decentralization of nodes geographically. This service could be used by other protocols to ensure that they are being served by a decentralized network of stakers.
Sreeram explains that they are following a phased roadmap to build the EigenLayer ecosystem, which includes stakers, node operators, and services. He mentions that the first phase is already live on the mainnet.
In this phase, stakers can participate using whitelisted LSTs like Coinbase, Lido, and Rocket Pool. For native Staking, users have to create their own separate zone called an EigenPod.
An upcoming testnet will bring more features including delegation and services. He mentions that they are in the middle of a guarded launch to gradually increase security.
Both native and liquid Staking are possible and serve different kinds of users.
Native Staking is often preferred by home operators and institutions who want greater control over the node operators.
Liquid Staking is used by those who want a more automated system for tasks like delegating to operators and rewards management.
EigenLayer serves as a playground for new ideas.
Once these ideas are validated, there might be interest in enshrining them into Ethereum’s protocol.
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