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Н News

EigenLayer explained – The ‘Restaking’ gold rush that could affect Ethereum

EigenLayer pulled in over $15 billion by letting people earn rewards on their already-staked Ethereum. This new trick, called “restaking,” was invented by Sreeram Kannan, a former University of Washington professor. His idea was simple – Create a way for new crypto projects to rent security from the thousands of computers that already protect Ethereum.

To its fans, this is the key to a burst of creativity and a smarter way to use money in crypto. On the contrary, critics, including Ethereum’s own Vitalik Buterin, are sounding the alarm. They worry EigenLayer’s design is so intricate that it could create a system-wide meltdown, shaking the very foundation of Ethereum.

The excitement around EigenLayer isn’t just theoretical; it’s fueled by a triple-dip of potential profits. Restaking lets you take your staked Ether (ETH), which is already earning you money, and use it again to secure other apps, called Actively Validated Services (AVSs). This unlocks new ways to get paid.

First, there’s the basic yield from AVSs, which are projects like data networks or price oracles that pay you for helping to secure them. On top of that, a frenzy of airdrop speculation took hold. EigenLayer and the projects building on it used “points” to promise future token giveaways, sucking in users and their cash.

The final piece of the puzzle is Liquid Restaking Tokens (LRTs). These tokens, which represent your staked funds, exploded by over 8,300% in early 2024. They let you stay in the game and chase even more profits in other DeFi apps, all while your original assets are locked up.

Source: Dune Analytics

Think of EigenLayer as a meeting place for three groups –

You can get involved in two ways –

For all the excitement, a lot of people see EigenLayer as a time bomb.

Domino-effect slashing
The biggest fear is a system-wide penalty. “Slashing” is when validators lose ETH for bad behavior. With restaking, your ETH is on the line for both Ethereum and every single AVS you secure. A bug in just one AVS could cause a huge number of validators to get slashed all at once.

This practice of reusing an asset as collateral for multiple things has ugly echoes of the leverage that fueled the 2008 financial crisis. A major slashing event could spark a panic, causing LRTs to lose their value and setting off a chain reaction of forced sales across DeFi. In the worst case, losing a massive amount of staked ETH could destabilize Ethereum’s security itself.

A centralized club
There’s a good chance EigenLayer will just make a few powerful players even more powerful. The hunt for the best returns will likely funnel ETH into the hands of a small number of large, professional operators. That’s bad for decentralization, and it also means if one of these big players gets hacked or fails, the damage will be huge. Vitalik Buterin has pointed to this kind of centralization as a major threat to Ethereum’s future.

Regulatory attention
Regulators are definitely going to notice this. The layered claims on future money created by restaking could easily get LRTs labeled as securities. That would bring a world of legal headaches and compliance costs.

The optimists argue that EigenLayer’s risks are worth it for the explosion of new ideas it enables.

A free market for trust
By letting anyone rent security, EigenLayer makes it radically cheaper and faster for new projects to launch safely. They don’t have to spend years and millions building their own validator community. This “security-as-a-service” model is already kicking off a wave of new AVSs.

The ecosystem is quickly filling up with,

All this activity gives ETH more jobs to do, cementing its role as the core asset for a new digital economy. The rising demand for security and blockspace could create a cycle where more value flows back to Ethereum itself.

To handle these risks, EigenLayer has built in some clever defenses.

A key one is the dual-quorum model. Think of it as two-factor authentication for network security. An AVS can demand that transactions be verified by two separate groups—one made of ETH restakers, and another of people staking the AVS’s own token.

This makes a coordinated attack much more expensive. EigenDA uses this model, secured by both ETH and its own EIGEN token. The EIGEN stakers also enable intersubjective slashing—a kind of social court of appeals that can punish bad behavior that’s hard to prove with code alone.

EigenLayer is Ethereum’s biggest “what if.” The bull case promises a future where innovation flourishes on a bedrock of shared security. The bear case, however, warns of a fragile, over-leveraged system on the verge of a spectacular, self-inflicted blowup.

Whether EigenLayer becomes a cornerstone of web3 or the cause of its next crisis depends on if its safeguards hold up, if the AVSs can generate real, sustainable profits, and if the community can manage the temptations of centralization. The outcome will shape the future of the decentralized internet.

Source

Н News

EigenLayer explained – The ‘Restaking’ gold rush that could affect Ethereum

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