Forwarded the Original Title ‘重新理解 EigenLayer 再质押潜力：突破信任界限’

TL;DR

• Blockchains like Ethereum enable collaboration without mutual trust. However, this collaboration is limited by on-chain verifiable content. EigenLayer extends the boundaries of “what constitutes truth” to broaden this trust.

• Re-staking ETH on EigenLayer can simultaneously protect multiple services (AVS), enhancing capital efficiency and creating a more interconnected, resource-efficient ecosystem.

• EigenLayer uses a dual-token model to address intersubjectivity or social truth issues. Whenever a result is questioned, the stake tokens fork.

• AVS lowers the entry barrier for new projects. However, projects must either share revenue with EIGEN and ETH stakers or compensate liquidity and security through token inflation.

Re-staking and Liquid Re-Staking Tokens (LRT) have gained prominence in the 2024 crypto market, largely due to the new primitives introduced by EigenLayer. The following diagram illustrates the narrative shift of LRT and liquid staking derivatives (LSD).

Source: Kaito

If you ask me to summarize the significance of the EigenLayer project in one sentence, I would say it’s about expanding the boundaries of decentralized trust. On one hand, re-staking primitives enhance the efficiency of DeFi capital; on the other hand, the EIGEN token extends the scope of governance.

I’ve been closely following developments in this area and would like to share my thoughts on the implications of re-staking for validators and the broader ecosystem. Besides explaining the mechanisms, I also want to delve into the concept of intersubjectivity. When the EigenLayer white paper was first released, this concept seemed quite academic to me, but it is deeply connected to how we view blockchain governance and decentralized trust. So, let’s explore it in detail.

The True Meaning of Re-staking

Before diving into re-staking, let me first revisit what I discussed in my layered Bitcoin article. The crypto world has continually pushed possible boundaries, and layered blockchains offer game-changing new functionalities. Re-staking represents a new layer in blockchain that can redefine our understanding of validator dynamics and capital efficiency.

Blockchains are trust machines. They are designed to enable business or collaboration without requiring mutual trust. Stakeholders put valuable assets into the system (as collateral), which replaces the need for trust. If participants perform well, they are rewarded; but if they don’t follow the rules, the system can punish them by confiscating their collateral.

I gained a deeper understanding of EigenLayer from Jordan McKinney’s video, which breaks down EigenLayer at a high level for those who might not have time to dive into all the technical details. For those who prefer a quick summary, here’s the TL;DR:

EigenLayer allows validators to use ETH that secures Ethereum to also secure Active Validation Services (AVS). This not only enables earning more rewards but also creates a new layer of responsibility and opportunity for validators. Currently, about 28% of circulating ETH (i.e., 34 million ETH) is staked by Ethereum validators. EigenLayer has locked approximately 4.7 million ETH for re-staking.

From Bitcoin to EigenLayer

To truly appreciate the benefits brought by EigenLayer, we need to reflect on the progress we’ve made in the blockchain space. Bitcoin introduced the concept of Proof of Work (PoW), where miners protect the network through power consumption and high-performance hardware. This was groundbreaking but also has limitations. Aside from storing value and making payments, Bitcoin doesn’t do much else. This is how it achieves its status as the most secure and decentralized network.

Bitcoin’s design was revolutionary but also rigid. Miners are locked into their role, with no opportunity to use their hardware for other purposes besides protecting the Bitcoin network, which limits Bitcoin’s capital efficiency. Capital efficiency refers to getting the maximum value or output from the funds invested. Limited capital efficiency is a feature, not a flaw; it ensures miners prioritize the network’s interests. This laid the groundwork for the next leap in blockchain technology.

Ethereum represents the next innovation in crypto-economics, introducing general-purpose computation that enables us to build applications on top of it. Validators stake ETH, which not only protects the Ethereum blockchain but also secures the myriad of applications built on it. Suddenly, the same capital used to protect the blockchain can also support a thriving application ecosystem. This is a massive leap forward but comes with challenges: Ethereum struggles with scalability.

Thus, we’ve seen the rise of Layer 2 solutions (such as Rollups) that significantly increase Ethereum’s transaction throughput. With L2, Ethereum’s throughput has increased from 12-15 transactions per second (TPS) to around 200 TPS using Rollups. However, Rollup sequencers introduce a centralization vector: sequencers are typically controlled by Rollup providers and are responsible for transaction ordering.

One way to mitigate this risk is to require multiple sequencers to stake capital to gain the right to produce blocks and collect fees. But this approach reduces capital efficiency because the capital staked by sequencers is separate from the ETH staked on the Ethereum mainnet.

Re-staking: Enhancing Capital Efficiency

In traditional PoS systems, validators stake assets to protect the network. But what if staked capital could do more? What if the same ETH could be used to secure additional services, thereby increasing capital efficiency? This is the idea behind re-staking. Validators can not only protect Ethereum but also choose to re-stake ETH through EigenLayer to secure other services.

Re-staking represents a natural progression, aimed at maximizing the utility of existing resources. Validators can earn additional rewards by taking on more responsibilities, which also contributes to the overall security and efficiency of the network.

EigenLayer provides a solution that allows validators to use the same ETH that secures Ethereum to also protect Active Validation Services (AVS). Here’s how it works: when validators stake ETH to participate in consensus and block production, they must use the EigenPod smart contract as the withdrawal address instead of their external address (EOA). The EigenPod contract acts as an intermediary between the validator and the AVS. It assesses the validator’s performance based on predefined criteria and decides whether to slash ETH upon withdrawal.

It’s crucial to understand that re-staking is not just about increasing rewards. It fundamentally changes our view of capital in the blockchain ecosystem. Traditionally, once capital is locked in staking, it can only secure the network. Re-staking disrupts this norm by allowing the same capital to serve multiple roles, thereby maximizing its utility.

However, this approach is not without challenges. Re-staking also introduces potential risks. Validators now need to pay attention not only to Ethereum’s consensus rules but also to the requirements set by the AVS they choose to protect. This added responsibility means validators must be more diligent than ever, as failures in any area could lead to slashing and financial losses.

Quantifying the Impact

True business impact is often driven by numbers. With a basic understanding of re-staking, let’s consider its potential effects on the broader crypto ecosystem. AVS offers additional rewards for ETH validators beyond the basic staking returns.

Currently, about 27% of the total circulating supply of ETH is staked. As more ETH is staked, the base yield tends to decrease. This is because, by design, the growth rate of base yield is slower than the rate of capital increase. Validators need other sources of income to maintain their returns, which is where re-staking comes into play.

The sensitivity chart below illustrates the incremental rewards provided to validators by AVS. It requires three variables as inputs: ETH market capitalization, percentage of ETH staked, and additional AVS rewards. For instance, with a market cap of $600 billion, where 50% of ETH is staked and AVS provides an additional 1% yield, this translates to an extra $3 billion in annual rewards for validators. This quantified enhancement highlights the value that re-staking brings to the ecosystem, making it a key innovation for the future of PoS networks like Ethereum.

Furthermore, the additional rewards from re-staking are not just about earning more money but also about creating a stronger and more resilient network. As the base yields of Ethereum decrease due to the influx of staked ETH, re-staking might be the best option for validators to maintain profitability, otherwise, they might exit the network. By providing validators with more revenue opportunities, EigenLayer helps ensure network security and incentivizes validators to stay engaged.

However, the introduction of re-staking adds a layer of complexity to the staking process. Validators must now consider the performance and security of the AVS they are protecting, as well as the potential risks associated with each service. This requires a more sophisticated staking strategy, where validators must balance potential rewards against the risks they are willing to take.

It’s important to note that currently, AVS does not have slashing enabled, so validators can join new AVS and earn rewards without any cost. Once slashing is implemented, validators may no longer have the option to join every new AVS. As the number of AVS they can service decreases, so too will the opportunities for generating new rewards.

Intersubjectivity: Truths Unprovable on the Chain

In an era where memecoins and speculative trading often dominate the headlines, it’s easy to forget the role that tokens are meant to play. For example, Ethereum’s ETH is not just a gas token; it is an essential part of the network’s PoS consensus, providing cryptoeconomic security to ensure the blockchain operates safely. Without ETH, Ethereum would not exist.

When designing a token, the team or community must decide its functions in advance. These constraints are crucial as they determine the token’s utility from the start. While changes can be made later, building social consensus around major updates is challenging, especially under the core principles of blockchain immutability and predictability.

Now, let’s shift gears. In my previous articles, such as “Humpy vs Compound DAO,” I discussed how blockchain is not just a technology but also involves people and communities. This is where the concept of intersubjectivity comes into play. While it may sound like a term you’d encounter in a philosophy class, it turns out that it may be relevant to blockchain governance.

Inter-subjectivity refers to truths that cannot be proven on-chain but are accepted as social truths by any rational actor. For example, if ETH is priced at $10, data might tell a different story. But what if there is a dispute? This is not entirely subjective — most (if not all) rational actors would agree that the statement is incorrect. The EIGEN token of EigenLayer aims to address such inter-subjective issues.

The fascinating aspect of EigenLayer’s approach is that it acknowledges not all decisions can be made purely based on the objective data available in the blockchain environment. Consider data availability services: network nodes need to prove that data is stored and retrievable upon request. However, these service nodes might collude and provide on-chain proof of data existence. Yet, when users attempt to download the data, it may be missing. In such cases, users should have means to contest this “tyranny of the majority.”

This refers to scenarios where decisions made by the majority of stakeholders or participants in a network might not align with the best interests of the entire ecosystem or unfairly penalize minority groups or individual participants. EigenLayer provides users with the ability to challenge such systemic issues.

Does this mean you can challenge anything you dislike? No. Challengers must pay a price. Since challenges are not trivial, they must burn a certain amount of tokens to initiate a challenge.

In the real world, truths are not always provable on-chain. Blockchain systems are designed to handle precise binary decisions but struggle in areas where truths cannot be proven on-chain. EigenLayer introduces intersubjectivity into blockchain governance to address this gap. Blockchains like Ethereum allow humans to collaborate without mutual trust, but they are limited by on-chain provable content. EigenLayer expands this trust by allowing people to broaden the boundaries of what constitutes “truth.”

For example, suppose a validator is accused of malicious behavior. The evidence might be unclear — perhaps it’s the validator’s intent rather than their actions under scrutiny. In traditional blockchain systems, resolving such disputes is challenging because the system is designed to operate based on objective data. However, with EigenLayer’s inter-subjective approach, the community can weigh facts and collective judgment to make decisions.

How Does It Work?

Typically, when disputes arise on-chain, the blockchain forks. For instance, Ethereum forked in 2016 after the DAO hack. If we adhered to the principle of “code is law,” it shouldn’t have forked. However, societal consensus determined that forking was in the network’s best interest.

EigenLayer operates differently: it is a system designed on top of Ethereum, without a base layer blockchain or L2 fork. Therefore, when disputes occur, the EIGEN token forks. The token is a contract on Ethereum, and during a fork, a new contract is deployed to alter the token’s ownership, with guilty or malicious parties facing penalties, such as a reduction or loss of forked tokens.

Dual Token Model

Typical staking mechanisms and governance models often rely on a single native token to handle staking and other activities, such as transactions or participation in DeFi. However, this one-size-fits-all approach can lead to complex situations, particularly when dealing with intricate disputes that cannot be easily resolved through on-chain data alone. EigenLayer introduces an underexplored solution: using two interrelated tokens, EIGEN and bEIGEN, to separate these issues and enhance the system’s flexibility and security.

1. EIGEN: This token is primarily used for non-staking activities. It can be traded, held in DeFi protocols, or used for other applications without directly facing the risks associated with staking and governance disputes.
2. bEIGEN: This token is specifically designed for staking within the EigenLayer system. When users wish to participate in staking, they wrap their EIGEN tokens into bEIGEN, which then becomes subject to the rules and risks of the staking process, including the possibility of being slashed or forked in the event of a dispute.

By separating these functions, EigenLayer creates a more resilient and flexible system. EIGEN holders who are not interested in staking can continue to use their tokens in the broader ecosystem without worrying about the complexities of governance and dispute resolution. Meanwhile, bEIGEN serves as the dedicated token for those wishing to participate in staking, with an understanding that this comes with additional responsibilities and risks.

How the Dual-Token Model Works

When a failure occurs—whether it’s a data availability issue, erroneous price oracle, or other challenges not easily resolved on-chain—the bEIGEN token forks, creating two versions: one representing the original state and another reflecting the community’s resolution of the dispute.

This separation ensures that only those directly involved in staking (bEIGEN holders) are affected by the dispute’s outcome, while EIGEN holders remain unaffected by these governance decisions unless they convert their EIGEN tokens into bEIGEN.

In essence, the dual-token model allows EigenLayer to address complex inter-subjective issues without disrupting the broader ecosystem. It provides a clear boundary between staking-related activities and other uses of the token, offering a more robust and adaptable platform for decentralized governance and dispute resolution.

Real-World Examples in EigenLayer

I have always been fascinated by the concept of forks—not just in cryptocurrency but also as a metaphor for life’s choices and paths. In the blockchain world, a fork represents significant decisions that can alter the network’s course. EigenLayer’s forking mechanism is an excellent example of how forks can be used to reflect community consensus on disputes.

Let’s delve into an example to see how it operates in practice.

Recently, Polymarket faced controversy over the resolution of the Robert F. Kennedy Jr. presidential campaign prediction market. Robert F. Kennedy announced his withdrawal from the race. This decision was based on an initial interpretation, but Kennedy later took contradictory actions (e.g., applying for voting rights in new states and claiming he was still campaigning), leading to intense debate among participants. Despite two challenges, the market result remained “yes.” This UMA oracle-confirmed resolution left many feeling that the result did not accurately reflect the current situation, leading to skepticism among participants. This issue may have arisen because UMA did not “engage,” making it unaffected by the result.

EigenLayer’s inter-subjective forking could offer a more dynamic solution to this dispute. In such cases, stakeholders might trigger a market fork, resulting in two outcomes: one where Robert Kennedy is considered withdrawn and another where he is still campaigning. The community would then vote on which interpretation reflects the true situation, with the most supported fork becoming the dominant result. This approach allows for a more nuanced, community-driven solution that aligns market participants’ interests with the accuracy and fairness of the outcome.

By integrating EigenLayer’s inter-subjective forking, prediction markets can better handle complex and evolving scenarios, ensuring that market resolutions are not only accurate but also reflect broader community consensus, thereby maintaining platform trust and integrity.

Remember the High Cost for Challengers in EigenLayer? They need to burn a certain amount of existing bEIGEN tokens to initiate a challenge. If the community deems them correct, they receive the value of the new forked tokens and may even earn rewards.

Depending on the challenger’s claim, bEIGEN holders can redeem the fork they support. Multiple forks can coexist, but their values will vary, determined by the market. Ideally, the value of EIGEN = the sum of the values of bEIGEN and its forks. When one fork experiences significantly higher redemption compared to another, everyone knows the community’s decision.

These examples are not merely theoretical. They represent real scenarios that could occur within the EigenLayer network, highlighting the importance of a flexible governance system capable of adapting to complex situations.

Balancing Ecosystem Needs and Economic Challenges

EigenLayer provides a promising new model for expanding decentralized trust but also introduces new challenges, particularly for AVS. While some AVS might operate as independent applications seeking greater value through independent operation, others are designed as foundational components of the ecosystem, benefiting from the interrelated demand generated by other services and products within EigenLayer.

For these AVS, being part of the EigenLayer ecosystem can drive utility and demand, helping them overcome initial onboarding challenges. Sharing revenue with ETH/EIGEN stakers may be a reasonable trade-off for driving ecosystem demand and sharing security. This relationship could foster an interconnected service network, though its long-term sustainability remains to be seen.

However, independent AVS face a different set of considerations. You can think of these issues from the perspective of independent applications seeking to become application chains. While they must share revenue with ETH/EIGEN stakers, this cost should be weighed against the alternative: securing and providing liquidity on a separate chain. EigenLayer offers these services access to large security pools and reserve users, potentially offsetting the costs of revenue sharing. However, as these services grow, they may question the long-term value of this strategy.

Purposefully Addressing Complex Situations

In essence, the combination of EIGEN, bEIGEN, and the forking mechanism extends the scope of blockchain governance into new and unknown territories. By enabling the community to address inter-subjective disputes, EigenLayer enhances the security and adaptability of decentralized systems, paving the way for a more resilient and responsive blockchain ecosystem.

As projects evolve, new questions arise: Can EigenLayer maintain a competitive revenue-sharing environment compared to independent onboarding? Does this model truly foster innovation, or will it create new dependencies and centralization?

Indeed, it’s complex. Integrating this system with existing DeFi protocols is not easy and will face challenges. But that’s the point. Blockchain should be challenging. It should make us think, question our assumptions, and push us toward solutions that are both technological and human.

Ultimately, EigenLayer is not just about re-staking or earning extra rewards; it aims to expand the boundaries of decentralized trust. It seeks to create a system capable of handling off-chain matters, with community consensus serving as the final arbiter of truth.

Disclaimer：

1. This article is reproduced from [ForesightNews]. Forwarded the Original Title ‘重新理解 EigenLayer 再质押潜力：突破信任界限’. The copyright belongs to the original author [Saurabh Deshpande], if you have any objection to the reprint, please contact Gate Learn Team, the team will handle it as soon as possible according to relevant procedures.
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