EigenLayer Meaning

What Is EigenLayer?

EigenLayer is an Ethereum-based restaking protocol that leverages staked Ether (ETH) to secure other protocols within the Ethereum ecosystem through restaking. To explain, restaking involves taking ETH that has already been staked on Ethereum and using it to secure other protocols to earn staking rewards. 

Put simply, EigenLayer enables startup protocols to benefit from Ethereum’s well-established proof-of-stake consensus mechanism. This allows these protocols to validate transactions without creating their own validator set, which can be very costly. 

Sreeram Kannan founded this Ethereum restaking protocol in 2021. The protocol aims to establish a restaking marketplace, where decentralized applications (dApps) and protocols within the Ethereum ecosystem can access pooled security. Not to mention, the protocol’s restaking process allows users to collect additional income while still utilizing their staked assets.

How Does EigenLayer Work?

Think of EigenLayer as a support layer between Ethereum and its users. It consists of validators selling pooled security and third-party protocols buying pooled security. It also enables users to contribute their tokens to restaking pools. When users deposit ETH or liquid staking tokens (LSTs) to EigenLayer, they receive liquid restaking tokens (LRTs) which can be converted back to ETH at any time. Much like liquid staking offers users liquidity while their ETH is staked, LRTs allow users to participate in DeFi while their ETH is restaked.

Generally speaking, EigenLayer comprises three key elements – modules, smart contracts, and restaking. 

• Modules – It introduces a modular security approach, where ETH stakers contribute their tokens to secure specific functionalities, known as modules, within the Ethereum ecosystem. For instance, a module could secure decentralized storage solutions, in-game items in gameFi protocols, or trust within DeFi protocols.
• Smart contracts – Users re-stake their locked tokens through the protocol’s smart contracts, granting the contracts the capability to add additional conditions or enforcement rights on the staked tokens. As a result, it provides a new set of validation and security services to the different modules in the network.
• Restaking – Users can restake their staked Ether in two ways – solo staking and delegation. In solo staking, the users run their own nodes and directly validate their respective module’s transactions. Conversely, users can delegate the validation duties to other network participants by contributing their staked tokens to the protocol’s restaking pools.