Rapture #272: EigenLayer White Paper Release
No major update on market activity in terms of breaking out one way or another. That being said, LIT has been doing exceptionally recently, even in this rangebound market.
While I am not extremely confident in this stance, I am leaning more towards the market breaking upwards. Still, I remain approximately 45 - 50% in cash because at any time macro can cause the bottom to fall out and thus I would like further confirmation.
While the market is not super exciting right now, ETH Denver should be. If you are around, let me know, would love to meet up.
For today's newsletter, I want to discuss one of the hottest upcoming projects, EigenLayer, which recently released their whitepaper.
Big picture
The big picture of EigenLayer is that it enables projects to add additional slashing features to the current Ethereum staking process, effectively giving these projects a way to piggy back off the security Ethereum staking validators currently provide.
This feature allows projects to outsource the security function required to achieve decentralization for their respective project. Some direct sub-industries within crypto that could utilize EigenLayer are decentralized sequencers (the entitities that secure roll-up based L2s), light-node bridges between different L1s like Rainbow Bridge, and oracles. Other use cases can be found in their whitepaper, though really the implementations are endless.
EigenLayer grants users the ability to opt-in to a wide variety of retaking opportunities, which will likely increase the yield those users are earning on their staked assets.
Details
The way EigenLayer performs the aforementioned function is through two new ideas: pooled security via re-staking and free market governance. Pooled security via re-staking occurs from validators being able to choose which additional restaking modules they are willing to support. This decision process will be based on the risk-reward of the additional income earned from the restaking vs. the additional parameters of risk they have to undertake for the new slashing events.
Additionally, validators have a choice to either run the restaking operations on EigenLayer themselves or delegating these operations to EigenLayer operators. This process is akin to ETH holders choosing to run their own validator nodes or delegating their ETH to operators who run validator nodes on their behalf.
Interestingly, the multi-sig of EigenLayer will initially have the ability to veto any slashing event to occur on the network, which means that they will have an incredibly large amount of power. Instead of allowing people to vote on the multi-sig holders based on the amount of ETH they restake on the network, EigenLayer opts to have a reputation based multi-sig veto committee.
Appliations that want to build on top of EigenLayer and use the veto committee must be admitted by the committee.
Takeaways
While this information may be complicated for many of you, the takeaways here is that EigenLayer will enable users to earn more yield and takes a way one of the largest headaches (security) for many crypto applications.
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