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EigenLayer: Analysis of the restaking champion

EigenLayer: Analysis of the restaking champion

The Big Whale's opinion 🐳

EigenLayer is the emerging project enjoying the most traction in the ecosystem.

Its proposition is unique in the market.

The project does not yet have a token, but its future airdrop is hardly in doubt.

Many projects are being built on EigenLayer and will potentially airdrop their tokens to users of the protocol.

The immense capital and number of users already attracted to the project may reduce the attractiveness of airdrops.

Overview 🧬

Eigen Layer is a "restaking" protocol designed on the Ethereum blockchain.

Development began in 2021, and network deployment has been underway since June 2023.

The principle of staking involves blocking tokens (in this case, ETH on Ethereum) to help secure a network, in exchange for distributed rewards in the form of new tokens.

EigenLayer brings an innovation: it allows participants in staking on Ethereum to also help secure other blockchains. This opens up the possibility for them to receive additional rewards from these other blockchains, in addition to those from Ethereum.

This approach presents a significant advantage for external projects, which no longer need to set up their own community of validators, which is often very costly. They can benefit from the robustness of Ethereum, one of the most secure blockchains in the ecosystem, comparable to Bitcoin. This allows them to focus on other strategic objectives.

As for the rewards for projects secured through EigenLayer, the team has announced that it will provide more details at a later date. However, it is envisaged that these rewards will be awarded in ETH and/or tokens specific to the projects concerned.

Funding 💰

EigenLayer has successfully raised a total of $64.5 million in two separate fundraisings.

The first fundraising, a seed round, took place in August 2022 and raised $14.5 million. This round was led by Polychain Capital and Ethereal Ventures, with participation from Robot Ventures, Figment Capital, dao5, and P2P Validator.

The second round, corresponding to a Series A round, took place in March 2023 and resulted in the raising of $50 million. Blockchain Capital led this round, accompanied by Coinbase Ventures, Polychain Capital, Electric Capital, and Hack VC.

The key takeaway is that EigenLayer has the financial backing of industry-leading investors.

Team and community 👾

EigenLayer is primarily developed by EigenLabs, a US-based start-up.

Founder and CEO Sreeram Kannan is a former professor at the University of Washington, where he led a research lab specialising in blockchain, focusing his efforts on developing new infrastructure protocols.

Calvin Liu, filling the role of chief strategy officer, brings experience from Compound Labs, the company behind Compound, which ranks as the second largest decentralised lending platform after Aave.

Chris Dury, the chief operating officer, previously held senior roles at Amazon Web Services (AWS).

Most of the EigenLabs team reside in the US.

The project has rapidly gained popularity, with already 180,000 followers on X (formerly Twitter) and 186,000 members on Discord.

Governance  🗳️

This is exercised 100% by EigenLabs, but this will change with the issue of a governance token.

Social analysis  👥

According to data provided by Kaito, a company specialising in social network analysis, EigenLayer ranks as the 11th most talked about cryptocurrency project on various social networks over the past week, and 15th over the past month.

This increased visibility on social networks can mainly be attributed to the recent window when it was possible to deposit unlimited funds into the protocol. It ran from 5 February to 9 February.

KAITO
Source: Kaito

Market analysis by SUN ZU Lab 📈

18/12/2023: EigenLayer adds 6 new liquid staking tokens and increases the restaking limit from 120.000 ETH to 500,000 ETH. The TVL, i.e. the value immobilised, doubles in less than 48 hours and reaches $1 billion on 28 December 2023.

05/02/2024: EigenLayer removes the restaking limit (set at 200,000 ETH that day). TVL explodes a few hours later and reaches $6 billion on 9 February 2024.

"We have never had a TVL in DeFi above $2 billion that triples in less than five days to reach such a level," says Chadi El Adnani, Head of Content & Research. "EigenLayer is now positioned ahead of industry giants such as Uniswap or Compound in terms of TVL."

Source : SUN ZU Lab

The players in the EigenLayer community 🤝

Users deposit their ETH in EigenLayer and delegate them to the operators of their choice.

Operators manage the ETH placed in EigenLayer and secure projects that require it. Anyone can claim this task as the system is permissionless.

"The operators will probably be those with the best reputation and performance," says Loïc Titren, in charge of the product at Kiln, one of the world's staking specialists.

Actively Validated Services (AVS) are the projects that use EigenLayer to delegate their security.

Each operator can participate in securing one or more AVS and obtain more or less rewards.

The rewards are then redistributed to the users who have delegated their ETH. Thus, by delegating your ETH to EigenLayer via its operators, you maximise the amount of staking rewards.

EIGEN

How are projects that want EigenLayer security chosen? 🏆

"At the moment the AVSs are chosen by the EigenLabs team," says Kiln's Loïc Titren. "They probably have criteria on the maturity of the team, the scope of the project and the slashing risks they bring," he points out.

This selection method should probably evolve when a token is issued to exercise governance of the project.

Note that one of the first projects to benefit from EigenLayer will be EigenDA.

This is another project developed by the team that presents itself as an alternative to Celestia (which we offered an analysis of last week).

What are the first projects? ✅

13 projects have officially been chosen to take advantage of the security provided by EigenLayer (full list up to date).

It's interesting to note that some of them haven't yet launched a token and that EigenLayer stakers will be prime targets.

👉 Aethos

A modular, decentralised policy engine designed for compliance

👉 AltLayer

Decentralised middle layer for rollups, using EigenLayer for a fast purpose and EigenDA for data availability. Its airdrop has already taken place with EigenLayer users.

👉 Blockless

A compute engine that can be verified and is economically incentivised by the restaking process.

👉 Drosera Network

To access decentralised validation through restaking to create a strong and responsive first responder collective.

👉 EigenDA

EigenDA enables rollups to achieve cost-effective, ultra-high-speed data availability over EigenLayer, while benefiting from the shared crypto-economic security provided by EigenLayer.

👉 Espresso

Decentralised sequencing using restaking for Ethereum alignment and strong economic security.

👉 Ethos

Ethereum restaking hub for the Cosmos ecosystem

👉 Hemdall Labs

Decentralised compliance policies for all crypto projects.

👉 Hyperlane

To enable developers to secure messages using EigenLayer's cost-effective security for cross-chain applications.

👉 Lagrange

Lagrange committees use restaking to create a secure, scalable thin client for optimistic rollups.

👉 Near

Fast finality layer that improves composability and liquidity in the Ethereum rollup ecosystem.

👉 Omni

A fast settlement chain designed to facilitate message exchange and liquidity sharing.

👉 Silence Laboratories

To create MPC authentication libraries and SDKs for the web that are not dependent on any stack or device.

Competition ⚔

Eigen Layer currently has no competitors.

Regulation ⚖

With restaking, EigenLayer is operating in an environment that is far too new to attract the attention of regulators.

On the other hand, its future governance token will be particularly sensitive to changes in the regulation of staking. This is also the subject of much discussion in the United States.

Roadmap 📝

Eigen Layer must continue to deploy all its functionalities throughout 2024. Protocol governance will remain centralised for as long as it takes to ensure that all these functions work properly.

In the longer term, it is envisaged that tokens other than ETH will be used to secure projects. Each AVS could thus choose those that can best contribute to its security (provided they are part of the Ethereum ecosystem).

The risks of EigenLayer 🥵

The first risk of EigenLayer, similar to any project developed on blockchain, is represented by hacks linked to a flaw in the smart contracts.

"If the EigenLayer contracts are hacked, all the restacked value is at risk," stresses Kiln's Loïc Titren, "It's a risk similar to what can be found on liquid staking protocols such as Lido."

EigenLayer operators can be penalised by the AVSs they help to secure. This may be the case, for example, if an operator attempts to secure a number of AVSs that is too large for its technical capabilities, or if it secures a malicious or defaulting AVS.

The sanction takes the form of "slashing", i.e. a kind of fine deducted in ETH. At the end of the chain, the operators' custodians (i.e. you) will collectively bear the loss.

"Each AVS has its own slashing rules, which are more or less obvious to operators," points out Loïc Titren. "What will happen if an AVS has a bug and slashes all its restakers? Some of the value restacked could be at risk."

It will be crucial to choose carefully which operator to delegate your ETHs to. Some could prove very attractive by securing a lot of projects (and therefore promising substantial rewards), but the greater the remuneration, the greater the risk will be tenfold.

Using a liquid restaking protocol (such as EtherFi or Kelp) does not allow you to choose the operators on which you will depend since this choice is up to these protocols.

Is there a systemic risk on Ethereum? 🤯

EigenLayer represents a threat that can be described as systemic due to its grand ambitions. If it were to fail, all the projects that rely on its security would be impacted.

As far as Ethereum is concerned, its security does not seem to be compromised by the development of EigenLayer. If the number of ETHs staked in EigenLayer were to represent too large a proportion of Ethereum's total staking, EigenLayer has indicated that some of the ETHs delegated to it will be set aside so that they are not used by operators.

Some undesirable effects can nevertheless be anticipated, such as misalignment among players.

"It's quite dystopian, but what will happen if an AVS operator, which also operates Ethereum validators, decides to take advantage of the blockspace it produces to benefit its performance on AVS?" wonders Kiln's Loïc Titren.

What do we know about the likely airdrop 🪂

The EigenLayer team has made no official statement on the matter.

However, EigenLayer has introduced a system of points accumulated every hour based on the volume of tokens deposited. Although these points have no declared official use, they are often seen as a precursor to a possible airdrop.

According to our information, professional investors who participated in the initial funding rounds and who wish to resell their stake on the OTC market have indicated that a token is indeed in the pipeline.

The launch date is unknown, but the value of all tokens issued has been set at $6 billion for its market launch.

Considering that airdrops most of the time concern around 10% of the offering, we can envisage that the amount spent on this operation will be in the region of $600 million.

If the airdrop were to occur this week, taking into account these elements and the number of points already distributed, the value of one point at launch would be around $0.46.

Some people are already speculating on it on OTC markets. On the Whales Market marketplace, which notably allows points to be bought and sold, the floor price for an EigenLayer point is currently $0.14 (the maximum observed is $0.32).

It is important to note that the price of the token will be inversely correlated to the duration of the points programme (which is unknown). The longer it lasts, the greater the number of points issued and the lower their unit value.

How to take advantage of EigenLayer and be eligible for airdrop 🔮

EigenLayer is currently in the development phase, but it is already possible to deposit both ETH tokens and various liquid staking tokens on it.

Here are those accepted: stETH (Lido), swETH (Swell), mETH (Mantle), ETHx (Stader), wBETH (Binance), rETH (Rocket Pool), cbETH (Coinbase), sfrxETH (Frax), oETH (Origin), osETH (StakeWise), lsETH (Liquid), ankrETH (Ankr).

Please note: deposits of liquid staking tokens are only possible during certain periods. The last window took place between 5 and 9 February.

The date of the next one is unknown.

For those wishing to deposit ETH tokens, an "EigenPod" must be created, and this requires depositing multiples of 32 ETH (the amount needed to create an Ethereum node). Advantage: there is no time period for doing this.

People wishing to deposit smaller amounts of ETH can go through EtherFi or KelpDAO, which will take care of creating EigenPods by pooling the funds of several users.

In exchange, the latter generate liquid re-staking tokens (eETH and rsETH). Here too, there is no time limit when using these solutions.

Conclusion 🧭

EigenLayer is an extremely ambitious project that holds out the prospect of many opportunities for those depositing ETH.

Despite the excellent credentials of the team and investors, in our view the project remains risky given the youth of the network.

It may be appropriate to test it with modest sums in order to be eligible for EigenLayer's airdrop as well as those of the projects being built on it.

The simplest solution is to go through EtherFi or KelpDAO to deposit ETH or liquid staking tokens.

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