EigenLayer: A Beginner’s Guide to Enhancing Ethereum Rewards through Staking and Restaking

Alexander Abramovich
9 min readMay 6, 2024

EigenLayer and restaking are gaining attention in the Ethereum community. With a lot of hype and technical jargon out there, this article aims to provide a well-structured practical explanation of their purpose, mechanics, and limitations, cutting through the marketing fluff.

If you’re already familiar with the basics of staking, feel free to skip the initial background sections to focus on the more detailed discussions of EigenLayer and restaking.

What Are Validators?

  • When Alice wants to send 0.1 ETH to Bob, a validator checks to ensure Alice’s account has the necessary funds and that the transaction does not violate any network rules, such as attempting to spend the same ETH twice.
  • Validators are crucial for maintaining the security and integrity of Ethereum’s Proof-of-Stake (PoS) system.
  • To run a validator, one must stake 32 ETH as a financial commitment. This stake acts as collateral against any dishonest behavior, such as going offline or submitting incorrect or fraudulent transaction information.
  • Validators are compensated for their work with rewards that include base fees and transaction fees. They may also earn additional income through more complex methods like MEV (Maximum Extractable Value), which are beyond the scope of this article.

Here is a diagram of Alice sending 0.1 ETH to Bob:

Why Run a Validator?

  • Joe has staked 32 ETH to become a validator. This commitment allows him to earn rewards, typically between 3–5% annually (down ~2% from the last year), as compensation for helping secure the network.
  • The staked 32 ETH are locked and remain inaccessible for the duration of their time securing the network. This means Joe cannot spend, invest, or use them for other purposes during this period.
  • To operate a validator, it’s mandatory to stake a full 32 ETH. This not only contributes to the network’s security but also aligns the validator’s financial interests with the well-being of the entire Ethereum system.

This diagram shows how a Validator is set up:

Liquid Staking: Simplifying Ethereum Investment and Validator Management

For those with less than 32 ETH or without the technical know-how to manage an Ethereum Validator, options like liquid staking solutions are worth considering.

  • Liquid staking platforms, such as Lido or RocketPool, have introduced two key features that users quickly adopted:
    Individuals with ETH but lacking technical expertise can participate by investing any amount, not necessarily a full 32 ETH.
    Tech-savvy operators can pool their resources within these platforms to run Ethereum Validators.
  • The rewards from staking are shared between these investors and the technical participants.
    For example, when Joe stakes ETH with RocketPool, he receives rETH, RocketPool’s liquid staking token, in return.
  • These Liquid Staking Tokens (LST), such as stETH from Lido and rETH from RocketPool, are integrated into the DeFi ecosystem, offering flexibility such as being traded or used as collateral for loans.
    For instance, Joe can exchange her rETH for USDT and use those funds to purchase other tokens.
  • This innovation has made the originally illiquid 32 ETH stake more fluid, allowing more people to stake ETH across wider geographical regions and consequently boosting adoption and decentralization.
  • Discussing tokenomics, governance, and comparisons of Liquid Staking platforms falls outside this article’s focus.

Here is a simplified diagram that illustrates how liquid staking platforms work (RocketPool is taken as a representative example):

Challenges in Ethereum Ecosystem Security

  • With nearly $100B USD (32M ETH) staked by validators, Ethereum’s Layer 1 (L1) network is highly secure against 51% attacks. Such an attack would require acquiring an additional 32 million ETH, significantly increasing demand and driving ETH prices up, making the attack prohibitively expensive.
  • The infrastructure of the Ethereum ecosystem, including Bridges, Oracles, Coprocessors, and Validators for Sidechains, is significantly more vulnerable to 51% attacks, which are considerably less expensive to execute compared to attacks on the main network.
  • The infrastructure components of the Ethereum ecosystem, including bridges such as Omni Network, Wormhole, and Hyperlane along with oracles like Chainlink, API3, and Pyth, are more susceptible to 51% attacks, which generally cost less to execute compared to those targeting the main network.

Restaking and Multi-Protocol Security: A Look at EigenLayer

  • Restaking extends the concept of liquid staking. Instead of backing just Ethereum validators with pooled ETH, it can back several systems, creating a stronger security net.
  • A platform like EigenLayer allows restakers for the same ETH to be allocated to multiple validators operating across various protocols, making their investment work harder to gain a higher outcome potentially.
  • In the regular investing world, there’s nothing quite like this. EigenLayer’s system is special because it lets stakers “double-dip” earnings from several protocols at once, using just a single investment.
  • An important clarification: Staking with EigenLayer does not automatically grant each protocol the same level of security as Ethereum’s Layer 1, as this would expose every stake to extreme risk. Stakers first place their ETH/LST with EigenLayer, and then they must actively choose how much of their stake to delegate to various operators. The stake distribution is at the staker's discretion, impacting the level of security and potential rewards tied to the AVSs they select.
  • Currently, each wallet can delegate to only one Operator; to distribute 1 ETH across multiple operators, multiple wallets are required. Furthermore, changing operators involves unstaking from EigenLayer, a process that takes seven days for LST and 24 days for EIGEN coins, after which staking must begin anew.

Joe’s Staking Choices

  • Joe can first stake his ETH with a liquid staking service, such as Lido, RocketPool, and many others, receiving tokens that he can re-stake with an EigenLayer operator.
  • If Joe runs his own Ethereum Validator he can delegate his Validator keys to EigenLayer, get the 32 ETH on his balance, start earning EigenLayer points, and be able to delegate these 32 ETHs to any EigenLayer Operator.

For Joe, if he wants a straightforward approach without managing staking and restaking processes, the simplest option is to use Liquid Restaking Token (LRT) platforms. Keep reading as more details on LRT platforms are provided in the dedicated section below.

EigenLayer Architecture: AVSs and Operators Explained

  • Active Validator Systems (AVSs) are responsible for validating and securing a range of services, including bridges, oracles, coprocessors, data availability layers, and other blockchain-based applications, each focusing on distinct functionalities that enhance the capacity and capabilities of the network.
  • Operators evaluate the risk and select which AVSs to run.
  • Restakers like Joe can delegate their stakes to these Operators, who then restake the funds to the appropriate AVSs.
  • Restakers like Joe can delegate their stakes to Operators, who then restake 100% of the received stake to each AVS selected by that Operator.
  • Multiple operators can collaborate and support the same AVS, enhancing the system’s resilience.
  • Questions like how operators distribute stakes among AVSs are part of the considerations Joe needs to make.

Examples of Active Validator Systems on EigenLayer: Enhancements and Roles

  • EigenDA: This service boosts the efficiency of Ethereum rollups with cost-effective transaction ordering and storage, and is also suited for a variety of applications that demand robust data availability, such as gaming, social media, and video streaming. Using decentralized storage and erasure coding, EigenDA minimizes storage demands and enhances data recovery and throughput. Its trustless operation, secured by KZG polynomial commitments, offers strong cryptographic guarantees to ensure data integrity and security across all uses.
  • Brevis coChain AVS: Aims to make different blockchains work smoothly together, ensuring trains from different companies run on time on the same tracks.
  • AltLayer MACH: Provides a way for separate blockchain systems to interact, similar to translators in a multi-language conference ensuring everyone understands each other.
  • eoracle: Supplies trustworthy external data to blockchain networks, acting like a news reporter providing the latest updates for smart contracts to use.
  • Omni Network: Works to connect Ethereum’s various layers quickly, reducing wait times much like a direct express elevator in a very tall building.

LRT (Liquid Restaking Token) Platforms

Remember Joe, who had to go through the hassle of staking ETH with Lido to receive stETH, which he then had to restake on EigenLayer? What if Joe simply wanted to stake his ETH and let a platform handle all the rest, from managing his assets to maximizing his rewards?

User-friendly platforms provide interfaces to simplify managing these staking investments, improving the user experience for investors like Joe.

Each service offers unique features and benefits tailored to different staking preferences, such as:

  • Ether.Fi: focuses on self-custody and decentralized staking for individuals who want to stake their ETH securely. Its UX is tailored for users who want hands-on management of their staking without relying on intermediaries.
  • Renzo Protocol: acts as a liquid restaking hub within the EigenLayer, enabling users to earn additional yields on their staked ETH. It streamlines the restaking process, across multiple blockchains (such as Arbitrum, Linea, and others) abstracting the complexity for end-users.
  • Puffer Finance: provides a secure path to staking with anti-slashing mechanisms and an option to boost staking rewards by leveraging DeFi applications.
  • Kelp DAO: focus on improving liquidity and DeFi integration, rewarding users with their native points and EigenLayer Points.

Risks of Restaking

While restaking can offer enhanced returns on Ethereum investments, it’s important to be aware of the risks involved in making informed decisions:

  • Slashing Risks: Validators failing to fulfill their responsibilities could result in stakers losing part of their staked ETH due to penalties, a process known as slashing.
  • Smart Contract Vulnerabilities and Third-Party Dependencies: Bugs or failures in the smart contracts or third-party services that manage staking can lead to significant financial losses.
  • Liquidity Concerns and Token Stability: Liquid staking tokens may experience liquidity issues or lose their peg to ETH during market downturns, impacting their value and the predictability of returns.
  • Leveraged Restaking Risks: Leveraged restaking offered by platforms such as Gearbox or Pendle involves using staked assets to borrow funds for further staking, amplifying both potential returns and risks. A decrease in the value of the underlying assets can trigger margin calls or liquidations, particularly during volatile market conditions, leading to substantial losses.

Closing Thoughts: The New Era of Ethereum Restaking

As the Ethereum (re)staking landscape evolves, LRT platforms like Ether.Fi, Renzo Protocol, Puffer Finance, and Kelp DAO are not only enhancing the staking process but also incentivizing participation by offering their own reward tokens or points. These rewards, which may become tradable tokens in the future, echo the early days of initial coin offerings (ICOs), providing speculative value alongside the practical benefits of staking. This dual promise of security and potential profit drives the increasing interest in decentralized finance solutions.

This article has offered a comprehensive guide to enhancing your Ethereum investment strategy, from exploring diverse staking mechanisms to navigating innovative liquid staking platforms. As the blockchain landscape continues to evolve, these platforms provide valuable tools for maximizing returns and securing assets, ensuring users can participate in and benefit from the growing potential of decentralized finance.

Acknowledgments

Thanks to Yura Sherman for bridging my consciousness with the Restaking realm and for a thorough review of the article and his valuable remarks, corrections, and insights.

For a comprehensive guide on restaking strategies and best practices, check out my article The Savvy ReStaker’s Checklist: Navigate Risks & Maximize Rewards.

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