EigenLayer is a Restaking protocol based on Ethereum. It can be seen as an intermediate platform connecting stakers, AVS and application chains.

• The staker, namely Restaker, is the user who pledges assets on EigenLayer.
• AVS, Actively Validated Services, is a security service protocol integrated on EigenLayer and can be simply understood as a node operator.
• Application Chain is a small and medium-sized blockchain network with node verification requirements

The main function of EigenLayer is to serve as a platform to connect these three objects. It can:

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• Provide pledgers with a way to repeat pledges and obtain additional pledge rewards
• Provide pledge assets for AVS
• Provide AVS selection and purchase verification services for application chains Opportunities

EigenLayer Business Model

EigenLayer's business model is built around stakers, AVS and application chains. The specific operation process is as follows:

• Users repeatedly pledge LSD to EigenLayer.
• Double-pledged assets will be provided to AVS for protection.
• AVS provides verification services for application chains.
• Application chain payment service fees. The fees will be divided into three parts and distributed to stakers, AVS and EigenLayer as staking rewards, service income and protocol income respectively.

EigenLayer Restaking

EigenLayer's Restaking service was launched on the Ethereum mainnet on June 14, 2023, and currently provides 2 re-pledge options:

• ETH re-pledge: Users re-pledge the Ethereum native asset Beacon Chain ETH
• LSD re-staking: Users re-stake LSD, that is, the derivative token generated by staking on the liquidity staking platform (such as Lido Finance, Rocket Pool)

According to data from the EigenLayer official website interface, so far, EigenLayer has experienced three re-staking cap expansions, with the total pledged amount exceeding 177K ETH. The protocol currently supports re-staking of four assets: Lido Staked Ether (stETH), Rocket Pool Ether (rETH), Coinbase Staked Ether (cbETH), and Beacon Chain ETH. Among them, stETH has the largest amount, accounting for more than 60% of the pledge share.

Why EigenLayer deserves attention

From the perspective of the project itself and the macro perspective of the encryption market, EigenLayer deserves attention for three main reasons:

• EigenLayer’s Restaking mechanism can solve the problem of Ethereum network security fragmentation
• The LSDFi track has huge potential, and EigenLayer’s Restaking mechanism can release a large amount of liquidity from LSD
• As Restaking projects that integrate many verification protocols, EigenLayer is very likely to issue coins in the future

Security fragmentation

According to EigenLayer, its Restaking mechanism can solve the current Ethereum The security fragmentation problem existing in the network.

Security fragmentation mainly refers to the security incompatibility issues that currently exist between the Ethereum network and non-EVM compatible application chains.

We all know that Ethereum, as one of the most important networks in the blockchain field, has strong security and is highly decentralized. It is based on PoS consensus and has more than 10,000 nodes and 25 million ETH pledges. Therefore, Ethereum’s security factor is very high. The application chain built on Ethereum through EVM inherits the underlying security of Ethereum.

But on the other hand, non-EVM-compatible application chains cannot enjoy the security of Ethereum. They must establish their own trust network and ensure network security by deploying their own nodes or relying on third-party verification nodes. This means that the security of each application chain is independent and fragmented. Non-EVM-compliant app chains are more vulnerable to attacks and more expensive to maintain security than EVM-compatible app chains.

EigenLayer can solve this problem through Restaking. By re-staking, staked LSD assets can be used in multiple verification protocols (Actively validated services AVS) to provide collective security for non-EVM-compatible application chains.

These AVS are integrated on EigenLayer to form a decentralized AVS market. Users can choose different AVS protocols to re-stake based on incentives, security and other factors. These AVS protocols will serve as a decentralized verification network to provide collective security for non-EVM-compatible application chains, thereby effectively solving the problem of security fragmentation.

To put it simply, attacking the network only required attacking a single AVS before; now it is necessary to attack multiple AVS at the same time. As the cost of attacks increases, so does security.

LSD Liquidity Release

EigenLayer's Restaking mechanism will continue in the future Releases massive amounts of fluidity from LSD.

Since Ethereum completed the Shapella upgrade in April, the amount of ETH pledged has increased significantly. According to data from TokenUnlocks, within one month after the upgrade, the amount of ETH pledged increased by nearly 500,000, with a total of approximately 3.04 million ETH being pledged. It accounted for 16% of the total circulating supply of ETH at the time.

Currently, Ethereum’s pledge rate is approximately 20% and continues to rise. Compared with other Layer 1 blockchains (such as Avalanche 62%, Tron 47%), this number still has a lot of room for growth in the future.

With the increase of ETH pledge rate and the growth of the entire ETH Staking market Expansion, the scale of liquid staking protocols such as Lido Finance and Rocket Pool will also continue to expand. The amount of LSD such as stETH and rETH will increase with the pledge rate of ETH. There is huge potential in the entire LSD circuit.

This also means that EigenLayer’s Restaking mechanism can release a large amount of liquidity from these LSDs.

Judging from historical data, in less than three months after EigenLayer Restaking was launched on the mainnet, EigenLayer raised the upper limit of LSD re-staking three times. The re-staking limit for LSD has been increased from the initial 3,200 to 100,000. And every time, almost every two to three days, the amount of LSD pledged reached the upper limit. Therefore, as the types of LSD that can be re-pledged increase in the future and the LSD market expands, EigenLayer is likely to increase the upper limit again, thus releasing more liquidity from LSD.

Possible future currency issuance

As a Restaking project that integrates many verification protocols, EigenLayer has a high possibility of issuing native tokens in the future.

EigenLayer integrates many AVS protocols and forms its own verification service ecosystem. Although EigenLayer is still in the early development stage of the project, it has not yet formed a complete governance model. However, decisions such as the selection of the AVS protocol and the setting of the core reward mechanism are inseparable from the participation of the governance mechanism. Therefore, we have reason to believe that EigenLayer has a high probability of issuing its own native token in the future and using it for governance, rewards and other purposes to maintain the development of the project.

At the same time, EigenLayer, as a pioneer project in Restaking, has many well-known early investors, such as Blockchain Capital, Polychain, Coinbase Venture, etc. This also increases the possibility of EigenLayer issuing coins to a certain extent.