Written by
Nishil Jain
Date published
September 22, 2022

Generating decentralized trust is quite hard.Let's learn how @eigenlayer is leveraging this very fact to fuel innovation on @ethereum.A thread🧵...


1/ This thread is long, stick with me!There's a lot that is new in the protocol, and I want to make sure I do justice to its novelty.

2/Blockchains are revolutionary because they have eliminated the need for trust between people & institutions.Instead of trusting a human for our daily interactions, we now trust a decentralized set of nodes. But developing such a network is often the most challenging part.

3/ In 2009, Satoshi's Bitcoin whitepaper pioneered decentralized trust.Instead of trusting a bank, it allowed us to place our trust on a decentralized network of computers.

However, it can only do P2P $BTC transfers, it is an application-specific chain.


4/So to build a new decentralized application, developers had to create an entirely new decentralized network of computers.Ethereum founders recognized this problem & created an EVM execution layer upon Ethereum's trust module.This enabled innovation on the application layer.

5/ Developers can now make use of Ethereum's base trust layer and build innovative decentralized apps upon it.All of this without having to bootstrap a new network.

6/ Ethereum's trust module consists of three components:

1. Trust network

2. Consensus

3. Execution layer


7/ But there are still two major limitations to what Ethereum can achieve:1st problem: To build any new execution layer (eg: gaming virtual machine) or a new consensus layer (eg: Tendermint, Cosmos consensus) requires developers to build an entirely new network.

8/ Eth currently has $20B staked among 412,000 validators.

But for chains with new consensus & execution models, there is no way to leverage this security.

New chains build separate trust networks which fragment total ecosystem capital and trust into smaller chunks.

9/ 2nd problem: Ethereum has to depend on externalities for things like - message exchange across blockchains, oracles, data availability, etc.

To solve these problems middlewares were developed - DACs, Celestia, chainlink, bridges, etc.

10/ Middlewares need to develop their own trust networks. They need billions in fresh capital and thousands of nodes to function securely.

They fail to do so and therefore act as a weak link because their networks are much weaker than Ethereum's.

11/ Hence middlewares introduce a trust layer. Users now have to trust them to use different Dapps, for example:

- Trusting oracles for price feed- Trusting bridges for cross-chain transfer

- Trusting relayers for MEV Boost- Trusting DA for validiums

12/ This is where @eigenlayer comes in.

It is a mechanism to leverage the existing trust network to do the things it was not intended to do.Simply put, Eigenlayer transfers Ethereum's economic security and trust to a middleware that needs it.

13/ Eigenlayer is a series of smart contracts on Ethereum that allow users to re-stake.

By re-staking, stakers can expose their staked ETH to additional slashing conditions in exchange for securing middleware. Same capital, additional risk.

14/ The slashing conditions are mentioned in a smart contract. Eigenlayer is given the withdrawal credentials allowing it to slash the original stake.If nodes don't satisfy the re-staking condition mentioned on the smart contract, they can be slashed off their original stETH.

15/ Each staker can choose the subset of services they are opting into. A new service can come and pitch what it does and the stakers can decide if they want to opt-in.

16/ Stakers also receive additional rewards from protocols for providing security.The reward mechanisms can be custom-built.

For example, an oracle could reward re-stakers with the fees gained through oracle queries received on the protocol.

17/ There are three different ways to re-stake on Eigenlayer:

1. re-staking $ETH directly

2. re-staking LP tokens

3. re-staking (staked ETH) LP token


18/ Eigenlayer allows innovation at every layer of the tech stack.

With @eigenlayer, Ethereum can focus on governance for long-term growth and anyone can permissionlessly add features for fast innovation.


19/ Let's consider two projects where @eigenlayer can be of good use:

1. EigenDA: It is a data availability network developed by the Eigenlayer team for optimistic and ZK rollups. It allows Ethereum to offload its DA within the ecosystem security instead of off-chain options.

20/ Unlike Celestia (modular DA and consensus network), EigenDA would not have to bootstrap a new validator set as it would inherit it from Ethereum.

EigenDA would also allow us to keep a check on the validators, the ones that fail to be honest can be slashed.

21/ Since EigenDA does not handle consensus, it also has a much higher throughput than Celestia (1.4MB/s, source: Messari).

EigenDA will achieve up to 15MB/s, which is 176 times more than the DA rate of Ethereum without danksharding.

22/2. MEV Boost++: A 2-step solution proposed by @sreeramkannan (co-founder) in a recent MEV workshop.

a. Currently, Flashbot's PBS (Proposer builder separation) only allows proposers to include the transactions that come through its platform.

23/ The proposer is slashed if it includes any other transactions.This slashing condition is somewhat pre-written on Ethereum and a protocol upgrade is needed to change this.

24/ However, on @eigenlayer smart contracts, the slashing condition can be modified to allow proposer to include its own transactions 'as long as it includes the builder part'.

25/ This allows for flexibility without making changes to the core protocol code, gives more power to the proposer & removes the fear of censorship resistance from relayer & block builder.

26/b. The second improvement proposed was to replace the currently heavily trusted relayer with a decentralized EigenDA network.The below picture, though a bit complex, explains the flow properly.


27/ After having discussed what Eigenlayer is capable of, let's take a look at a few concerns around it:

1. Eigenlayer can become a weak link, middleware code can be exploited & honest stakers can be slashed.This might put protocols at risk by reducing their economic security.

28/ 2. Re-staking challenges what value can be captured by the middleware and application-level protocols as most of the revenue gets transferred to Ethereum.

29/ 3. There can be situations where certain middlewares could be over-leveraged, where re-staked amount is a fraction of the protocol's TVL which might put the protocols at risk.

30/ Overall I am very excited for @eigenlayer as it leverages the core value of a blockchain which is trust and allows for open innovation across all layers of blockchain.Their team is excellent and you might never find anyone with better presentation skills than @sreeramkannan

Thanks for reading.

Thanks to @yb_effect for helping at every step and @chapterone for providing me with this opportunity.

Hey @divine_economy, would love to get your feedback on the thread!