What Is EigenLayer? How To Restake Ethereum And Get Rewards

2024 is predicted to be a significant year for EigenLayer with the groundbreaking narrative of Ethereum restaking.

Restaking refers to a process in which Ethereum (ETH) tokens deposited to the secure blockchain networks, known as staking, can be repurposed to secure additional blockchains and protocols. This enhances their utility and provides holders with a set of additional rewards.

What is EigenLayer?

Eigen Layer is a protocol built on the Ethereum network introducing restaking of staked ETH coins, a concept of rehypothecating an asset previously staked in the crypto-economy.

Restaking enables the rehypothecation of ETH on the consensus layer. Through EigenLayer smart contracts, users who stake ETH can restake their ETH, extending crypto-economic security to additional applications on the network.

As middleware, the protocol strengthens Ethereum's presence as a foundational blockchain and aims to connect ecosystem services and DApps. EigenLayer's founder, Sreeram Kannan, envisions enabling ETH stakers to extend security in Ethereum to other applications and services without needing new validators.

How Does EigenLayer Work?

The current challenge in blockchain networks is fragmented security, particularly evident in the Ethereum network. Middleware and non-EVM applications built on Ethereum are responsible for generating their own trust networks, which is inefficient.

EigenLayer has pioneered a new mechanism in cryptoeconomic security to overcome these challenges and aggregate security across the Ethereum network.

The protocol creates an opt-in middle layer where users agree to grant EigenLayer additional enforcement rights on their staked ETH, allowing EigenLayer to effectively restake it onto other applications.

EigenLayer can freely deploy restaked ETH to additional applications. Ultimately, EigenLayer's design allows staked ETH to provide validation services beyond Ethereum itself.

Components of Eigen Layer

The components that build EigenLayer include:

• AVS: Protocols or services (DApps) using Ethereum as the primary basis.
• Restaked Rollup: Examples include AltLayer, which enhances execution scalability with the help of EigenLayer Validator.
• Operator: Entities responsible for maintaining network integrity and validating transactions within the Eigen Layer ecosystem.

Currently (as of February 2024), Eigen Layer does not allow validators to choose which AVS they want to secure. The process is automatic. When AVS-based restaking begins, specific protocols, services, and certain sidechains will receive special attention.

Another interesting aspect of EigenLayer is that it does not disrupt the fundamental security of the Ethereum network. Instead, the protocol primarily relies on two concepts – combined security and free market governance.

Restaking Proces In EigenLayer

Restaking in EigenLayer, through the EigenLayer interface, can occur in two ways. The first approach involves native restaking, and the second is liquid staking.

Native restaking involves validators holding directly staked ETH on the Beacon Chain, 32 ETH each — which can create EigenPods. Subsequently, the validator withdrawal address is changed to the EigenPod address, and they begin restaking.

Rewards earned from the staking process and restaking benefits from AVS will also flow into EigenPods. Stakeholders can directly unstake and withdraw after a 7-day escrow period.

However, if you are not an active validator and only stake ETH through liquid staking providers like Lido and Swell, you can also restake with liquid staking tokens through EigenLayer.

As a note, in the Eigen Layer deposit window on February 5, 2024, several limitations were applied to prevent concerns regarding centralization. One of these limitations is a 33% cap on LST/LRT token allocation and single deposits to encourage re-verification.