Crypto Twitter has been awash the past few weeks with talk of a strange new protocol called EigenLayer.
Some are going as far as calling it the next Ethereum Meta, while others are already whipping up speculative airdrop guides. And at least one person is doing God’s work, helping us all pronounce the project’s name.
So, what in the hell is EigenLayer? Well, think of it as being like blockchain security-as-a-service.
Instead of having to gather funds, hardware, and a series of validators to keep your newly-launched crypto project from getting 51% attacked (or worse), EigenLayer wants to put stakedback to work for you.
Here’s how it works.
Ethereum’s proof-of-stake consensus mechanism means that the network is secured by economic incentives and penalties rather than massive warehouses of mining machines. So-called validators in such a network can join and begin earning ETH-denominated yield once they stake 32 ETH to the network. If, however, their validators go down or they behave maliciously by validating incorrect transactions, they’ll be penalized; a portion of that 32 Ethereum gets taken away.
For reference, there’s currently 19.7 million Ethereum enlisted to keep Ethereum secure, or about $34 billion today—that’s more than 16% of all Ethereum currently in circulation. Yes, it’s a lot.
EigenLayer takes this a step further by rehypothecating all that staked ETH to serve the same security purposes but for other, newer projects.
Rehypothecation is basically another term for using the same money twice. And because that money’s being used twice, stakers who opt-in will also enjoy an even higher yield. And the more projects that build (and gain traction), the more yield opted-in stakers can earn.
Given that the asset being staked here is also Ethereum, these other projects would also be Ethereum-based. EigenLayer’s white paper includes bridge technologies and oracle providers that could all use this double-dipped Ethereum.
In many ways, this will also make the developers’ deployment experience far easier, providing confidence that their pet project will ultimately be backed by the market’s second-largest crypto network.
It’s an odd, very crypto-native idea, but as mentioned, it’s got a lot of folks fired up. ConsenSys founder Joe Lubin said EigenLayer is “at the forefront of some of the most exciting work happening in Ethereum.”
And in March, the project raised $50 million in a Series A round from a host of notable investors.
It’s early days, of course. For now, though, all eyes are on Eigen.
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