EIGEN Token Attracts Attention with Major Crypto Exchange Listings

Eigen (EIGEN) token, with its recent listings on major cryptocurrency platforms including Binance, has caught the eye of investors. According to CoinGecko, the token began trading at $3.90 on its first day. The fully diluted market cap was valued at approximately $6.51 billion, and by the next day, the token’s price climbed 13% to $4.20, pushing the market cap to $7.1 billion.

EIGEN is the native token of EigenLayer, an Ethereum restaking protocol that distinguishes itself with unique technological advancements.

# What is EigenLayer?

EigenLayer is an innovative protocol extending Ethereum’s staking (Proof-of-Stake) system by introducing the concept of “restaking.” In the traditional Ethereum staking system, users lock ETH to serve as network validators, but the staked assets face liquidity constraints during the lock-up period.

EigenLayer addresses this issue by allowing Ethereum validators to recycle staked ETH to bolster the security of other protocols and services. This expands the utility of staking assets beyond the Ethereum network, offering new opportunities within a broader ecosystem.

# Differentiation from Traditional Staking

The core of EigenLayer’s restaking lies in recycling locked liquidity to generate dual income from the same capital. Traditional staking confines assets to protecting a single network. However, EigenLayer changes this dynamic, enabling staked ETH on Ethereum to enhance the security of multiple protocols.

EigenLayer posits that restaking uses staked ETH for the cryptoeconomic security of protocols outside Ethereum, potentially yielding additional fees and rewards. Validators can earn from various sources without locking extra capital.

# How Does It Work?

EigenLayer implements mechanisms to reuse staked ETH from the Ethereum network to secure external protocols and services.

Restaking

In EigenLayer’s restaking, validators distribute staked ETH across multiple protocols or Actively Validated Services (AVS), contributing to security. This enables validators to uphold Ethereum’s security while securing other protocols and earning additional rewards.

Modular Security Approach

EigenLayer’s modular security approach allows validators to contribute to various protocols, forming stronger security pools that significantly increase attack costs. Higher attack costs mean enhanced security for the entire ecosystem.

Staking and Slashing

Validators face risks of slashing, i.e., losing part of their staked assets, for malicious activities or validation failures. This slashing mechanism incentivizes reliability, applicable both for Ethereum’s base layer and restaked services.

# Benefits of EigenLayer

EigenLayer offers significant advantages to the Ethereum ecosystem. With restaking, validators can protect multiple protocols simultaneously, enhancing overall network security and maximizing capital efficiency. Validators can expect additional income by participating in various protocols beyond Ethereum’s primary layer. Furthermore, EigenLayer promises a dynamic staking ecosystem where validators can match their expertise and risk tolerance with different protocols.

From a developer’s perspective, enhanced security through EigenLayer may lower entry barriers for new dApps, fostering the creation of diverse applications.

# Potential Risks: Slashing and Systemic Risks

While restaking via EigenLayer can be lucrative, it carries substantial risks due to the slashing mechanisms in place. Slashing penalizes validators for malicious actions, detectable and punishable within Proof of Stake chains like Ethereum. Penalties range from minor (e.g., missed votes) to severe (e.g., extended inactivity or contradictory validation).

EigenLayer projects and service operators similarly apply punitive systems to maintain service reliability and deter malicious behavior. However, each project’s slashing rules may differ, posing risks. Validators must carefully select operators or protocols for restaking to avoid accumulating risks alongside profits.

Protocol-Level Risks

Another potential issue within EigenLayer is protocol-level risk. When a validator restakes across multiple AVS, profits can outweigh losses from slashing due to malicious actions. Mitigating such network-wide vulnerabilities is a key challenge EigenLayer faces.

Increased scale in EigenLayer may prompt simultaneous staking withdrawals, potentially destabilizing the Ethereum network. Ethereum co-founder Vitalik Buterin has warned that technologies used in protocols like EigenLayer complicate Ethereum consensus. He points out that while protocol risks may remain confined to participating validators and users, wider-reaching or reengineering attempts of the Ethereum ecosystem entail high risks and should be strongly opposed.

‘Nothing at Stake’ Problem

Another risk is the ‘Nothing at Stake’ issue, common in Proof of Stake systems. This arises if validators can continue their validation activities on Ethereum despite restaking-related slashing risks. Delayed slashing effects on Ethereum’s protocol layer can let validators act maliciously without immediate economic disincentives, potentially weakening Ethereum network security.

# Use of EIGEN Token: Security and Ecosystem Safety

EIGEN, EigenLayer’s native token, plays a crucial role in resolving intersubjective issues and protecting diverse digital tasks and services within the network. Intersubjective issues refer to scenarios in blockchain that cannot be objectively detected (e.g., divergent pricing oracle information).

EIGEN token holders can stake their tokens on the side they trust in intersubjective fork incidents, conferring legitimacy on the majority-staked side.

Forks without Ethereum Impact

Notably, even if network splits due to intersubjective issues, the main Ethereum network remains unaffected, safeguarding the Ethereum ecosystem. EIGEN tokens address “universality, forking, measurement, and rewards” challenges while securing various digital tasks. The current intersubjective staking system is in its meta-setting phase, with researchers, experts, and community members discussing optimization parameters.

# Outlook for EigenLayer

EigenLayer continues to solidify its role in bolstering security for various protocols and offering additional revenue opportunities within the Ethereum ecosystem. Although total value locked (TVL) has recently decreased from $20 billion to $10 billion due to some stakers liquidating assets after meeting airdrop criteria, it still retains assets worth over $12 billion and has secured a $100 million investment from a16z, indicating promising growth.

With its potential to enhance blockchain ecosystem security and efficiency through restaking, EigenLayer is poised to attract significant interest from investors and developers moving forward.