EigenLayer Explained: Restaking on Ethereum (you’re early for the airdrop)

EigenLayer Explained: Restaking on Ethereum (you’re early for the airdrop)

In this eigenlayer explained video, we’re diving deep into the project, covering what is restaking, EigenLayer airdrop, EigenLayer coin, and more. Join us as we explore EigenLayer’s ecosystem, including Lido, Swell Restaking, Pendle and EtherFi, so you can see how to restake tokens with EigenLayer. Don’t miss out on this in-depth exploration of its features and technology! This is the best full guide you can possibly find 😉

▬▬ TIMESTAMPS ▬▬▬▬▬▬▬▬▬▬▬▬▬
00:00 – Intro
01:13 – Liquid Restaking Primer
03:12 – What is Eigenlayer?
05:12 – Roots of Eigenlayer
05:57 – Core Features
06:53 – Native Restaking and Eigenpods
07:34 – Actively Validated Services (AVS)
08:05 – Technical Concept
08:59 – Pooled Security
09:48 – AVS-Validator-Marketplace
10:40 – Eigenlayer dApp
11:27 – Eigenlayer Ecosystem
11:44 – Great Potential for Ethereum Network
12:17 – Eigenlayer Founder and Team
12:44 – Tokenomics
14:05 – Fund Raising
14:22 – Concerns and Risks
16:10 – Eigenlayer Airdrop

▬▬ ABOUT ME ▬▬▬▬▬▬▬▬▬▬▬▬▬▬
Hey guys, it‘s PHIL PRINCE! I am a crypto market analyst and a software developer with a master’s degree in computer science.

For 5+ YEARS I’ve been deep diving into crypto, blockchain and financial markets. All that experience and the latest updates will be discussed here to SET YOU AHEAD from the crowd.

I‘m here to give you the right SKILLSET and MINDSET to navigate through crypto like a bad boy.

Let’s crush it together!

▬▬ DISCLAIMER ▬▬▬▬▬▬▬▬▬▬▬▬▬▬
This is not financial or legal advice and I am not a financial advisor. Always do your own research. I am talking about my personal opinion and the content is for informational purposes only. I am not responsible for any investment or legal decisions that you choose to make.

#eigenlayer #liquidstaking #restaking

How to get that leverage on Ethereum? And why am I teasing so many paths and possibilities for Eigenlayer in my thumbnail? You’ll get answers here. Eigenlayer is at the forefront of DeFi narratives, pioneering the so-called liquid restaking, and defining a new approach for more yield on Ethereum. Win-win.

So congratulations for clicking on my video. Now you have the chance to know about it before it gets super hyped up. I’ll show you what Eigenlayer is exactly, how it establishes restaking, and most importantly, how it can bring you more money on more money. You’ll understand later.

On another note, word of the street is we’ll see an airdrop for Eigenlayer. One more reason to not miss out. As always, I got the most important data ready for you. Coming up in this episode of Phil Prince, your one and only stop for crypto, finance and trading,

With me, you will gain the skillset and the mindset to crush the markets. Before we start, please make sure to have a look at my Instagram, TikTok and Twitter account. It’s linked here on my channel so you can stay up to date for my short-term updates and short-term

Content. Also, if you haven’t subscribed here, please make sure to do it now. You really don’t want to miss any of my next videos. Let’s get to it. So before we get into the features, technology, tokenomics, let me give you a quick primer and define some important terms to understand everything.

So Eigenlayer calls itself shared security to hyperscale Ethereum on their website. And later on, you will see why the focus is on security here. To make it simple, Eigenlayer is kind of a platform to bootstrap new proof of stake systems. Basically meaning new blockchains or you could say layer 2s.

Also, Eigenlayer is the pioneer for so-called restaking and build all the infrastructure and blueprint for it. And restaking makes for a whole new DeFi narrative and brings lots of utility and security gains with it. In order to understand restaking, you have to know what liquid staking

Is first. And in short, liquid staking allows users to stake tokens and simultaneously use them in the DeFi ecosystem. All right, so how does this work? The biggest project for liquid staking or liquid staking tokens, LSTs in short, is LIDO Finance, which is well known. And on LIDO, you are able

To stake your Ethereum, get yield on it, as it would be if you stake your Ethereum natively. But in turn, you get stETH, which will be the same amount as your staked ETH. But you can use

These stETH while staking the ETH for any other DeFi apps that support it. And this is why it’s called liquid staking. You’re staking and normally you’re locked up and you can do nothing with the coins while getting yield on it. And with liquid staking, you have another token that basically

Stays liquid and is usable. Now, this is where Eigenlayer comes into place. Eigenlayer allows you to take stToken, for example, and generate more yield on it. So you’ve staked your ETH, you’re getting yield on it, you’re getting stToken in exchange. Now you’re staking your stToken with

Eigenlayer and get yield on it as well. Now, of course, if you want to get back your initial ETH, you have to use your stToken to redeem or claim your initial ETH. So of course, you’re not able

To sell them and still getting your initial deposit in ETH. All right, but how does this work? And how are they affiliated with Ethereum? So I already said it is a platform to bootstrap new proof of stake systems. And basically, that means that Eigenlayer allows for outside projects to utilize

The validators of the Ethereum network in a way where they can opt in into these other chains and validate their transactions on top of the ones they’re already doing on Ethereum. For this, they will have to accept specific requirements for each of the subchains they want to work with. And

If they would hurt these requirements, they would get slashed as its usual practice in proof of stake chain. If you don’t know what slashing is, it’s basically a mechanism or a method to punish validators with bad behavior. For example, a validator has to be online all the time, as there’s

Transactions to be validated all the time as well. And the more validators a chain has, the more decentralized and more securities. So if the note of a validator goes down, this will be slashed means punished by deducting from his stack, meaning from his capital. To counteract this,

Most validators have backup notes, backup servers. The thing is, if a validator would use both of his notes in parallel, he could theoretically sign multiple blocks in one time slot. This is called double signing, and of course is also prohibited and therefore would be slashed

As well. So basically, you could say any kind of network manipulation will be slashed or punished. And this is where Eigenlayer comes in, it kind of acts as a middleman to execute slashing events for each of the new bootstrap proof of stake chains. And it does that in a way similar to

What it would do in Ethereum, meaning that if a validator misbehaves on one of the bootstrap chains, he would get deducted on his Ethereum stake. And this indirectly brings the network security of Ethereum to all of these bootstrap chains. And now you should understand why they

Themselves say on their website shared security to hyperscale Ethereum. Basically Eigenlayer shares the security of the Ethereum network to multiple layer tools by using the Eigenlayer blueprint, you could say. For reference, the name Eigenlayer is actually originally German, because “Eigen” in

German means “your own”. And this basically has to do with mathematics, more specifically Eigenvalues and Eigenvectors. In linear algebra, an Eigenvector is a nonzero vector that changes at most by a scalar factor when a linear transformation is applied to it. Sounds complicated, but all it

Means is represented here. It’s basically used in tools like Photoshop for image transformation and allows to compute or emulate a tilt of a picture. Because for that all the pixels have to be shifted in a specific way, so that looks realistic. And therefore the naming for this project is actually

Pretty genius as Eigenlayer is leveraging Ethereum’s staking and acting as a scaling factor for building faster and better in the ecosystem. Now this means the core features of Eigenlayer are that it’s possible to repurpose staked ETH that already secure the Ethereum network in order to

Secure multiple protocols on top. And therefore a user is able to earn multiple yields at the same time. And by that, Ethereum validators can earn extra yield while supporting other chains and dApps on the ecosystem. So it’s great for them and for the users as they as well can earn more yield.

And it’s great for new projects as they don’t need to build blockchains from scratch, don’t need to look out for their own validators, don’t need to build all the technology, but rather they can leverage the security of the Ethereum network. And altogether this makes it a lot easier.

But this does not mean they have no option to customize their own chains, but rather they can opt in to have custom decentralization and of course custom slashing. Meaning they can set their own rules under which a validator would get slashed on Ethereum. Also you have to differentiate between

Liquid restaking or LST restaking and native restaking. Because the beauty is Eigenlayer is not just working with tokens like stETH by LIDO, but also with natively staked Ethereum. This means with Eigenlayer you don’t have to use an external third-party servers like LIDO, but you can also

Restake your staked native Ethereum. To make this work Eigenlayer has the so-called Eigenpod, which is a contract that is deployed on a per user basis that facilitates native restaking. But don’t worry this is nothing complicated, you can do it on their app. So far so good,

You now understand what’s restaking, what’s basically their mission. Let me introduce another term, which is the actively validated services or AVS for short. And this is the term Eigenlayer uses for their bootstrapped proof of stake chains. Or as they describe it, any system that requires

Its own distributed validation semantics for verification, such as sidechains, data availability layers, new virtual machines, keeper networks, oracle networks, bridges and so on. Meaning if you decide to build a chain with Eigenlayer, meaning an AVS, you’re not limited to some specific

Functions, you can basically do anything with it. Now where it gets interesting Eigenlayer itself is actually not a blockchain, it is just a smart contract on Ethereum. So usually you have Ethereum as a layer one and any AVS could be a layer two and there is no direct connection, rather a dApp

Uses them both. And the AVS for sure has its own blockchain with its own security mechanisms and so on. Now Eigenlayer is acting as a middleman and closes that gap between Ethereum and the AVS. For that the Eigenlayer smart contract is implemented on the Ethereum network and on the network of the

Respective AVS. And this is actually how it’s possible that a validator on Ethereum can validate in AVS and if the validator misbehaves on the AVS Eigenlayer makes sure that it can communicate this back to Ethereum and slash him on Ethereum. And there’s no way this would be possible without

Eigenlayer. And this is also how all of the AVS’s are able to have the same security as Ethereum. And Eigenlayer calls that pooled security as all of the security is now in a pool verified by the same validators as on Ethereum. Now the reason why this is called pooled security and not just

Directed security is because it’s not just good for one AVS on its own but for all the AVS’s combined. In the traditional you could call it silo-model it would be enough to compromise one AVS to hack

The dApp. So the stake security for one of these AVS’s in this example would be 1 billion dollars. But Ethereum has 10 billion dollars. Now on the pooled security approach all of this gets summed

Up meaning that the sum of 13 billion becomes the hurdle for all of the AVS’s. And therefore the more AVS’s there are with Eigenlayer the more secure the whole network becomes. All right but how do

The Ethereum validators get to validate the AVS’s? I mean there will be hundreds of AVS’s but how do they decide then who works with whom? In their white paper they claim they have an open marketplace for this. And this marketplace basically brings together AVS’s and validators. So it’s a bit like

An auction. The AVS needs to offer appealing incentives for the validators so they want to work with them. And the validators need to accept the custom slashing rules of the AVS in turn. If an AVS and a validator decide to work together the validator has to spin up a new node for this.

Meaning he can’t use the server or node he already uses for Ethereum staking as this could risk his performance for the Ethereum network of course. So this new node is then running with the specific bootstrapped blockchain of the AVS. And of course the Eigenlayer smart contract on both chains to

Make this all work. All right this was pretty theoretical but I hope now you get the idea of the great potential restaking has. Now Eigenlayer has its own web app where you can do native as well as liquid restaking. Deposits for liquid restaking are at the moment paused but you could

Create an Eigenpod for native restaking still. Of course at the moment I’m not connected with any wallet so this won’t work. And as you can see here there are already a lot of liquid staking tokens and this basically makes for their ecosystem. As you can see here Coinbase and Binance already

Have a liquid staking token ready. That can be restaked on Eigenlayer as well. And basically all of them are doing more and less the same thing. But as with most DeFi protocols they have their ups and downs their pros and cons. Some give you more yield than others. Some of the most known

Restaking projects working with Eigenlayer are Swell, Stader and EtherFi. But there’s also Puffer Finance, Tenet, Astrid, Renzo and KelpDAO. Let me know down in the comment section if you want to see a dedicated video on these Eigenlayer ecosystem projects. Or maybe even a specific one.

Another great potential for the Ethereum network is that restaking could bring more capital into the network. As now it’s more lucrative. Because if we compare the staked ratio of ETH to other proof of stake blockchains it’s comparatively low. So as you can see here only 26% of ETH are staked.

For Solana this is 68%, for Polkadot 52% and for Sui it’s even 83%. By the way, made a video about that already. So restaking for sure is a great argument to stake more on Ethereum. Now if you

Take a look at the team behind Eigenlabs, the CEO and founder is Sreeram Khannan and he’s actually a professor at the University of Washington. And there he directed the UW blockchain lab on campus. Most of the other team members are also from this UW blockchain lab. So he and his team already

Focused on designing new blockchain infrastructure protocols when they were at university. These are for sure very great minds. Alright guys let’s talk a bit about tokenomics. First there is no token yet. Which of course makes it a bit problematic to do a price prediction. But nevertheless there

Is very interesting data we can talk about. First is TVL which sits around very impressive 7.7 billion dollars. And as you can see most of this growth comes from this February alone. On February 5th we had 2.15 billion dollars in TVL and that is now tripled. And what’s even more impressive

Is that Eigenlayer is already top 4 DeFi protocol by TVL. Around 500 million more in market cap and it will beat AAVE and not already beat Uniswap. And remember there is not even a token yet. Still

Number one is LIDO which is as I told you a liquid staking protocol. This has been around for some time I guess since around mid of 2021. So I will repeat what I said in the beginning. Don’t sleep

On Eigenlayer. Don’t sleep on restaking. This will be extremely big in DeFi. Also here again on this chart video you can see that LIDO takes up more than 70% of liquid staking derivatives. And all of this could potentially flow in Eigenlayer through liquid restaking. As well as all the other

Small projects coming up. Also if we scroll a bit down here in the ranks you can see there is plenty of liquid staking and restaking protocols already. And I think this will become even more and they

Will basically tumble here in the top 10. Then if we have a look at fundraising Eigenlayer already raised 164.5 million dollars from known VCs in the space and very very recently on February 22nd A16Z one of the biggest VCs out there invested 100 million dollars alone. Now of course there is

Concerns with all of this. Vitalik Buterin the founder of Ethereum himself has officially stated his concerns. More specifically he tweeted don’t overload Ethereum’s consensus. He also shared a document where he talked about all the possible risks. The founder of Eigenlayer then commented

On this. It is consistent with what we have been advocating with Eigenlayer. Don’t build complex financial primitives on restaking. They can spiral out. Yeah we know. You might remember Celsius Network. They offered crypto loans and were one of the biggest DeFi projects out there

In the last bull cycle. When the bear marketed and prices plummeted they were so over leveraged that after a short amount of time they didn’t have any liquidity left and basically the users funds were kaput. Well he then went on don’t rely on Ethereum to fork for application layer errors.

This is a super important principle and do not use subjective slashing as it is subject to tyranny of the dishonest majority. Also in another post Vitalik Buterin mentioned that if the Ethereum validators choose to provide consensus on all the AVS’s this may complicate their primary role for

The Ethereum network and could lower security for it. But once again the biggest threat of this is that we have some kind of over leveraging like we had with Celsius Network. Because what Eigenlayer in the end does is using leverage and making the entire Ethereum staking capital base a derivative

To be leveraged. As I explained earlier this helps projects to build better and faster. And also the plan is that the capital will not get over leveraged as smart contracts will protect against this and will monitor the total system leverage there is. But you never know. I mean Celsius for sure didn’t

Plan to go bankrupt. But you know what a bull cycle and excessive greed can do to a project. So let’s hope for the best on this front. Also I mentioned at the beginning there will very likely be an

Airdrop as there is no talking at. And supposedly the best way to be qualified is to actively use the protocols which are linked to Eigenlayer. Which means for example Swell, Lido, Anchor, Rocket Pool. I think it’s very likely if you heavily use these protocols you will be able to

Earn points and then be eligible for an Eigenlayer Airdrop. Please let me know down in the comment section if you would like to have a dedicated video about this. Wow what an interesting project. I mean Eigenlayer is doing so many things right. It has amazing technology, an amazing approach. It

Basically is a win-win situation for the users, for the validators of the Ethereum network and for new projects who seek to build in the space. Also they can directly leverage the security of Ethereum’s network and the numbers speak for themselves. I mean 7.7 billion in TVL already? Come on that’s

Crazy. An A16Z investing 100 million already? Impressive. I am pretty sure in a few months this will be all over social media. Restaking will be everybody’s darling and his whole ecosystem will pump like crazy. You heard it here first. But of course that’s just me. Let me know down in the

Comment section what you think about this. Now if you’re in for more very very impressive projects I would very much advise you to now watch my take on Sui Network. This is actually one of my most favorite projects out there. They have amazing technology, they have a great team, they really

Have a lot of innovation for mass adoption and their coin pumping like crazy. So better make sure to watch it. Don’t miss out on this. As always this was not financial advice. Always do your own research and due diligence. This was Phil Prince for you. Crush the markets until next time.