Bankless: Risk Management with EigenLayer

Author: David C, Kristi Klaudy, Bankless; Compiled by: Deng Tong, Golden Finance

EigenLayer represents a key advancement for Ethereum, promising breakthroughs in security and accessibility enhancement - a proposition currently worth approximately $750 million.

Amid the excitement and optimism, critical voices, including Vitalik himself, highlighted the potential risks.

Supporters expect a renewed revolution, but others see it as a ticking time bomb.

This article attempts to provide an in-depth look at the risks that EigenLayer has addressed, including potential pitfalls faced by the EigenLayer service and its operators, as well as the possibility of systemic threats to Ethereum as a network.

What risks does EigenLayer bring to Ethereum?

Consequences of curtailment

Spreading ETH staking across EigenLayer’s services exposes serious concerns about system vulnerabilities – if a widespread curtailment event occurs across all of these services, it could There will be consequences. There's been a lot of discussion about these issues, and rightfully so, but EigenLayer details several strategies for dealing with this situation.

Centralized Security: By redistributing the same ETH share across multiple Active Validation Services (AVSs), EigenLayer significantly enhances its economic defenses. For example, if the network had $1 billion re-collateralized between various AVSs, attacking any one AVS would require overcoming this huge amount of money. Just like in proof-of-stake, the funds are protected against potential attacks.

Attributable Safety Mechanism: As the cornerstone of EigenLayer, attributable safety acts as an insurance mechanism, ensuring that penalties for curtailment events will be reallocated to compensate affected square. For example, imagine a chain bridge that received a cut of $25 million in redistribution rights. Now, if its operators face cuts, the fine will be reallocated back to Chain Bridge.

Security economics through bundled services:EigenLayer introduces "economies of scale for attributable security", especially for Layer 2 solutions that require a range of services. Through "economies of scale," these services can be bundled together to obtain discounted purchases. By bundling security purchases with services such as oracles, bridges, and sequencers, EigenLayer encourages enhanced protection against security vulnerabilities.

Promote a diverse validator ecosystem: At the core of EigenLayer’s risk mitigation strategy is the promotion of validator diversity. Encouraging the participation of validators from different regions, running different validator clients, strengthens the network's resilience to slashing and other security threats.

Anti-slash technology:EigenLayer prioritizes the deployment of anti-slash tools that prevent verified slashing behavior. Technologies such as Puffer allow for minimum staking requirements, facilitating wider participation from individual validators, further diversifying and enhancing the robustness of the node operator network.

After understanding how EigenLayer defends against cuts, one question that remains is:Do these defenses inadvertently increase centralization? Nonetheless, EigenLayer is prepared for this, developing several strategies to deal with potential centralization. Let's take a look.

Growing centralization problem

The computational demands of EigenLayer raise concerns that they may lead to centralization ization, even affecting the selection of Ethereum validators, so the protocol has developed various solutions - promoting easy-to-run AVS, delegating more demanding tasks, and potential incentives for individual validators - to prevent this occurs, and ensures broad accessibility.

Promote “computationally lightweight” AVSs: By developing AVSs that require minimal computing power like EigenDA, EigenLayer’s first AVS, the protocol aims to ensure diverse participation Anyone can contribute to the network.

Delegation feature for high-demand tasks:EigenLayer’s delegation feature should allow participants without high-performance setups to delegate heavy computing tasks to those who are more qualified, ensuring They still participate and receive rewards without having to upgrade their skills to complete these complex tasks.

Financial incentives for independent validators: EigenLayer provides incentives for independent validators to continue participating in the protocol and maintain a more decentralized and resilient network.

These strategies help mitigate the centralization risks posed by EigenLayer’s computational requirements. Therefore, Eigenlayer does not contribute to the centralization of Ethereum in this way and therefore does not affect the choice of Ethereum validators. This power still exists in the decentralized governance of the mainnet, ensuring the integrity and autonomy of the network.

What are the internal risks of EigenLayer?

Stacking incentives in cryptocurrencies often results in the intended control of incentive leakage. One potential conflict of interest at EigenLayer involves the misuse of re-staking ETH by the node operators validating EigenLayer for their own benefit. Consider the situation of Operator A, who not only operates an EigenLayer node but also holds a stake in EigenLayer’s previous project, facing transactions that could harm their investment. This situation highlights potential bias, whereby operators may act in their own self-interest rather than for the benefit of the network.

To avoid such situations, EigenLayer adopts a variety of mechanisms to act as technical and economic safeguards:

Technical Trust: Through e.g. Trusted Execution Environment (TEE) and anti-slashing systems, EigenLayer aims to ensure that operators adhere to the rules of the network, not their personal interests.

Economic Incentives: By requiring operators to stake tokens as margin, EigenLayer aligns their destiny with the well-being of the network. By deviating from the prescribed route, they risk losing their reward, ensuring everyone is in the same boat.

Decentralization of control: EigenLayer advocates for a broad coalition of validators, reducing the power that any single operator may hold. The decentralization strategy serves as a precaution against personal conflicts of interest!

Transparency and Community Oversight: EigenLayer insists that validator operations are subject to ongoing review by network stakeholders, ensuring everyone is acting compliantly.

The above strategies will help EigenLayer mitigate conflicts of interest and maintain the integrity of the verification process.

At its core, EigenLayer is playing a chess game with the future of Ethereum. The key is to control computational requirements, advocate a lightweight approach to AVSs, ensure that everyone can participate through delegation, and incentivize the participation of independent validators with financial rewards. This is a carefully designed plan to strengthen the Ethereum ecosystem while avoiding the problems of centralization.

EigenLayer’s combination of economic incentives, technical defenses, and public scrutiny is designed to provide solid protection against the complexities of re-hypothecation. By developing mechanisms to guard against internal risks, such as conflicts of interest, as well as external risks, such as contributions to mainnet centralization, EigenLayer has indeed invested serious effort in scaling responsibly. With recollateralization poised to change the face of Ethereum and cryptocurrencies as a whole, it’s crucial to understand its potential impact.

The future is bright, but it always comes with risks.