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EigenLayer (EIGEN): Analysis of the restaking champion
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Token, airdrop, financing, team, roadmap... The independent and detailed study of the EigenLayer project carried out by our team of analysts before considering an investment.
What you need to know 🐳
EigenLayer is the emerging project that is gaining the most traction in the ecosystem.
Its proposal is unique in the market.
Its EIGEN token was distributed on May 10th to its early users, but it is not yet transferable.
Many projects are being built on EigenLayer and could potentially distribute their tokens to protocol users.
Most of the major venture capital funds have invested in this project.
General Overview 🧬
EigenLayer is a "restaking" protocol built on the Ethereum blockchain.
Its development began in 2021, and the deployment of its network has been underway since June 2023.
The principle of staking involves locking tokens (in this case, ETH on Ethereum) to contribute to the security of a network, in exchange for rewards distributed in the form of new tokens.
EigenLayer brings an innovation: it allows participants in staking on Ethereum to also contribute to the security of other blockchains. This opens up the possibility for them to receive additional rewards from these other blockchains, in addition to those from Ethereum.
This approach presents a significant advantage for external projects, which no longer need to build their own community of validators, often very expensive. They can benefit from the robustness of Ethereum, one of the most secure blockchains in the ecosystem, comparable to Bitcoin. This allows them to focus on other strategic objectives.
As for the rewards for projects secured through EigenLayer, the team announced that it would provide more details later. However, it is conceivable that these rewards may be awarded in ETH and/or in specific tokens of the concerned projects.
To date, the EigenLayer project has attracted 16 billion dollars of locked value (TVL) in its protocol. This is the second largest decentralized finance project in the sector behind Lido (30 billion dollars of TVL).
Funding 💰
EigenLayer has managed to collect a total of $164.5 million in three separate fundraising rounds.
The first fundraising round, a seed round, took place in August 2022 and raised $14.5 million. This round was led by Polychain Capital and Ethereal Ventures, with participation from Robot Ventures, Figment Capital, dao5, and P2P Validator.
The second round, corresponding to a Series A round, took place in March 2023 and resulted in the collection of $50 million. Blockchain Capital led this round, accompanied by Coinbase Ventures, Polychain Capital, Electric Capital, and Hack VC.
The third was announced on February 22, 2024 with an investment of $100 million from the prestigious American investment fund Andreessen Horowitz (a16z). This round was conducted exclusively with the latter, which is quite rare.
The key takeaway is that EigenLayer benefits from the financial support of leading investors in the sector.
Team & Community 👾
EigenLayer is primarily developed by EigenLabs, a start-up based in the United States.
Its founder and CEO, Sreeram Kannan, is a former professor at the University of Washington, where he led a research laboratory specializing in blockchain, focusing his efforts on the development of new infrastructure protocols.
Calvin Liu, holding the position of Strategy Director, brings his experience from Compound Labs, the company behind Compound.
Chris Dury, the Director of Operations, has previously held positions of responsibility at Amazon Web Services (AWS).
Most of the EigenLabs team resides in the United States.
The project has quickly gained popularity, with already 288,000 subscribers on X (formerly Twitter) and more than 200,000 members on Discord.
Governance 🗳️
This is exercised 100% by EigenLabs.
Thus, it is the company that decides which projects can be secured by EigenLayer and which validators can manage the ETH deposited for this purpose.
Governance should gradually evolve with the decentralization of the network via the EIGEN governance token.
The progress of the EIGEN token airdrop 🔓
Highly anticipated due to the project's "premium" status, the airdrop of the EIGEN token sparked some criticism upon its announcement on April 29 (for distribution on May 10).
It rewards users who deposited ETH tokens in EigenLayer before March 15, 2024.
Other airdrops are already scheduled: if 5% of the tokens issued by the project are distributed during this operation, 10% will be part of the next seasons (the second one is underway).
Once distributed on May 10, the first EIGEN tokens will not be transferable (i.e., sellable) before a date that has not yet been communicated.
The team explained that it was necessary to implement new features and that decentralization reach a more advanced stage.
However, they expect this step will be completed by September 30, 2024.
To appease the critics, a bonus of 100 additional tokens will ultimately be distributed to users who have obtained at least 10 EIGEN.
The EIGEN Token 🪙
EigenLayer published a white paper on April 29 detailing its EIGEN token.
This token is designed to strengthen the EigenLayer ecosystem in a role complementary to ETH restaking.
In summary, ETH restaking offers a mechanism to penalize "objectively attributable" faults of validators that are mathematically verifiable. However, not all faults are verifiable on the blockchain, sometimes it is necessary to fetch data from outside.
The new EIGEN token thus introduces a complementary mechanism designed to facilitate consensus of data that cannot be directly verified on the blockchain, but can be validated through an "intersubjective agreement".
Intersubjective agreement refers to consensus among multiple observers. It is necessary for applications such as prediction markets, storage services, and gaming virtual machines.
For example, the data "1 BTC = 1 dollar" is a statement that cannot be directly verified on the blockchain. However, EIGEN token holders can go fetch information from outside and put EIGEN tokens at stake to help form a consensus. This is a sort of "security deposit".
When you are right, this deposit is returned and accompanied by a reward. Conversely, when you are wrong, the deposited tokens are burned.
Initially, the EIGEN token is intended to serve as a component in securing the EigenDA network (a service allowing projects to outsource their data management and built by EigenLabs on EigenLayer).
However, it could see its role extended to other projects that could use its security mechanism. In addition, EigenLabs could also launch other projects that will exploit the EIGEN token.
In our view, the EIGEN token is interesting because it has real utility outside of governance. This is quite rare.
It is traded around 10 dollars in pre-market.
Token Distribution 📊
The EIGEN token will have a total supply of 1.67 billion tokens at launch.
The foundation has allocated 45% of the tokens to its community (15% for the various airdrops, 15% for community initiatives, and 15% for ecosystem development).
Investors received 29.5% of the tokens.
The EigenLabs team received 25.5% of the tokens.
This is at the high end of what is currently being done, which could put selling pressure on the token when it becomes sellable.
Investors and the team are subject to a three-year vesting period for their allocations. The first year (which will begin the day the tokens from the first airdrop become transferable) involves a complete lock-up, followed by a gradual release of all their holdings at a rate of 4% per month over the next two years.
The protocol plans to implement inflation of its token (envisioned at around 5% per year according to the initial working documents). This inflation would only be paid to the community, which should mechanically increase its weight over the years.
The actors of the EigenLayer community 🌀
Users deposit their ETH into EigenLayer and delegate them to the operators of their choice.
Operators manage the ETH placed in EigenLayer and secure the projects that request it. Anyone can claim this task because the system is permissionless.
"The operators will surely be those with the best reputation and the best performances," declares Loïc Triten, in charge of the product at Kiln, one of the world's staking specialists.
"Actively Validated Services" (AVS) are the projects that use EigenLayer to delegate their security.
Each operator can participate in securing one or more AVS and get more or less rewards.
The rewards are then redistributed to users who have delegated their ETH. Thus, by delegating its ETH to EigenLayer via its operators, one maximises the amount of staking rewards.
How are projects wishing to benefit from EigenLayer's security chosen? 🫵
"For now, the VAs are chosen by the EigenLabs team," says Loïc Triten from Kiln, a French start-up that acts as blockchain protocol validators. "They probably have criteria based on the maturity of the team, the scope of the project, and the slashing risks they bring," he points out.
This selection method could evolve with the introduction of the EIGEN token.
Roadmap 📝
After the token launch, the project describes itself in a "meta-setup" phase.
Here is what is described by the project bearers on the official blog :
"With its entirely new design, the concept must be assimilated and widely discussed by ecosystem participants. The initial implementation of intersubjective staking during this launch reflects the complete protocol only to a limited extent. However, there are still several parameters to be determined for full implementation. To achieve this, EIGEN is launched into a meta-setup phase. This meta-setup phase will allow researchers, experts, and the wider community to engage in public dialogue to discuss the necessary parameters to make the protocol and its interaction with the rest of the Ethereum ecosystem as effective as possible."
The risks of EigenLayer 😨
The first risk of EigenLayer, similar to any project developed on blockchain, is represented by hacks related to a flaw in the smart contracts.
"If EigenLayer's contracts get hacked, all the re-staked value is at risk," highlights Loïc Triten of Kiln, "it's a similar risk to what can be found on liquid staking protocols like Lido."
EigenLayer operators can also be sanctioned by the AVS they contribute to secure. This can be the case, for example, if an operator tries to secure a number of AVS too large for its technical capacities, or if it secures a malicious or failing AVS.
The sanction materializes as "slashing", that is, a kind of fine levied in ETH. At the end of the chain, the operator's depositors (i.e. you) will collectively bear the loss.
"Each AVS has its own slashing rules, more or less obvious to operators," specifies Loïc Triten. "What will happen if an AVS has a bug and slashes all its re-stakers? A portion of the re-staked value could be at risk."
Note that the slashing feature is not yet implemented and will be introduced in several months.
It will be crucial to choose your operator wisely to delegate your ETH. Some may be very attractive by securing many projects (and thus promising substantial rewards), but the greater the remuneration, the greater the risk.
Using a liquid re-staking protocol (like EtherFi or Renzo) does not allow you to choose the operators you will depend on as this choice is up to these protocols.
Is there a systemic risk on Ethereum? 😱
EigenLayer represents a threat that can be described as systemic due to its great ambitions. If it were to fail, all the projects that rely on its security would be impacted.
Regarding Ethereum, its security does not seem to be compromised by the development of EigenLayer. If the number of ETH staked in EigenLayer were to represent a too large part of the total staking of Ethereum, EigenLayer has indicated that a part of the ETH delegated to it would be set aside so that they are not used by the operators.
However, we can anticipate some undesirable effects, such as a misalignment among the actors.
"It's quite dystopian, but what will happen if an AVS operator, who also operates Ethereum validators, decides to take advantage of the blockspace he produces to enhance his performance on the AVS?" wonders Loïc Triten from Kiln.
How to participate in the operation of EigenLayer? 👋
You can deposit your ETH directly on EigenLayer, but you will need to place multiples of 32 ETH.
However, if you have liquid staking tokens (like Lido's stETH), you can deposit them without a minimum threshold.
It is also possible to go through liquid restaking protocols like EtherFi and Renzo, of which we have recently published analyses.
By going through these, you will accumulate points that will entitle you to their tokens distributed through future airdrops.
Where can I buy the EIGEN token? 🛒
This is not yet available on the market, but according to the team, it should be around September 30, 2024.
The easiest way to receive it now is to deposit ETH in EigenLayer or in restaking protocols such as EtherFi or Renzo.
The Big Whale's opinion 🐳
EigenLayer is an extremely ambitious project that offers a lot of opportunities for those who deposit ETH.
Between the restaking revenues and the airdrops of the projects that are going to launch on it, it could be very profitable.
Its EIGEN token has a real utility outside of governance (which is finally quite rare), which makes us think that it could be an interesting investment.
Despite the excellent references of the team and investors, the project remains risky in our eyes given the youth of the network.
We do not yet fully measure the consequences that there could be in case of chain failure.
The fact that the team and investors reserve 55% of the tokens is a big negative point in relation to the community.
Our other analysis 🔍
Before investing in any product, investors should fully understand the risks involved and consult their own legal, tax, financial and accounting advisors.
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