Special thanks to Soubhik & Jessy from EigenLayer for comments & feedback on this post.

EigenLayer is giving me a lot to write about. It’s been a few weeks since they released their token whitepaper, EIGEN The Universal Intersubjective Work Token, which introduces many new ideas.

Yes - I’ve read the 43 page whitepaper, hopefully it will make your life easier (and give me some interesting dinner conversation topics).

In this post, I aim to answer the following:

• Background info: What is EigenLayer & what innovations does it introduce?

• What’s the EIGEN token and its core features, what are intersubjectively attributable faults and how does the EIGEN token work?

• What are the potential risks & open questions for EigenLayer?

Before we get started, please note that this post builds on the concepts previously introduced in EigenLayer. If this is your first time exploring EigenLayer, I recommend starting here. You'll also find some terminology at the end of this post.

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Background: Staking, Infrastructure level innovation & EigenLayer

Blockchains offer a new way to coordinate with distinct participants through an open and verifiable system, secured with cryptographic methods.

Understanding Staking in Ethereum

Let's take a look at Ethereum's staking mechanism to understand how blockchains work.

First – validators are key in maintaining the Ethereum network. They are responsible for verifying transactions, proposing new blocks, and ensuring the security and accuracy of the blockchain. To become a validator, users need to lock up their ETH, this process is called staking. If validators act dishonestly, they can lose their staked ETH through a penalty process called slashing.

The system of staking and slashing ensures that validators have financial reasons to act honestly. This encourages everyone to play fair and keeps the network secure for all users.

The Need for Enhanced Blockchain Services

Ethereum has its limitations when it comes to innovating beyond the application layer. Although Ethereum enables programmability at the application layer, it doesn't extend that flexibility to other underlying infrastructure components. There are still challenges when it comes to creating new blockchain services, such as oracles, bridges, and data availability layers.

These services require substantial resources and capital.

• Resource Issue: Building a new network from scratch requires attracting a sufficient number of validators/operators to ensure the network’s security and functionality. This can be slow and expensive.

• Capital Issue: New services often create their own tokens to bootstrap the network which requires significant investments, marketing, and time to establish value and utility. Additionally navigating the regulatory landscape for new tokens can be complex and costly.

High-level overview: Introducing EigenLayer

This is where EigenLayer comes in.

EigenLayer builds on Ethereum's model by introducing a new way to use staked ETH to run additional services. It does this through a mechanism called restaking. Restaking allows the same ETH that is staked for Ethereum to be used for other purposes.

With this mechanism, stakers can run new services that provide them with additional benefits, and developers can create innovative services without the need to bootstrap a separate network.

Let’s remember the different roles in the EigenLayer ecosystem: Stakers, Node Operators and AVS’s.

• Stakers: People who lock up their ETH to support new networks and services. They can participate in two ways: Native Restaking & Liquid Restaking.

• Node Operators (aka Native restakers): These individuals manage and run the software for services built on EigenLayer. Misconduct by operators can lead to a loss of staked ETH (aka slashing), keeping participants accountable.

• Actively Validated Services (AVS): The networks & services that are run by operators. E.g.: data availability layers, decentralized sequencers, oracles.

Simply put, EigenLayer expands Ethereum's existing security infrastructure (validator set + staked capital), allowing developers to deploy new services which can leverage this.

• By using staked ETH, EigenLayer provides new services with immediate economic security. This reduces the barrier to entry for new services.

• Stakers can earn more by restaking their assets in multiple services.

🌟 Checkout this cool dashboard for EigenLayer metrics.

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Deep dive: Faults in Digital Services, Intersubjective EIGEN Token & Forking

Introduction

Okay so first off, I didn’t know what intersubjective meant before this.

The main question EigenLayer is trying to answer is can we have a system where we extend the cryptoeconomic security for digital tasks to intersubjective faults.

We’ll take it one step at a time. First - for this to make sense we first need to distinguish faults in digital services.

Faults in Digital Services

Let’s categorize faults in digital tasks based on how they are identified. The 3 main categories are:

1. Objectively Attributable Faults: These faults can be clearly identified using mathematical and cryptographic methods without the need for external opinions. E.g: double-signing a block can be proven on-chain using cryptographic evidence.

2. Intersubjectively Attributable Faults: These faults require wide agreement among observers outside the chain to determine correctness - they involve more complex scenarios where human judgment is necessary. E.g: oracle price discrepancies.

3. Non-Attributable Faults: These faults cannot be externally verified or attributed. E.g:, in a secret-sharing system, if nodes come together to reveal a secret, it is hard to distinguish between a malicious system and a malicious storer of the secret.

Key Points:

• Objectively Attributable Faults: Easy to prove and resolve on-chain.

• Intersubjectively Attributable Faults: Require broader agreement among observers.

• Non-Attributable Faults: Difficult to resolve due to the lack of external verifiability.

Focus on Intersubjective Faults in Digital Tasks

EigenLayer introduces the EIGEN token to address intersubjectively attributable faults.

Why intersubjectively attributable faults? Well because objectively attributable faults are limited to issues that can be proven with mathematical and cryptographic certainty. However, advanced blockchain applications often involve intersubjective assessments. For example, an oracle providing external data like market prices.

By addressing intersubjectively attributable faults, EigenLayer aims to expand the security and reliability of Ethereum to a wider range of services. This ultimately broadens the types of tasks and applications that can be managed on the blockchain.

Restaking ETH.  Any task with an objectively attributable fault can be resolved onchain by integrating its dispute resolution mechanism within Ethereum’s chain validity through smart contracts. EigenLayer employs this property to restake ETH and expand the scope of staked ETH to secure Actively Validated Services (AVSs) with objectively attributable faults.

Staking with EIGEN. The new EIGEN token introduces a complementary mechanism that is designed to specifically address “intersubjective” faults – faults that are not possible to address via ETH restaking alone. - EigenLayer Blog

This makes the EIGEN token universal—it can be used across various digital tasks, not limited to a single purpose.

👉 Bringing it together: In the context of the EIGEN token, intersubjective is used to describe faults (or verifications) that would have wide agreement among humans who are observing from outside the chain rather than being objectively verifiable through code.

Core Ideas & Features

There are 3 core ideas to to address intersubjective faults on EigenLayer:

• Setup and Execution Phase (aka Two phase of intersubjective agreement): Rules for coordination are agreed upon at an initial setup phase. (There are limitations on the rules so that the rules are self-verifiable, in other words there is no need for humans to come together and decide for each fault.)

• Slashing: If a participant doesn’t follow the rules they lose their stake.

• Token Forking: Mechanism to handle disputes in the system without altering the Ethereum blockchain. (Not self-explanatory - I’ll explain more on this below)

These design choices make it so that the EIGEN token can have the following 4 properties:

1. Universality: The token isn't limited to a single purpose but can support various services. It is designed in its Setup phase to fork-and-slash for intersubjective faults.

2. Isolation: The token maintains the ability to be used in apps that are not aware of the token's forking mechanism (more on this below).

3. Metering: Resolving faults have a cost. Metering in this context means keeping track of the costs involved in reaching agreements (Eg: rejecting a malicious fork, switching from one token to another). It ensures that resources (time + computational power) used to reach social consensus are properly accounted for.

4. Compensation: When faults occur that affect users, the system can slash and redistribute the stake back to the AVS users, ensuring fairness and accountability.

Overloading Ethereum Consensus & Token Forking

A very important risk of EigenLayer is the potential to overload Ethereum’s social consensus if not designed properly.

But what does it even mean to overload Ethereum social consensus?

Using the same capital to secure both Ethereum and a potentially malicious AVS can put all the funds at risk. If a large number of participants are affected, it could lead to substantial losses and may require intervention from Ethereum’s social consensus.

EigenLayer addresses this through a token forking mechanism, isolating the resolution of intersubjective faults from Ethereum’s core network. With this mechanism only staking activities and their associated disputes affect EigenLayer, while Ethereum remains focused on its core objective consensus tasks.

Applications using EIGEN for non-staking purposes are also isolated from the complexities of token forking because there is a separate token for such activities. These apps can be used without needing to be aware of any underlying forks.

Two-Token System: EIGEN & bEigen

In the EigenLayer network, tokens are utilized for various purposes: staking and non-staking use-cases like DeFi.

To clearly differentiate between the uses and manage dispute resolution EigenLayer has a two-token mechanism.

• bEIGEN (Backing EIGEN):

  • This is the primary staking token. Users lock up their ETH as bEIGEN, which is then used to secure various services within EigenLayer. The bEIGEN token is directly involved in staking and subject to slashing.

  • When a fault is detected, the bEIGEN token can be forked to create a new version (e.g., bEIGEN1 to bEIGEN2).

• EIGEN

  • This token is used for non-staking activities, e.g.: DeFi.

The main reason for having two token model is to isolate the impact of any forking in the bEIGEN token from non-staking applications - aka the Isolation feature.

The important follow-up question here is: Which bEIGEN will be backed? In determining which bEIGEN will be backed, there are 3 designs (v1, v2, v3) that focus on governance and upgradability, aiming to enhance security with each upgrade. In v1, governance decides which bEIGEN to back. In v2, the governance feature is removed, making the contract immutable. In v3, additional protections are added to prevent any potential corruption by the Security Council. (Read more on this: section 2.7.1.)

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Risks & Open Questions

• Implementation Challenges: EigenLayer is still in its early stages, and much of the current work is experimental and theoretical. There’s a lot of work to be done to implement the system. Especially, managing the forking mechanism with numerous AVS could become increasingly complex.

• Impact on Home-Stakers: The introduction of AVS could influence the decision to become a home-staker.

  • With high off-chain requirements home stakers might not be able to run all the AVS’s and they could potentially get more advantages when they delegate instead, worth noting that there could also be additional benefits introduced for home-stakers.

• Increased Operator Workload: Operators will face a greater workload and have more decisions to make. Keeping Ethereum clients up to date becomes even more critical, adding to the operational burden.

• Operator Centralization: If there are high off-chain requirements for operators, this could lead to a concentration of resources and expertise among a limited group of operators.

• Fairness among Operators: operators can opt into various services, each offering different potential rewards. This setup could significantly alter the current "fair" reward system in Ethereum, where each node earns a similar annual percentage rate for staking ETH. The varied reward structures might incentivize operators to focus on maximizing returns, making it hard to maintain a balanced and fair environment for all network validators.

• Smart Contract Risk: Hacks or implementations design issues in the AVS’s.  Given these uncertainties and challenges, it’s important to monitor the development and follow up closely.

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End.

EigenLayer is an important development for Ethereum, allowing staked ETH to be used for new services and applications. The two-token model separates staking activities from other uses like DeFi, enhancing robustness against malicious actions. This separation ensures that staking can continue while allowing EIGEN tokens to be used in various non-staking applications. By having an internal forking framework for handling complex disputes, EigenLayer helps keep the Ethereum network secure from issues that may rise within AVS ecosystems.

That’s all for today.

If you have any questions or comments please feel free to reach out to me, I’d love to hear! See you on the next one! 👋

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Glossary

• Actively Validated Services (AVS): Services on EigenLayer that require active validation from participants via restaking.

• Crypto-economic Security: The combination of cryptographic techniques and economic incentives to secure digital tasks. This involves mechanisms like staking, slashing, and consensus to maintain system integrity and trustworthiness.

• Forking Token: A token that can split into multiple versions in response to disagreements or disputes. The forking process creates two versions of the token, each representing different interpretations or outcomes. Stakeholders choose which version to support.

• Intersubjective Faults: In blockchain networks, faults can be verified objectively (e.g., double-signing, invalid state transitions) or require human consensus to verify (intersubjective faults). Intersubjective faults cannot be objectively verified on-chain and need broad agreement from multiple parties to determine correctness.

• Liquid Restaking: Stakers delegate their ETH to operators. They provide only financial support  and leave it to the operators to handle technical requirements.

• Native Restaking: Stakers independently contribute tokens and operate a validator node.

• Operator: A participant in EigenLayer who runs validation services for AVSs

• Slashing: A mechanism where stakers lose their tokens if they fail to meet their commitments or act maliciously. Slashing ensures accountability and enhances security by penalizing non-compliant behavior.

• Staker: A participant who stakes their ETH, to support the network and earn rewards. They can choose to become solo-stakers or delegate to operators.

• Staking and Restaking: Traditional proof-of-stake systems, like Ethereum, require participants to stake tokens (ETH) to secure the network. EigenLayer builds on this by allowing ETH to be re-staked for additional tasks. This means that the same staked ETH can be used to secure various services beyond just the Ethereum network.

• Work Token: A type of token that needs to be staked (locked up) to perform certain tasks or work within a blockchain network. It serves as both a requirement for participation and a form of collateral that can be slashed if the work is not performed correctly. Here’s a great post that explains work tokens.