EigenLayer AVSs: A Comprehensive Overview

Introduction

One of the main challenges for founders when creating a new protocol is securing both capital and user support. It's not enough to have investment funds, a trust process is required where all participants in the new ecosystem have enough incentives to stay and interact with the service. Technically, this initial lack of trust translates to a lack of cryptoeconomic security. In the case of Ethereum, the pioneer blockchain for smart contracts, its consensus protocol is based on Proof of Stake (PoS). This system relies on staking its native currency $ETH, to secure the network and build trust for their users. As the largest network in terms of value locked for its security, many projects, including Layer 2 solutions, leverage Ethereum's technology, security, and liquidity. However, not all projects have the resources, compatibility, or initiative to leverage Ethereum. This creates competition to attract users and capital, causing fragmentation in cryptoeconomic security.

To address this fragmentation, EigenLayer has been developed. This protocol introduces a new mechanism called Restaking, which allows staked $ETH to be reused or rehypothecated to validate and secure other networks or services. Users staking ETH natively or with a liquid staking token (LST) can opt into EigenLayer smart contracts, extending security to other decentralized applications and protocols, known as Actively Validated Services (AVS’s), while earning additional rewards. With EigenLayer, $ETH holders can enhance security for various applications, protocols, or networks, and simultaneously generate extra returns on their staked assets through restaking.

EigenLayer Fundamentals

EigenLayer addresses the challenges of securing decentralized applications by creating a robust and interconnected ecosystem. ETH and LST holders can use their staked assets to contribute to the security of various decentralized services, thus expanding their utility and potential. Before diving into the mechanics, let's break down some key concepts:

• Staking: Involves locking up ETH to help secure the Ethereum network. In return, stakers earn base and priority fees paid by network users.
• Slashing: Is a penalty mechanism used in Ethereum to deter malicious or negligent behavior by validators. If a validator violates protocol rules, a portion or all of their staked ETH is forfeited.
• Economic Security: Combines cryptographic techniques and economic incentives to secure the network, ensuring its proper functioning. It creates a system where participants are economically motivated to maintain and protect the blockchain's integrity and security.

Key Actors and Stakeholders

To fully grasp the impact and functionality of AVS’s within EigenLayer, it's essential to understand the key actors involved and their roles. This interaction forms the backbone of EigenLayer's ecosystem, enabling the seamless exchange of security and services:

‍

• Restakers: Users stake their $ETH in EigenLayer, allowing their funds to be used for restaking and extending security to various AVS’s. They can run their own nodes or delegate their restaking to an operator.
• Operators: Organizations or individuals who run nodes and provide infrastructure services to AVSs in exchange for rewards. They execute the smart contracts and ensure that the AVSs function correctly, adhering to the predefined rules and slashing conditions imposed by AVSs.
• AVSs: Services such as dApps or protocols built on EigenLayer and executed by operators. AVSs receive security from restaking and impose their own slashing conditions to prevent malicious behavior by operators.
• AVS Users: Individuals or entities that access the services provided by AVSs, benefiting from the enhanced security and reliability offered by the restaking mechanism.

Mechanics behind EigenLayer

Now that we know that EigenLayer is a platform that allows stakers to provide security for various infrastructure projects (the AVS’s that we have been talking about) let’s breakdown how the key components work:

Restaking

• Stakers can restake their Native ETH or Liquid Staking Tokens (LST) to secure services within the EigenLayer ecosystem.
• This process is referred to as restaking, where the security provided by the staked tokens is extended to other services beyond Ethereum (AVSs).

Operators

• Operators are entities that help run AVS software on EigenLayer.
• They register in EigenLayer and accept delegated ETH or LSTs from stakers, then opt-in to provide security to various AVSs.

Delegation

• Stakers delegate their staked ETH to operators or choose to run validation services themselves, effectively becoming operators.
• This involves a double opt-in process, ensuring that both stakers and operators agree to the terms.
• Restakers can choose which AVSs they opt-in to validate for.

Actively Validated Services (AVSs)

• AVSs leverage the shared security of Ethereum provided by restaked ETH.
• Operators perform validation tasks for these services, contributing to the overall security and integrity of the network.
• AVSs deliver services to users (AVS Consumers) and the broader Web3 ecosystem.

Think of Ethereum as a strong fortress with many soldiers (validators) guarding it. Normally, these soldiers only protect the fortress. EigenLayer is like giving these soldiers an extra duty: they also guard nearby villages (the AVS) without leaving the fortress. If any soldier misbehaves, they get penalized (slashed), ensuring they stay diligent. This way, the villages get top-notch security from the fortress without needing their own army (economic security).

What are Actively Validated Services?

Okay, I got it, but what is exactly an AVS? Actively Validated Services or AVSs are decentralized services that leverage the enhanced security of restaked Ethereum to achieve high levels of integrity and trust. These services encompass a wide range of applications, including middleware, services, chains, networks, and Proof-of-Stake (PoS) systems.

‍

In any marketplace, two sides must interact. In this case, we have users (restakers) with staked $ETH acting as providers and the AVSs as the recipients. These AVS’s, which include dApps and protocols, require cryptoeconomic security to function optimally. A simple way to understand EigenLayer is to visualize it as a marketplace where trust is exchanged through the leverage provided by restaking. This allows the validation of other services or modules under specific conditions.

Concrete examples of AVSs include:

• Consensus protocols
• Data availability layers
• Virtual machines
• Oracle networks
• Bridges
• Any service requiring a secure execution environment

Each AVS is governed by a set of smart contracts with specific slashing rules designed to penalize malicious actions by operators. By reusing $ETH to provide security across multiple services, capital costs for stakers are reduced, and the trust guarantees for individual services are significantly enhanced.

Rocket Science behind an AVS

When people see for the first time the idea behind EigenLayer and AVSs they usually struggle to understand the idea of “rent security”. In the following diagram is presented a high-level overview on how an AVS works.

‍

We know that stakers deposit assets (ETH or LSTs) into the StrategyManager (the blue box), but they can also choose which operators to delegate their assets via the DelegationManager. The operators (in the right side) have the ability to run offchain client software for the AVSs that they’ve decided to validate.  Not anyone can be an operator, it is important to pass the registration process to become one. AVS are designed and implemented through their own contracts only and always that they implement the interface expected by the EigenLayer protocol via the ServiceManager.

How to build an AVS?

Understanding EigenLayer and the potential of AVSs is just the beginning. Bridging the gap between theory and practice is essential. We urge developers with innovative ideas to take action and utilize this mechanism. EigenLayer enables decentralized applications and protocols to leverage Ethereum's cryptoeconomic security, making it a powerful tool for building robust and secure services.

‍

Here’s a step-by-step guide to help you turn your idea into a revolutionary Web3 application:

Step 1: Learn EigenLayer Fundamentals

Use this article as a base and complement your knowledge with EigenLayer Learning Resources.

Step 2: Idea to Code - Testing and Deploying Your AVS Locally

• Smart Contract Requirements: Integrate with EigenLayer Core (AVS Directory) and implement at least one on-chain provable event. Here are some resources and examples to use: hello-world-avs and incredible-squaring-avs.
• Contract Deployment Requirements: Deploy EigenLayer contracts and state, then deploy your AVS contracts. Resources and examples: bash deployment script and hello-world-avs.
• Operator (Off-Chain) Requirements: Ensure your AVS operates correctly and that at least one event is written to your AVS’s on-chain contracts for future verification, payments, and slashing purposes. Resource: hello-world-avs.

Step 3: Testing - Preparing and Deploying to Testnet

• Ensure it is easy for operators to launch.
• Write clearly and legible Testnet User and Operator Documentation.
• Follow AVS Developer Security Best Practices: Run containers with least privilege, use minimal base images, avoid storing key material in containers, and ensure communication channels with operators for upgrades.
• Adhere to Key Manage Considerations for Developers: Encrypt keys using a password or passphrase, use remote signers like Web3signer, and ensure secure key management practices.
• Implement the Node Specification for your operator executable package: Follow guidelines for AVS Node API, metrics, and key security considerations to ensure optimal operation.
• Follow the Testnet Dashboard Onboarding instructions: Implement required interfaces for AVS data indexing, operator registration, and restakeable strategies display on the UI.

Step 4: Preparing and Deploying to Mainnet

• Smart Contract Auditing: Have your codebase audited by at least 2-3 reputable audit firms.
• Finalize user and operator documentation.
• Follow the Mainnet Dashboard Onboarding instructions: Implement required interfaces for data indexing in the AVS Marketplace, ensure operator registration and deregistration functions, and update metadata for proper UI display.

Considerations and Benefits

Potential Risks of EigenLayer

Before becoming a user, staker, operator, or creating an AVS, it's important to consider potential risks associated with EigenLayer. Understanding these risks is crucial for making informed decisions:

• Risk of Operator Collusion: One of the main concerns addressed in the EigenLayer white paper is the possibility of collusion among operators. Ideally, operators would distribute their restaked ETH evenly across multiple AVSs to prevent any single AVS from being compromised easily. However, in reality, operators might collude to concentrate their stakes and exploit specific AVSs. This could lead to significant financial gains for the colluding operators at the expense of the AVS's security. To mitigate this, EigenLayer continuously monitors operator participation and encourages a wider distribution of stakes to increase the difficulty and cost of such coordinated attacks. The AVS risk simulator also helps in evaluating the risk levels of different AVSs based on various parameters.
  ‍
• Concentration Risk: Occurs when a large portion of staked ETH is locked within a single AVS. If this AVS suffers a significant slashing event due to an error or attack, the impact could compromise Ethereum's consensus layer by surpassing its Byzantine Fault Tolerance (BFT) threshold. Additionally, if a few large operators dominate the restaking activity, it could centralize control and reduce the overall decentralization of the ecosystem. EigenLayer addresses this by promoting the distribution of stakes across various AVSs, thereby preventing excessive concentration and maintaining decentralization.
  ‍
• Liquidity Risk: Occurs when solo restakers deposit liquid staking tokens (LSTs) into EigenLayer's smart contracts, making these assets temporarily illiquid. If a large percentage of a specific LST becomes illiquid, it can lead to price volatility, impacting the security of AVSs backed by these tokens. Liquid restaking tokens (LRTs) are used to maintain liquidity, but engaging in recursive borrowing strategies, or "looping," introduces leverage and amplifies potential losses during market fluctuations. Some protocols lack clear unstaking functionality, forcing users to sell LRTs in low-liquidity markets, potentially driving prices lower than ETH and causing significant losses. Users should understand these risks and proceed with caution.
  ‍
• Regulatory Risk: The regulatory landscape for cryptocurrencies and staking activities is constantly evolving. Changes in regulations could impact the feasibility of restaking. EigenLayer itself might face regulatory challenges, potentially being classified as an illegal financial activity in some regions. This regulatory uncertainty poses a significant risk until clear guidelines are established.

These are some general risks that might appear around EigenLayer, but if you want to address more questions, refer to the Risk FAQ.

Benefits of EigenLayer

On the other hand, EigenLayer offers several notable benefits:

• Data Availability and Decentralized Sequencers improve data handling and transaction management for rollups by leveraging existing infrastructure to create large-scale data availability layers and decentralized sequencers.
• Light-Node and Fast-Mode Bridges minimize latency and gas costs, enhancing efficiency and composability for rollups without needing additional resources.
• Secure Oracles and Event-Driven Activations ensure reliable data feeds and secure actions like liquidations and collateral transfers through validators, utilizing the robust security framework of Ethereum.
• MEV Management and Low-Latency Settlement enhance transaction processing and finality with various MEV management methods and high-throughput settlement chains, providing additional security efficiently.
• Single-Slot Finality and Flexible Quorums enable quicker block confirmations and allow AVSs to define their own quorums using both restaked ETH and native tokens, improving overall security and utility.
• Leveraging Staker Heterogeneity encourages decentralized participation and specialized validation tasks by utilizing the diverse computational resources and preferences of stakers, ensuring efficient use of assets.
• Balancing Democracy and Agility allows for rapid innovation on Ethereum's trusted network while maintaining stable governance, combining the best of both worlds.
• Encouraging Decentralization reduces centralization risks and enhances network security by specifying decentralized quorums for validation tasks and incentivizing the use of home validators, fostering innovation within a secure framework.

Current Landscape of AVSs

Active AVSs

Today, there are twelve AVSs live on Mainnet. Each of them serves a particular purpose for different sectors. Here is the comparative table of the AVS modules:

If you want to take a quick overview in each of these AVS we have created a one pager for each of them:

‍

‍

‍

‍

‍

‍

‍

‍

‍

‍

‍

‍

The Future for the AVSs

The future of Actively Validated Services (AVSs) in the EigenLayer ecosystem is promising, with many teams working on innovative solutions. As EigenLayer continues to scale and secure Ethereum, new use cases for restaking will emerge, attracting more teams to become operators. Here are some upcoming AVSs: