EigenLayer: Revolutionizing the Blockchain Ecosystem
Welcome to Crypto Project Dissection: The EigenLayer Series!
What's the secret behind the buzz surrounding this project? Why has it grown so big? Let's grab a cup of coffee and delve into it!
It all began with the Ethereum blockchain, which introduced smart contract technology—a feature absent in Bitcoin.
Smart contracts are essentially scripts that govern conditions. For instance, in DeFi, if we send USD to address X, tokens will be released to our wallet.
This is done without violating the ethos of network decentralization. All miners or network overseers can only validate the authenticity of our requests. For example, whether we truly possess the funds or not.
As this technology evolves, numerous products implement it into their systems. But there's one problem.
Ethereum's scalability in securing the network is limited. It's not designed for large-scale operations. Consequently, transaction fees skyrocket from one bull run to another. Imagine having to pay tens of thousands or even millions for a single transaction.
Why not create a new concept with a more scalable security framework?
There are three strong reasons why this blockchain can stand alone:
Decentralized
Secure
Scalable
However, if a blockchain is developed with a scalable system, its level of decentralization will drastically decrease. If decentralized, scalability will be compromised.
Hence, the concept of scaling is designed with extensive planning and takes time, from one bull run to another.
Developers are racing to develop solutions for scalability.
One of these solutions is to devise a new security framework for the network, including https://ethereum.org/developers/docs/scaling
Optimistic rollups Zk-rollups Sidechains Plasma Validium
The implementation of these concepts can be combined to suit the needs of each product.
This time, let's discuss rollups. What are rollups? Imagine transacting on the Ethereum network, where transactions are expensive. What if there's a way to aggregate hundreds of users who want to transact and consolidate the gas fees into one? It would certainly be cheaper, right? Well, rollups aggregate many transactions to be processed off the Ethereum blockchain while still utilizing Ethereum's security level. However, this process isn't efficient enough considering the number of transactions to be handled. All nodes running the network must continuously store millions of transaction data to be processed off-chain, and also complete the computations to prove to the Ethereum network. If this data were stored on the Ethereum network, there would be delays in verifying the data for the rollup network.
This is where EigenLayer comes in as a solution.
EigenLayer has a core product called Eigen Data-availability. This data availability serves as storage for network rollups. Therefore, all raw transaction data that has not been validated can be stored in EigenDA. Then, network rollups only need to process computations and prove to EigenDA that the data is correct. In simple terms, Layer 2 blockchains like Arbitrum, dYdX, Optimism, etc., that utilize rollups will greatly benefit from EigenDA technology. Because they no longer need to worry about storing millions of data that they need to solve. They just need to focus on completing their computations. With this, the transaction capacity will be much larger, faster, and more efficient.
So, do we have to trust EigenLayer for this security? Yes. But why is EigenLayer believed to be secure in storing millions of transaction data?
In 2021, Ethereum began migrating to the "Proof of Stake" consensus. Miners who used to run high-spec machines no longer need to invest in Ethereum but must purchase $ETH tokens and lock up a minimum of 32 ETH to secure the network. The lockup period is still uncertain.
However, the response from the community and miners is positive. In the early days of this system's formation, there were 1 million tokens of $ETH staked, valued at over $1 billion, with an interest rate of 3.7% per year. This has now increased to 29 million $ETH.
Wow, do we, with our small capital, like microbes, not get to participate? Haha! We can! At the beginning of implementing this concept, there were three platforms that were relied upon:
coinbase.com
These three platforms allow us, with less than 32 ETH, to participate and receive interest of even more than 3.7%! We just need to stake the $ETH tokens we have and will receive $stETH, $cbETH, or $rETH tokens. The interest rate ranges from 3.8 - 4.2% per year in $ETH. Moreover, these tokens can still be used as collateral to buy other coins. This interest will then be allocated to our staking allocation.
It doesn't stop there. There are many platforms creating new products called Liquid Restaking Tokens. By staking LSD tokens like stETH, cbETH, rETH, etc., here, we will receive points/tokens from this platform.
One of them is EigenLayer. We will receive EigenLayer points, which will likely receive an airdrop if EigenLayer eventually has a token. *Ahem, even before that, users who stake in EigenLayer have already received an airdrop from the Altlayer project.
But that's not what makes EigenLayer bullish. Until now, the more LSD projects built from various platforms, the greater the liquidity in EigenLayer. This means that it will be very difficult to manipulate transaction data or other negative aspects.
But... Isn't all this just because of the hype surrounding EigenLayer's airdrop chase? What if the airdrop is over? Will it still be safe? What do you think?