Decrypting DeFi is Decrypt’s DeFi e-mail e-newsletter. (artwork: Grant Kempster)
Crypto Twitter has been awash the previous few weeks with discuss of an odd new protocol referred to as EigenLayer.
Some are going so far as calling it the following Ethereum Meta, whereas others are already whipping up speculative airdrop guides. And not less than one individual is doing God’s work, serving to us all pronounce the mission’s title.
So, what within the hell is EigenLayer? Effectively, consider it as being like blockchain security-as-a-service.
As a substitute of getting to collect funds, {hardware}, and a collection of validators to maintain your newly-launched crypto mission from getting 51% attacked (or worse), EigenLayer needs to place staked Ethereum again to be just right for you.
Right here’s the way it works.
Ethereum’s proof-of-stake consensus mechanism signifies that the community is secured by financial incentives and penalties relatively than huge warehouses of mining machines. So-called validators in such a community can be part of and start incomes ETH-denominated yield as soon as they stake 32 ETH to the community. If, nonetheless, their validators go down or they behave maliciously by validating incorrect transactions, they’ll be penalized; a portion of that 32 Ethereum will get taken away.
For reference, there’s at present 19.7 million Ethereum enlisted to maintain Ethereum safe, or about $34 billion at present—that’s greater than 16% of all Ethereum at present in circulation. Sure, it’s lots.
EigenLayer takes this a step additional by rehypothecating all that staked ETH to serve the identical safety functions however for different, newer initiatives.
Rehypothecation is principally one other time period for utilizing the identical cash twice. And since that cash’s getting used twice, stakers who opt-in can even get pleasure from a fair larger yield. And the extra initiatives that construct (and acquire traction), the extra yield opted-in stakers can earn.
On condition that the asset being staked right here can be Ethereum, these different initiatives would even be Ethereum-based. EigenLayer’s white paper consists of bridge applied sciences and oracle suppliers that might all use this double-dipped Ethereum.
In some ways, this can even make the builders’ deployment expertise far simpler, offering confidence that their pet mission will in the end be backed by the market’s second-largest crypto community.
It’s an odd, very crypto-native thought, however as talked about, it’s obtained lots of of us fired up. ConsenSys founder Joe Lubin said EigenLayer is “on the forefront of a few of the most fun work taking place in Ethereum.”
And in March, the mission raised $50 million in a Collection A spherical from a bunch of notable buyers.
It’s early days, after all. For now, although, all eyes are on Eigen.
Decrypting DeFi is our DeFi e-newsletter, led by this essay. Subscribers to our emails get to learn the essay earlier than it goes on the positioning. Subscribe here.
