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 known as EigenLayer.
Some are going so far as calling it the following Ethereum Meta, whereas others are already whipping up speculative airdrop guides. And no less than one particular person is doing God’s work, serving to us all pronounce the undertaking’s identify.
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 undertaking from getting 51% attacked (or worse), EigenLayer needs to place staked Ethereum again to give you the results you want.
Right here’s the way it works.
Ethereum’s proof-of-stake consensus mechanism implies that the community is secured by financial incentives and penalties reasonably than huge warehouses of mining machines. So-called validators in such a community can be a 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 presently 19.7 million Ethereum enlisted to maintain Ethereum safe, or about $34 billion as we speak—that’s greater than 16% of all Ethereum presently 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 tasks.
Rehypothecation is mainly one other time period for utilizing the identical cash twice. And since that cash’s getting used twice, stakers who opt-in will even take pleasure in a good larger yield. And the extra tasks that construct (and achieve traction), the extra yield opted-in stakers can earn.
On condition that the asset being staked right here can also be Ethereum, these different tasks would even be Ethereum-based. EigenLayer’s white paper contains bridge applied sciences and oracle suppliers that would all use this double-dipped Ethereum.
In some ways, this will even make the builders’ deployment expertise far simpler, offering confidence that their pet undertaking will finally be backed by the market’s second-largest crypto community.
It’s an odd, very crypto-native concept, however as talked about, it’s obtained a number of people fired up. ConsenSys founder Joe Lubin said EigenLayer is “on the forefront of among the most fun work taking place in Ethereum.”
And in March, the undertaking raised $50 million in a Collection A spherical from a number of notable traders.
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 location. Subscribe here.
