EigenLayer looks at new security model – DL News

An upcoming version of the billion-dollar EigenLayer protocol will let some users buy “insurance,” a change that could quell skeptics’ fears that the protocol could destabilize Ethereum.

EigenLabs co-founder Sreeram Kannan detailed the change in a series of posts on X earlier this month.

The change, which Kannan outlined in a presentation at a November conference in Istanbul, is highly technical.

In short, it is intended to reduce collateral damage that EigenLayer’s users suffer if some of them fail or are successfully hacked.

Kannan did not return requests for comment.

Repeat

Ethereum’s security model requires users to lock up, or “stake”, their Ether. The more Ether in play, the more an attacker will need to gain control of the network. Yet retail investors often find the process too technical or the capital requirement too high to put Ether into play themselves.

EigenLayer matches investors who hold Ether or Ether with individuals and companies known as node operators, who manage the capital and hardware needed to run the Ethereum blockchain.

EigenLayer then matches node operators with protocols that would otherwise require custom blockchains. EigenLayer calls these protocols active-validated services, or AVSs.

This process, reformation, makes it possible to use the same capital to simultaneously secure Ethereum and a variety of other protocols.

Proponents call it one of the most exciting developments on Ethereum, something that could make it safer, cheaper and easier to launch new protocols.

The eight-month-old protocol has adopted a phased rollout, and its first AVSs have yet to be launched. Nevertheless, it has already attracted more than $1.7 billion in user deposits.

However, skeptics have questioned the protocol’s potential impact on Ethereum as money pours in and nears its full launch.

Pooled and assignable security

This is partly because EigenLayer currently uses a “pooled” security model, in which AVSs rely on the same pool of capital.

Sharing the cost of accessing that security across each AVS makes it more affordable and ensures that attacking any AVS will require a massive amount of capital.

At the conference in Istanbul, Kannan compared joint security to a military alliance.

“Cities don’t have armies, nations have armies. Sometimes even many nation states coordinate to create alliances that actually work together,” he said. “It is exactly the same phenomenon. Shared security is strictly better.”

It can also introduce some counterproductive incentives.

“You’re basically incentivizing people to take more risks with security subsidized by other people,” Chunda McCain, founder of Ion Protocol, told DL News.

“Now if you accept that everybody’s hand-in-hand, you know, everybody’s working together for the betterment of Ethereum, and just building the most robust and resilient systems, then that’s great, right?” McCain continued.

“Once you say, ‘OK, no, this is a permissionless protocol that anyone can build on,’ then you’re like, ‘Wait a minute, this system doesn’t make sense.’

A future version of EigenLayer will still feature aggregated security, but it will also give AVSs the option to purchase “attributable security,” a feature Kannan likened to insurance.

Attributable security gives an AVS a claim to a certain amount of reconstituted capital that it can seize and redistribute if something goes wrong.

This allows them to enjoy the benefits of pooled security while limiting the collateral damage to node operators, relocations and other AVSs if one fails.

AVSs are likely to pay a premium for that, according to Kratik Lodha, a founding contributor at Renzo, a liquid recycling protocol.

“As an AVS, when you attract attributable security, ideally you will incentivize that capital more as it is solely aimed at securing you and not any other AVS,” he said.

“We see a hybrid model developing between the two in which AVSs can have both [of] the security models and stimulate each one differently.”

Given concerns about the leverage that reintroduction could bring to the Ethereum ecosystem, the addition of attributable security could address some of the criticism.

“It’s definitely less rehypothecation than pooled security,” said Meir Bank, co-founder of Anzen, a protocol being developed that will seek to automate AVS’s payments to node operators.

“If the concern is only about the amount of rehypothecation, then by definition attributable security becomes less rehypothecated.”

Slow and steady

McCain said some AVSs will form coalitions to save money on insurance — those who trust each other may choose to split the cost rather than buy it individually.

While this makes the EigenLayer ecosystem more secure, it can effectively increase the cost of launching AVSs using the protocol.

“You lower the cost of capital to some degree, but it’s not like the order-of-magnitude reduction you’d get by aggregating security across thousands of applications,” McCain said. “Because technically the attributable security is now a few applications, or maybe a dozen at a time.”

EigenLayer did not give a timeline for the introduction of attributable security. Node operators and an EigenLabs-built AVS are expected to launch in the first half of 2024, with third-party AVSs to follow.

“The EigenLayer team, they’re not going at the fastest speed because they actually want to get these things right,” Bank said, “because they’re important to the long-term security of Ethereum.”