What is Eigen Layer?

Ethereum is a blockchain-based platform that initially operated using the system you mentioned and later transitioned to PoS (Proof of Stake). Rather than using large mining rigs, Ethereum relies on tiny computers containing 32 Ether. This approach saves electricity. To ensure the system's security, Ethereum rewards these small computers, known as validators, for processing correct blocks with 32 Ether payments while slashing 32 Ether in case of fraudulent activities (Slashing).

This mechanism ensures crypto-economic security.

Notice that both models rely on the increase in the value of the existing currencies to enhance their security. As the price of Bitcoin rises, more miners are incentivized to join the network, while the price of Ether makes attacking the network more challenging. Hence, Bitcoin or Ether have a price, and blockchain serves the function of protecting crypto-economically.

Now, in Bitcoin, there's only one thing: peer-to-peer value transfer.

However, Ethereum functions as a smart contract platform. Smart contracts can be likened to applications. Ethereum is like an iPhone/iOS, and the applications on it are the smart contracts. So, it's not just about value transfer; for instance, you can borrow money, exchange currency, create different tokens, upload images, and more.

Both systems' mathematics, however, rely on crypto-economic security.

We trust these systems because their crypto-economic security is incredibly high. Attacking Bitcoin's 51% is highly challenging and costly. In Ethereum, this cost reaches around 33 billion USD. Yet, in Bitcoin Cash, the cost of an hourly attack is just 10,000 USD. It's not very secure.

Moreover, applications on Ethereum benefit from this security. For instance, Uniswap, being on Ethereum, is highly secure. Any manipulation of Uniswap could only happen through an attack on Ethereum directly. Applications buy security from Ethereum, which is why initial applications/bridges/oracle services come to Ethereum. Because its crypto-economic security is high.

In Ethereum, Rollups are more valuable because they are essentially applications on Ethereum as smart contracts. Therefore, Rollups share Ethereum's security.

Now, why can bridges and DEXs on Ethereum be hacked despite its security?

These hacks stem from vulnerabilities in the existing smart contract code. Ethereum pledges immutability in its code, so if there's an issue, it's with the application itself.

Our current crypto-economic security is effective only on Ethereum or the code/smart contracts on the EVM (Ethereum Virtual Machine). For instance, AAVE relies on Chainlink for price feeds. If Chainlink provides incorrect information, AAVE could expose lenders and borrowers to significant liquidation risks. This situation is external to Ethereum.

Now, moving onto EigenLayer.

In essence, we have Ethereum as a blockchain. It maintains the immutability of applications on it due to its strong crypto-economic security. However, entities external to Ethereum, like bridges or multi-sig systems, are as secure as those systems themselves.

EigenLayer proposes amalgamating these under a single network and sharing Ethereum's crypto-economic security.

Here's how it works:

A person who runs a validator with 32 Ether should also download the code for EigenLayer, a separate blockchain. This person should then validate EigenLayer, and if they act maliciously in EigenLayer, they should be slashed, just like in Ethereum.

EigenLayer, leveraging the crypto-economic power of Ether staked here, provides services required by applications/bridges/Rollups, like Oracles and data feeds.

This process is termed "re-staking," wherein Ether staked is staked again, and the services needed by applications are provided by a single layer (EigenLayer) by sharing Ethereum's security.

Summary:

EigenLayer allows Ethereum stakers to stake again in this layer, sharing Ethereum's crypto-economic security to provide necessary services for applications.

Now, the most anticipated parts 🤣

The individuals who restake Ether in EigenLayer should be rewarded for this action. Just as being a staker in Ethereum provides ETH rewards, EigenLayer should offer $EL for this.

Additionally, other services wanting to use EigenLayer will have additional fees.

So, tokens are inevitable.

In crypto, nobody does anything for nothing. Therefore, it's certain that rewards will be given for staking, likely in EL. Whether there will be an airdrop, I'm not sure, but it seems necessary to incentivize the network with EL for its continuity.