Is Eigenlayer another reason to solo stake – or a weapon of financial mass destruction?

Like many others, we are very excited about Eigenlayer. The concept is this: using Ethereum’s base capital on the Beacon chain as a synthetic layer to enable other chains and builders to focus on functionality, without the need to conduct ICOs or build staking and liquidity for questionable coins. It is a remarkable innovation.

Eigenlayer will utilise staked ETH to create trust in new projects, chains and apps, offering rewards to the base staked layer in the form of project tokens, ETH or ETH derivatives. 

This is achieved by leveraging the core ideas in financial engineering, specifically synthetic instruments. Eigenlayer is going to take the Ethereum staked capital base and leverage it technically as well as financially.

What makes Eigenlayer so exciting is that it allows blockchain builders to focus on functionality; they are not burdened with the distraction or worry of trust and building liquidity and validator networks. Instead, they can leverage Ethereum’s massive staking base, which should be an enabler for building more, and faster. Ultimately, this brings Ethereum staking closer to becoming a general-purpose financial technology.

Where does the name Eigenlayer come from?

The Eigenlayer team is undoubtedly made up of some clever cookies, and the name Eigenlayer is clever, too. The word “eigenvalue” comes from the German “Eigenwert”, which translates to “proper or characteristic value”. In linear algebra, an eigenvector is a non-zero vector that changes at most by a scalar factor when a linear transformation is applied to it. Eigenlayer is leveraging the proper value of Ethereum staking and acting as a scaling factor for building faster and better in the ecosystem. Which is brilliant!

Counterculture meets the potential for wealth

One of the reasons I love crypto and shared databases (blockchains) is because the patina of the counterculture combines with a frank lust for riches. It is equivalent to saying ‘I like bad girls’. Last year, I wrote about weapons of financial mass destruction, pointing to the history of leverage and derivatives, the nasty blow ups and unintended consequences – despite the best of intentions from everyone involved. Eigenlayer has leverage and derivatives at its core: everyone should be careful. They won’t be careful. But they should be.

Everyone has a plan, until…

Eigenlayer is both using leverage and making the entire Ethereum staking capital base a derivative to be leveraged for the use of other chains and apps. This is to help them build better and faster. The plan states that this fixed pool of capital will not get over-leveraged because smart contracts can protect against this and programmatically show a systematic position of total system leverage at any point in time, for everyone to see in a shared database (blockchain) explorer. Plans and theory change when you get punched in the face. 

Eigenlayer has not been punched in the face, yet. The new rewards available to solo stakers using it will potentially be very significant, so we’re wildly excited. And very optimistic. But what is the optimist’s most powerful tool? Scepticism.

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