Litepaper

Enhancing Cryptoeconomic Security through EigenLayer: Addressing Challenges and Introducing Euclid Finance

Euclid Finance Team

Jan 2024

Abstract

This paper explores EigenLayer, a protocol built on Ethereum that introduces restaking as a novel cryptoeconomic security primitive. The protocol enables the reuse of ETH on the consensus layer, allowing users to stake ETH natively or through a liquid staking token (LST)[1] and restake their assets via EigenLayer smart contracts. While EigenLayer presents numerous opportunities, it also faces several challenges, including technical complexity, high entry barriers, single-point failure risks, and the need for diversification. To address these challenges, this paper introduces Euclid, a comprehensive solution that simplifies the restaking process, offers an omnichain liquid asset (elETH) representing restaked positions, and establishes a trustless and permissionless operator network inspired by Rocket Pool[2]. Euclid aims to enhance the accessibility, security, and decentralization of EigenLayer while fostering a robust DeFi ecosystem.

Introduction

EigenLayer introduces the innovative concept of restaking, a pioneering cryptoeconomic security mechanism. This primitive allows for the efficient reuse of ETH on the consensus layer. By leveraging EigenLayer's smart contracts, users who stake native ETH directly or through a liquid staking token (LST) have the opportunity to opt-in and restake their ETH or LST. This process not only extends cryptoeconomic security to a wider range of networks and applications but also enables users to earn additional rewards for their participation[3]. However, existing challenges in native ETH restaking, such as technical complexity and high entry barriers, call for innovative solutions. This paper introduces Euclid as a protocol designed to address these challenges, making restaking more accessible, secure, and efficient.

Challenges in EigenLayer

This section delves into the challenges associated with EigenLayer, including technical complexity for non-tech individuals, high barriers to entry, single point failure and operator delegation risks, complexity in diversifying restaking positions, and concerns about centralization. These challenges limit the participation of non-tech-savvy individuals, hinder accessibility, and introduce risks to the restaking process.

1. Technical Complexity for Non-Tech Individuals

The process of ETH native restaking requires active participation in the ETH Beacon Chain as a validator, requiring a certain level of technical expertise. This complexity may discourage individuals without technical backgrounds from participating in the restaking process.

2. High Entry Barrier

The prerequisite of owning 32 ETH to run a validator[4] poses a significant entry barrier, limiting participation and accessibility for a wider range of users.

3. Single Point Failure and Operator Delegation Risks

The current design of EigenLayer only allows restakers to delegate their entire restaked position to a single operator, resulting in a single point of failure risk. If the chosen operator faces a slash event, all funds from the restaker are put at risk.

Restaking on EigenLayer carries higher inherent risks compared to native ETH staking, as different Actively Validated Services (AVS) may have distinct slash requirements, determined solely by operators. The lack of standardized slash requirements introduces variability and potential pitfalls for restakers.

4. Complexity in Diversifying Restaking Positions

While diversifying restaking positions across multiple operators is a recommended risk mitigation strategy, the current EigenLayer design necessitates the creation and management of multiple addresses for each participation. This adds a layer of complexity to the execution process.

5. Lack of Decentralizaiton

Despite the decentralized assumption inherent in AVS, there is a risk of a few operators dominating the stake distribution due to factors such as branding and resource availability. This concentration of stakes among a limited number of operators could undermine the overall decentralization of the ecosystem.

Euclid: A Solution to EigenLayer Challenges

Euclid is presented as a solution to the challenges in native ETH and LST restaking. Its architecture is designed to streamline the restaking process, eliminating the need for technical expertise or a minimum 32 ETH requirement. Euclid introduces elETH, an omnichain liquid asset representing the restaking position, providing native ETH staking rewards, restaking rewards, and DeFi yield opportunities. Additionally, inspired by Rocket Pool, Euclid establishes a trustless and permissionless operator network, ensuring the fairness, inclusivity, and security of EigenLayer's service rental ecosystem.

Architecture

Simplified Restaking Process

Euclid's architecture simplifies the native ETH restaking process by setting up a decentralized validators network. This eliminates the need for individual restakers to grapple with complexities such as running a validator or meeting a 32 ETH minimum requirement. Interaction with Euclid's smart contract, irrespective of the amount of ETH/LST, becomes a smooth experience akin to other DeFi protocols.

elETH: An Omnichain Liquid Asset

Euclid introduces elETH as a yield-bearing liquid wrapper representing the restaking position. Restakers stand to enjoy a multitude of benefits, including native ETH staking rewards, restaking rewards, and diverse yield opportunities within the DeFi landscape.

A Trustless and Permissionless Operator Network

Euclid draws inspiration from Rocket Pool and introduces a novel mechanism to enhance its operator network's trustlessness and permissionlessness. All operators are treated equally in their eligibility to join the Operator network, regardless of institutional stature or individual influence. This approach significantly reduces entry barriers for operators, fostering decentralization within the network and fortifying the overall robustness and security of the EigenLayer ecosystem.

To join the Operator network through Euclid, prospective members must stake ECL (Euclid's governance token) and restake ETH/LST independently. These serve as security deposits, ensuring the operator's eligibility and competence to perform their responsibilities. Minimum amounts of ECL and restaked assets are determined by each AVS, with riskier AVS requiring higher ECL and restaked amounts.

In the event of slashing or other malicious activities, staked ECL from operators acts as compensation to restakers. This mechanism not only safeguards the interests of restakers but also incentivizes operators with ECL staking rewards as well as commission earnings from those choosing to restake with them.

Euclid's approach not only advocates for a fair and inclusive participation model for operators but also establishes a robust and secure foundation for EigenLayer's service rental ecosystem.

Conclusion

Euclid offers a solution to restakers in diversifying their positions, thereby reducing risks while concurrently building a DeFi ecosystem centered around elETH. It aims to maximize user engagement and optimize yield for participants in the restaking process.

Furthermore, Euclid introduces innovative mechanisms to establish EigenLayer's operator network. This initiative ensures a sufficient level of decentralization for EigenLayer, enhancing its robustness and security in delivering services.