EigenDA - Increasing Staking Rewards by Providing Data Availability to Ethereum L2s

Twinstake is pleased to announce our participation and exploration into the world of Data Availability as an EigenDA validator node on the public testnet. Addressing one of the blockchain's critical bottlenecks, Data Availability, EigenDA is at the forefront of enhancing scalability solutions. Leveraging the innovative restaking mechanism pioneered by EigenLayer, it contributes substantially to the Ethereum L2 ecosystem by offering more affordable block space. This strategic move not only bolsters the efficiency and capacity of Ethereum L2s like Optimism and Arbitrum but also opens up new avenues for additional rewards for our clients.

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We are committed to continually exploring and implementing solutions that drive value and staking rewards in the dynamic landscape of blockchain technology, and EigenDA represents a pivotal part of this mission.

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Understanding Restaking

Restaking is reallocating capital initially committed to a primary crypto-economic security system, such as Ethereum validation, to secure additional systems. This approach allows validators to utilize their staked capital and resources in supporting secondary services like Oracles, Bridges, or Data Availability layers. 

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The Problem of Bootstrapping Economic Security

Bootstrapping economic security for nascent systems is daunting due to the requisite for sufficient decentralization and economic backing. Through restaking, services can capitalize on already established, well-funded validators to rapidly and securely extend their operations. EigenLayer solves this problem by providing the infrastructure to use existing staked Ethereum as economic security.

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EigenLayer - The Foundation for Restaking

EigenLayer, is a foundational technology providing the smart contract infrastructure and game-theoretical guarantees necessary for builders to create services - like EigenDA - backed by Ethereum's staking power. It enables EigenDA by allowing additional slashing risks and enhancing staking reward rates as part of its restaking approach.

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What is the Data Availability Problem

The fundamental challenge in scaling Layer 2 solutions is ensuring that assets locked in smart contracts are retrievable and secure. For a system to be a true L2, this process has to be available to any participant with a claim on assets on the L2. The problem is that to claim from the system on the L1 side, proofs must be submitted and the data necessary to construct these proofs can be withheld by the L2 node operator(s). 

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Currently, rollups address this problem by directly posting all the data necessary to withdraw funds, to the Ethereum L1 chain or by posting zk-proofs to the L1. This means that L2s can more efficiently evaluate transactions without encumbering the Ethereum mainnet EVM, but they are still limited by the amount of data that can be appended to the Ethereum blockchain’s transaction log. 

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The Data Availability Opportunity

One of the most promising sources of restaking income comes in the form of providing block space to Ethereum L2s. This extra block space would drastically reduce fees for the L2s users. In return, the L2 would pay part of those fees to the system providing the block space. Arbitrum alone has paid over 9 million USD in the past month (as at the time of writing) in fees to the Ethereum network. As demand for trustless block space increases, increasing the costs of transacting directly on Ethereum L1, activity will likely be pushed towards Ethereum L2s (such as Optimism, Arbitrum and zkSync). 

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How Restaking Increases Staking Rewards

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AVS - From Oracles to Data Availability

In Proof of Stake systems, "bonded guarantees" serve as a security deposit where participants, known as validators, risk cryptocurrency as collateral. This ensures their commitment to accurately executing services, like validating Ethereum blockchain transactions or verifying data for Oracle data feeds. The guarantee enforces adherence to network protocols, rewarding participants for correct service delivery. This mechanism is central to actively validated services (AVSs), linking rewards to the secure and reliable performance of network duties.

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Providing Extreme Amounts of Block Space via DA

While there are plans to extend Ethereum to provide more data in a more flexible means, the near-term interventions (Proto-DankSharding via EIP 4844) offer only some extra data and the more significant changes (Full Dank Sharding) are still years out. 

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EigenDA however has an innovative design that will initially allow for a significant increase in the amount of Data Availability open to rollups and will eventually lead to Data Availability that can scale along with the number of nodes participating in EigenDA. 

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This is extremely significant as it means that as the market for trusted block space grows EigenDA can attract more data providers to fill that demand. The recent meteoric rise in the market cap of Celestia (An L1 dedicated to data availability) seems to indicate a market expectation of strong DA-provided block space in the future.

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For comparison of the magnitude of the improvement EigenDA provides over Ethereum. Ethereum currently provides around 84kb/s of data availability. The Ethereum DankSharding upgrade will increase this to around 1,300kb/s eventually. EigenDA’s currently delivers a bewildering 10,000kb/s on the public test net.

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Where do the Restaking Rewards come from?

The rewards derived from EigenDA are rooted in the robust economy of Ethereum and the burgeoning demand for Layer 2 solutions. Ethereum itself is a testament to consistent economic activity, generating approximately $10,000,000 in daily fees, a figure that remains resilient even through market downturns. Layer 2 platforms like Arbitrum amplify this economic activity, offering services at a lower cost basis while contributing significantly to the revenue stream. The growing demand for secured block space, underpinned by the Ethereum network's security, establishes a continuous and expanding market for Data Availability services.

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EigenDA, secured through restaked capital within the Ethereum ecosystem, is positioned to capture this growing demand. As Layer 2 traffic escalates, the need for efficient, scalable Data Availability solutions becomes more pronounced, driving the potential demand and rewards for EigenDA. Moreover, EigenDA introduces an element of economic versatility for Layer 2 builders by enabling them to also stake their native token systems. This capability allows for a more dynamic and incentivized network, where Layer 2 solutions can reward sequencers and EigenDA providers not only with fee revenue but also with native tokens.

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The culmination of these factors results in ultra-low-fee Layer 2 solutions that provide decentralized, secure, and efficient block space. Such an environment is conducive to a wide array of on-chain applications and sectors, including decentralized finance (DeFi), gaming (GameFi), decentralized social networking (SocialFi), and high-frequency trading, among others. Each of these sectors stands to benefit significantly from the reliable, cost-effective services offered by EigenDA, further driving the demand and, consequently, the rewards for participants in the EigenDA ecosystem.

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How EigenDA Benefits Twinstake’s Clients

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Twinstake's offer provides a premier staking service with high regulatory compliance, including stringent KYC/AML protocols, ensuring a secure and trustworthy environment for institutional staking. Twinstake’s involvement with the EigenDA testnet keeps us at the forefront of innovation and positions us to be able to optimize staking rewards for our institutional clients.

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EigenDA is currently live on testnet and aims for mainnet launch in the early half of 2024.

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Additional Reading 

• A Case Study in Hyperscale - https://www.blog.eigenlayer.xyz/eigenda-layer-n/
• Dune Analytics Dashboard of L2 spending - https://dune.com/niftytable/rollup-economics
• More on Restaking - https://twinstake.io/restaking-the-next-ethereum-paradigm-shift/
• The data availability problem - https://www.youtube.com/watch?v=OJT_fR7wexw
• EigenDA presentation - https://www.youtube.com/watch?v=FJjL6P5NeHY
• EigenLayer introduction - https://www.youtube.com/watch?v=RG7A0flGJNM
• EigenLayer X thread about restaked Rollups - https://twitter.com/eigenlayer/status/1737559292985974996

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