I'm writing a brief note on EigenLayer. This won't be a deep dive or an economic analysis, but rather my personal take on the project, especially since our LPs have acquired a significant amount of EIGEN tokens. We've also analyzed one of the AVSs (currently raising a round) that is responsible for transaction validation.

All AVSs on EigenLayer operate using a Shared ETH model.

Essentially, users deposit ETH with an operator, and the operator distributes it among the AVSs. Most operators are working with more than five AVSs. This introduces a significant slashing risk.

In my opinion, sooner or later, one of these AVSs will make a mistake, get hacked, or face some other issue, as the risk level is orders of magnitude higher than with native staking. And considering many users are also using liquid ETH the situation gets even messier.

There's a lack of incentive to hold EIGEN tokens. From what I see, a lot of tokens are being dumped on exchanges. Who's buying them back? Perhaps EigenLayer itself.

Apart from the airdropped EIGEN tokens, the AVSs themselves generate minimal profit (practically none), because there aren't any projects that are eager to "host" on EigenLayer. Why? Mainly because there’s no need for it, and every project prefers having its own token issued on an L1 like Ethereum or Solana.

Will this change in the future? I think that's a big "if."

Since there aren't any projects paying AVSs for “hosting” on EigenLayer, AVSs are now planning to issue their own tokens to raise funds (at insane valuations).

But who needs these useless AVS tokens? That's unclear.

I’m not here to predict the price of EIGEN or the fate of the entire EigenLayer ecosystem. But from what I’ve seen internally, there just aren’t any economic incentives to participate in the network (aside from the airdropped EIGEN). And there are no projects that really need EigenLayer at this point, for all the reasons mentioned above.

That said, crypto is unpredictable, and the famous VCs backing this project might just help it grow into something significant.