Web3's "AWS Moment", How Does EigenLayer Liberate Crypto Entrepreneurship?

Original author: Shlok Khemani
Original title: Actively Validated Services, How EigenLayer is unshackling crypto entrepreneurship》

Original translation: zhouzhou, BlockBeats

Editor's note:EigenLayer is promoting the development of trusted distributed networks in a similar way to how AWS changed the entrepreneurial economy before. By providing a reliable pool of validators (operators), EigenLayer enables new protocol developers to easily obtain technical services without staking their native tokens. This not only reduces startup costs, but also allows projects to provide security through established assets such as ETH, thereby reducing the need for token issuance. As more innovative projects emerge, EigenLayer may lead the next wave of entrepreneurial trends and inspire more experiments and development.

NFT, DAO, and DeFi have been important primitives that have gradually subverted the financial system. Shared security is another key component in this evolution. EigenLayer has become a key player in the ecosystem, and its token will be transferable on September 30th.

We see this as the “AWS moment” for Web3 — a critical juncture similar to the period in the mid-2000s when server costs fell, and the cost of cryptoeconomic security also fell. Today’s post will dive into how Active Verification Service (AVS) works and our logic behind it.

The progress of civilization is that we can do more important things without thinking. - Alfred North Whitehead

In late 2002, eight people attended a tech conference hosted by Amazon at the old Pacific Medical Center headquarters. Although the number of attendees was very small, this meeting became a turning point in the fate of Amazon, the startup economy, and the development of capitalism. On this day, Amazon launched the first version of Amazon Web Services (AWS).

Jeff Barr was one of eight attendees at the AWS launch event and joined the AWS team shortly after. Today he is AWS's chief evangelist and frequently explains new AWS features via the LEGO blog. (Image source)

A non-exhaustive list of what it took to start an Internet company in the 1990s and early 2000s: physical servers, network equipment, data storage, software licenses for databases and operating systems, a secure facility to house the hardware, a team of system administrators and network engineers, and a robust disaster recovery and backup solution. All of this costs at least $250,000, and the setup process takes months or even a year.

What’s surprising is that these infrastructure expenses have little to do with a company’s unique product or service. Whether you’re building a pet store or a social media platform, you have to go through the same process from scratch. It is estimated that 70% of engineering time is spent on building and maintaining data centers, and only 30% is invested in the actual business.

By introducing cloud computing, AWS fundamentally changed the economics of startups with a flexible, pay-as-you-go model, eliminating the need for upfront investments in time, energy, money, and manpower. Transforming infrastructure from a capital investment to an operating expense enabled small teams with revolutionary ideas to quickly launch and validate their hypotheses. Many of these teams eventually grew into companies like Stripe and Airbnb.

Around the same time, an anonymous programmer named Satoshi Nakamoto changed the structure of capitalism in another way. He found a way for globally distributed computers to reach consensus without trusting each other, solving a problem that had plagued computer scientists for decades. This was a breakthrough innovation from zero to one in the history of technology.

While Satoshi Nakamoto's Bitcoin mainly used this trustless distributed system to maintain payment ledgers, Vitalik Buterin founded Ethereum and expanded its functionality to support any general computing. Over time, other application scenarios for this system have gradually emerged - from decentralized storage networks like Filecoin to oracle networks like Chainlink, which can securely provide real-world data to blockchains.

However, the process of building such a decentralized network from scratch is similar to the process of creating internet companies before AWS - costly, resource-intensive, and often unrelated to the core problem of the network. Given that many of these networks involve real money from the beginning, the consequences of any mistakes can be catastrophic.

When a problem affects enough people, solutions emerge. Amazon made it easy to start internet companies, and now the EigenLayer team is providing similar support for those who want to build trusted distributed computer networks. Each network built on EigenLayer is called an "Active Verification Service" (AVS).

Before we dive into AVS, we first need to understand why it is so difficult to start a distributed network.

Challenges

Let's review the problem: you have a global network of computers, each operating independently, and you need to reach consensus on a common truth among these nodes that don't trust each other. This fact can be anything - the balance of tokens in an account, the stock price of NVIDIA, the result of a complex calculation, or the availability of a file in the network.

Nodes in these networks may have an incentive to manipulate the facts, for example, falsely reporting a higher token balance than the actual amount. However, as long as the majority of the network's nodes agree on the actual truth, malicious actors will be ignored. When the majority of nodes agree on a state that deviates from the truth, the situation becomes dangerous and the network is threatened.

Satoshi Nakamoto cleverly combined concepts from cryptography and game theory to create Bitcoin's Proof of Work (PoW) system to solve this problem. Today, most networks use a variant of PoW - Proof of Stake (PoS), which contains four key elements:

Cryptography: prevents identity impersonation and ensures the integrity and authenticity of data in the network.

Reward mechanism: real participants (validators) are financially incentivized through users' transaction fees and newly minted tokens in the network.

Punishment mechanism: Malicious actors face financial penalties, validators must stake the network's native tokens to participate, and if they act maliciously, the staked tokens may be destroyed (slashed).

The power of distribution: Having more validators with a good distribution of stakes makes the network more resilient to attacks.

PoS networks allow ordinary users to delegate their tokens to validators and receive a portion of the validator's rewards. However, this approach also puts users at risk - if the selected validator acts maliciously, the user's stake may be slashed.

On some blockchains (like ETH and Solana), the protocol allows stakers to exchange native tokens for liquidity tokens (e.g., Lido offers stETH tokens to Ethereum stakers), and this derivative asset is called a Liquid Staking Token (LST).

In this context, imagine that you are a team that wants to build a PoS network from scratch. You first need to find a group of validators - people who have the technical expertise and hardware to join your network. You may find these people on Discord and X (formerly Twitter). However, to attract their attention among many competing projects, you need to either excel in marketing or have a lot of venture capital backing.

Once you have their attention, convincing them to join your network is not easy. Remember, validators either stake their own capital as collateral or need to spend energy to attract others to stake. Since your network is still in its early stages, the value of the token may not be high. Why should validators take the risk of acquiring a token that may plummet at any time, especially when they are already exposed to the volatility of other network assets?

Your best strategy may be to increase rewards: offer validators (and stakers) higher returns to compensate for the greater risk they take, which explains why nascent networks often have higher APYs on stake. The problem is that high issuance is actually an indirect expense to the entire network, potentially diluting the value of the token.

Even if you successfully address these challenges, you may still have fewer validators than you would like in the early stages. The scarcity of validators reduces network security and makes it more vulnerable to majority attacks. Beyond that, you need to consider other factors, such as geographic distribution of validators, creating secure and audited client software, and, depending on your project, planning infrastructure elements including data availability, transaction ordering, confirmation services, and block proposals.

Similar to internet startups before AWS, these steps are time-consuming and resource-intensive, and they are not directly related to the core problem your network is trying to solve.

Security as a Service

Recently, I explored how the Internet has spawned a new generation of businesses (platforms) that create value by efficiently connecting supply and demand. In the scenario we just discussed, there is a group of validators - the "supply side" who want to make money by providing technical services while minimizing financial risk. The "demand side" is emerging blockchain protocols that want to find trusted and reliable validators to protect their network security.

EigenLayer, as a platform, fills this gap, connecting validators (called "operators") with networks seeking their services (called "active verification services" or AVS).

Now, back to the perspective of new protocol developers:

First, EigenLayer provides a group of verified and trusted validators (i.e. "operators") who promise to verify multiple services, including emerging services. This solves your initial problem: how to find reliable validators?

Second, EigenLayer's most important breakthrough is to separate "rewards" from "punishments". Operators do not need to pledge your native tokens to protect your network. EigenLayer requires them to deposit (or attract pledges) existing assets such as ETH and Liquid Staking Tokens (LST). In the event of malicious behavior, these assets will be slashed.

This separation means that stakers and operators avoid the risk of holding additional new tokens, and they can earn additional returns by holding mature assets they already trust. (Saurabh’s analysis of intersubjectivity explains how EigenLayer improves capital efficiency.)

From a protocol perspective, this model eliminates the need to compensate validators by issuing tokens (which can lead to token inflation). Instead, you benefit from the stronger security guarantees provided by ETH as collateral. In fact, this flexibility even allows you to choose not to issue tokens if you don’t want to!

Finally, you can carefully select the cluster of operators based on the security needs of your specific product. You can weigh the validators’ technical capabilities, the size of the assets staked, their geographic location, and their security record in other networks before integrating them into your network. Compared to the daunting task of building a network from scratch, this selectivity is a luxury.

When one security risk is mitigated, another risk arises - dependence on EigenLayer itself. However, EigenLayer is not an independent blockchain, but a set of smart contracts deployed on Ethereum. Ethereum has more than 6,000 nodes and 86 billion US dollars of financial support. Although smart contract risks still exist, Ethereum itself is the safest existence in the blockchain.

You might ask: What are “rewards”? How does the economic model built on EigenLayer work?

The protocol can reward operators and delegators with any ERC-20 token. In practice, this leaves AVS with two options:

Distribute rewards with established tokens such as ETH or stablecoins. In this case, the relationship between operators and AVS is transactional - operators provide services and AVS pays them in widely accepted currencies. EigenDA, the first AVS, launched operator rewards by distributing ETH to operators and delegators.

Distribute rewards with its own tokens. This approach is closer to the economic model of traditional crypto networks, and while this model gives AVS the flexibility to pay for security through token issuance (rather than directly using the cost of ETH/stablecoins), they must also convince operators that their tokens will maintain their value. Failing to do this, it will be difficult to attract operators, as they are likely to sell AVS tokens immediately after receiving them.

Initially, 10% of AVS rewards will be distributed to operators and the rest to stakers, but this parameter will become flexible in the future. In addition, to "enhance incentive alignment", EigenLayer plans to distribute rewards equivalent to 4% of the initial $EIGEN supply to encourage delegators and operators to participate in the network.

EigenLayer's strong value proposition has attracted a variety of projects seeking to deploy as AVS. The list includes some common projects - such as rolling chains, data availability services, bridges, oracle networks, and ordering layers that require operator services.

However, given that operators can theoretically support any type of computation (not limited to state transitions), we have also witnessed many innovative and experimental projects using EigenLayer for development. These projects include decentralized physical infrastructure (DePin) networks, AI inference engines, zero-knowledge proof coprocessors, privacy-oriented protocols (including TEE, FHE, MPC), zkTLS networks, and even policy engines for smart contracts.

The Great Liberator

Earlier, I made a relatively bold claim that AWS had changed the nature of capitalism. Before AWS, high capital requirements to start a company meant that founders either self-funded or received investment from outside sources (friends, family, venture capital). This financial barrier effectively excluded a large portion of the global population from Internet entrepreneurship, making it an activity exclusive to the wealthy or privileged.

By dismantling these constraints, AWS not only simplified the process for existing entrepreneurs—a relatively small group—but also unleashed the creativity and imagination of many who had previously considered entrepreneurship beyond their reach. This democratization spawned a wave of entrepreneurial experimentation. While many projects failed, the ones that succeeded drove unprecedented increases in economic productivity and human convenience.

From the perspective of an individual entrepreneur, cloud computing opens up a range of options - from trying to build the next billion dollar business, to individual developers like Pieter Levels making millions of dollars per year, or anything in between.

We are excited about EigenLayer and AVS because they unlock similar opportunities for trustless distributed networks. Do you have an idea that requires multiple computers to run without trusting each other? Now you can quickly implement it with AVS.

From governance chains to zkTLS networks, we are witnessing many experiments that may not have been feasible before. As more entrepreneurs realize the significant reduction in human and financial capital required to build such systems, we expect more experiments to emerge.

Most will fail.

But there are always a few who will guide the future direction of this industry.