Risks of EigenLayer

As the EigenLayer protocol continues to expand and provide ETH validators and stakers an option to earn a higher reward rates, a lot of issues, both significant and less-significant, starting to arise every single day. These include:

• Slashing Risk: In the Eigenlayer ecosystem, the slashing risk is much higher as compared to the ETH ecosystem. Essentially, this means, that if a slashing event occurs, an EigenLayer Staker could possibly lose all its staked ETH, and incur a huge irreversible loss.

• Operator Misbehaving: As itself stated by EigenLayer, the Operators are 3rd party entities in the eigen ecosystem. Hence, if an operator misbehaves or plays notorious, it can result in the stakers losing all of their funds. Also, notably, as the operator network on eigenlayer grows, this risk gets to be one of the biggest problems for eigen users.

• EigenLayer Centralization: EigenLayer, as a whole, relies on a huge degree of centralization of re-staked assets into a few smart contracts. Such a concentration would mean that one successful penetration or exploitation by attackers/hackers could lead to failure in many significant parts of Ethereum’s stake, and a dramatic risk to the entire ETH economy in general.

• AVS Malfunction: Although AVSs are being registered systematically by EigenLayer itself, yet there is a significant risk associated with these. The responsibility to form and write the onboarding/integration conditions/rules in the AVS contract is by default assigned to the individual AVSs and not being managed by EigenLayer. Hence, any technical fault may end up causing a high turbulence in the eigen economy.

• Incorrect Yield Generation : The risk of incorrect yield generation by an eigen Operator, or perhaps not delivering the assured yield to re-stakers is another problem that can worsen the state of the eigen economy.

In addition to above, another potential issue with EigenLayer is a protocol-level risk, that is, any individual AVS may be appropriately staked to the desired level of crypto-economic security. But if the same stake is restaked at several AVSs by the same validator, the cumulative gain from malicious behaviour may exceed the loss from slashing.