Understanding EigenLayer's Design Principles and Future Development at Launch
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Understanding EigenLayer's Design Principles and Future Development at Launch
With the full operation of its mainnet launch, it will be necessary to closely monitor whether EigenLayer will bring to Ethereum the new DeFi Summer that some have been anticipating.
Navigating Web3 tides with focused insightsAuthor: Despread
Translation: TechFlow
1. Introduction
Since the second half of 2023, the long-anticipated approval of spot Bitcoin ETFs has become a reality, leading to an influx of institutional capital. As a result, Bitcoin's price has returned to its highest level in four years, surpassing its November 2021 peak. During this period, trading volumes on centralized exchanges (CEXs) such as Binance and Upbit have exceeded $1 trillion, while the adoption rate of CEX mobile applications has increased, indicating greater retail investor participation.
Additionally, there has been a rise in investors withdrawing assets from CEXs to engage in activities such as earning yield in decentralized finance (DeFi) or receiving airdrops. This has led to the Total Value Locked (TVL) in the DeFi sector doubling compared to the second half of last year.
Among these developments, EigenLayer—built on the Ethereum network—has seen its TVL increase approximately tenfold from early 2024 to now, rapidly rising to third place among DeFi protocols by total TVL. This significant growth in TVL has had a profound impact on the overall rise in DeFi TVL.
EigenLayer introduces a restaking feature that leverages ETH staked for Ethereum network validation to share security with other protocols, while offering additional yield to participants. Thanks to its proposal aimed at maximizing capital efficiency and security on Ethereum, EigenLayer has attracted around $160 million in investment from crypto VCs including a16z.
Moreover, effective utilization of various points systems has become central to airdrop expectations. Through derivative protocols that maximize point farming mechanisms, EigenLayer’s TVL has shown a consistent upward trajectory since the beginning of the year.
This article will cover the broader aspects of EigenLayer, focusing particularly on the synergies created between EigenLayer and its various derivative protocols.
2. What is EigenLayer?
After Ethereum transitioned from Proof-of-Work (PoW) to Proof-of-Stake (PoS), approximately 980,000 Ethereum validators each staked 32 ETH on the Beacon Chain to participate in network validation. In PoS, the value staked directly correlates with network security, meaning about 31 million ETH are currently securing Ethereum’s reliability. Decentralized applications (DApps) on Ethereum can deploy smart contracts and inherit this trust and security.
However, protocols known as Active Validation Services (AVSs)—such as bridges, sequencers, and oracles—face significant challenges when relying solely on Ethereum’s native capabilities. Since they act as intermediaries between chains or require faster synchronization than Ethereum provides, AVSs must build their own trust networks in a decentralized manner, necessitating their own consensus mechanisms.
AVSs aiming to establish their own trust network using a PoS structure similar to Ethereum’s face several hurdles during launch:
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Lack of ways to promote the project and attract stakers
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Stakers usually need to purchase the AVS’s native token, which tends to be volatile and hard to obtain, reducing accessibility compared to ETH
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AVSs must offer higher annual percentage yields (APY) than ETH to attract stakers, who otherwise face opportunity costs by locking up capital elsewhere
EigenLayer addresses these issues through a feature called restaking, which allows ETH staked on the Ethereum Beacon Chain to be reused for participating in AVS validation. Restaking enables restakers to earn additional rewards by validating AVS networks without needing to buy new tokens—using only ETH or LSTs. For AVSs, EigenLayer aims to provide an environment where they can promote their projects and build trust networks based on liquidity recruited via EigenLayer.
2.1. Leveraging Ethereum Security Through Restaking
Currently, Ethereum validators risk being slashed up to 16 ETH out of their 32 ETH stake if they compromise network security. If their balance drops below 16 ETH, they lose validator status. This means that if the idle portion of staked ETH could be used as collateral elsewhere—while keeping the balance above 16 ETH—it could simultaneously support other uses while continuing to validate on Ethereum.
In EigenLayer, restaking refers to using this idle portion of staked ETH as collateral by exposing it to slashing conditions of AVSs that use PoS consensus, thereby providing security through validation. Currently, EigenLayer supports two restaking methods: LST (Liquid Staking Token) restaking and native restaking.
LST Restaking: Although referred to as "liquid restaking" within EigenLayer, this article uses "LST restaking" to avoid confusion with later concepts.
2.1.1. LST Restaking
An LST (Liquid Staking Token) is a deposit certificate issued by an LSP (Liquid Staking Provider), linking ETH depositors with entities operating Ethereum nodes on their behalf. LSPs address certain limitations of staking on Ethereum, such as:
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Allowing users with less than 32 ETH to participate in Ethereum validation and earn rewards
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Enabling use of LSTs in DeFi protocols to generate additional income, or selling them on markets without waiting for unstaking periods—effectively providing liquidity equivalent to unstaked ETH
A prominent LSP, Lido Finance, currently holds around 10 million ETH in deposits. Many DeFi protocols have adopted stETH—the LST issued by Lido—as a usable asset, making it foundational infrastructure in the Ethereum ecosystem.
EigenLayer offers a restaking function involving depositing LSTs—Ethereum deposit certificates—into EigenLayer smart contracts to participate in AVS validation under AVS slashing rules. This method is known as LST restaking.
Since launching its mainnet in June 2023, EigenLayer began supporting restaking of stETH, rETH, and cbETH, and currently supports restaking across 12 types of LSTs.
To ensure decentralization and neutrality, the EigenLayer team has implemented measures such as limiting deposits of each LST type, capping incentives and governance rights from any single LST at 33%. To date, EigenLayer has increased LST restaking limits five times, but no further increases are currently planned.
2.1.2. Native Restaking
While LST restaking involves using LSTs as collateral for AVS validation, native restaking is a more direct approach where Ethereum PoS node operators link their staked ETH directly to EigenLayer.
Validators do this by setting the withdrawal address for their staked ETH to their own wallet instead of the EigenPod contract address created by EigenLayer.
In essence, Ethereum validators forfeit direct access to their staked ETH in exchange for participating in AVS validation via native restaking. Their staked assets are thus exposed not only to Ethereum’s slashing rules but also to those of AVSs, potentially earning extra rewards.
Native restaking requires staking 32 ETH and directly managing an Ethereum node, presenting a higher barrier to entry than LST restaking. However, it is not subject to the deposit caps imposed on LST restaking.
2.2. Operators
After restaking on EigenLayer, restakers have two options: either run an AVS validator node directly or delegate their restaked share to an operator. Operators represent restakers in AVS validation and earn additional rewards.
Operators are granted slashing rights over the stake they hold or manage for AVSs, install required software, and participate in validation. In return, they may charge fees set at their discretion.
However, the process of sharing security with AVSs is currently only operational on testnets. As such, there are currently no active operators or AVSs on EigenLayer, and restakers receive no additional rewards. Recently, EigenLayer announced it is in the final preparation stages to launch its first AVS, EigenDA, on mainnet and activate AVS validation in Phase 2.
To summarize so far, the relationship map of EigenLayer is as follows:
2.3. EigenLayer Points
EigenLayer awards one EigenLayer point per hour for each ETH deposited by a restaker, measuring contribution. While the team has not yet specified how points will be used or released details about an official token, many users are restaking in anticipation of a future airdrop based on accumulated points.
As of writing, around 2.6 billion EigenLayer points have been distributed to all restakers. On the OTC marketplace Whales Market, each EigenLayer point trades at $0.18.
This implies a market-estimated airdrop value of approximately $440 million—significantly higher than Celestia’s $120 million valuation on its airdrop day—indicating strong market anticipation and interest.
However, users restaking purely for airdrop points face several inconveniences:
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LST restaking is capped, preventing users from freely depositing desired amounts
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Native restaking requires 32 ETH and direct management of an Ethereum node
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Restaking locks liquidity in EigenLayer, forcing users to forgo other yield-generating opportunities
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Unstaking from EigenLayer requires a 7-day withdrawal delay
To mitigate these drawbacks and make restaking more efficient, LRP (Liquid Restaking Protocols) have emerged. Using LRPs to earn EigenLayer points has become a more attractive investment strategy for users.
3.LRP (Liquid Restaking Protocol)
LRPs accept user deposits of ETH or LSTs and perform restaking on EigenLayer on their behalf. Additionally, LRPs issue LRTs (Liquid Restaking Tokens) as proof of deposit, allowing users to generate additional yield by using LRTs in DeFi protocols or sell them to bypass EigenLayer’s 7-day unstaking period. Structurally, LRPs resemble LSPs, except they operate on EigenLayer rather than Ethereum.
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LSP (Liquid Staking Protocol): A protocol enabling participation in Ethereum validation
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LST (Liquid Staking Token): Issued by LSPs as proof of principal
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LRP (Liquid Restaking Protocol): A protocol enabling participation in EigenLayer restaking
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LRT (Liquid Restaking Token): Issued by LRPs as proof of principal
Moreover, most LRPs reward depositors not only with EigenLayer points but also with their own protocol-specific points. Thus, using an LRP offers several advantages over direct restaking on EigenLayer:
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Creating added value through LRTs
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Exiting restaking positions by selling LRTs
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Earning additional airdrops via protocol points
However, EigenLayer points generated through LRPs are credited not to the depositor’s wallet but to the LRP’s ownership address. Therefore, LRPs commit to distributing any future EigenLayer token airdrops to their users and provide dashboards to track accumulated points.
In the following sections, we will classify LRPs based on two criteria and explore them in detail.
3.1. Classifying LRPs by Restaking Method
As previously discussed, EigenLayer supports two restaking methods: LST restaking and native restaking. These differ in terms of accepted deposit assets and whether they involve operating Ethereum nodes.
LRPs using LST restaking can implement a relatively simple mechanism: accept LST deposits, deposit them into EigenLayer contracts, and issue corresponding LRTs. However, they are directly affected by LST restaking caps. Unless EigenLayer reopens deposits, newly deposited LSTs remain idle in the LRP until limits allow restaking, during which time users do not earn EigenLayer points.
In contrast, LRPs using native restaking must directly manage and operate Ethereum nodes, as they accept ETH deposits. This requires significantly more effort in building, operating, and maintaining the protocol compared to LST-based LRPs. However, unlike LST restaking, native restaking has no deposit caps, allowing users to begin earning points immediately after depositing.
Based on these characteristics, LRPs choose restaking methods aligned with their design goals and are not limited to one approach. For example, Kelp DAO initially supported only LST restaking to quickly capture TVL post-EigenLayer launch, then later added native restaking functionality.
3.2. Classifying LRPs by LRT Issuance Method
For LRPs accepting multiple LST types or ETH, the method of issuing LRTs can be categorized as basket-style or independent-style.
The basket-style approach issues a single type of LRT regardless of the deposited LST. This simplifies user experience and avoids fragmenting LRT liquidity. However, it exposes the entire protocol to risks associated with individual LSTs, requiring careful management of deposit ratios.
Conversely, the independent-style approach issues distinct LRTs for each supported LST. While this fragments liquidity, it isolates risks per LST and eliminates the need for rebalancing deposit allocations.
Despite lower risk and easier setup, most LRPs adopt the basket-style model due to its simplicity and better integration with DeFi protocols.
Beyond these core features, LRPs differentiate themselves through unique functionalities and go-to-market strategies. Let us examine some notable examples in detail.
3.3. Notable LRPs to Watch
3.3.1. Ether.fi
Originally an LSP focused on giving stakers full control over their ETH, Ether.fi was the first LRP to support native restaking after EigenLayer’s launch. This allowed Ether.fi to offer EigenLayer point farming even during LST restaking restrictions, sustaining continuous TVL growth.
Ether.fi issues two LRTs: eETH and weETH. eETH is the base LRT received upon depositing ETH, featuring a rebasing mechanism where yield accrues directly into the token balance. However, some DeFi protocols do not support rebasing tokens. To improve compatibility, Ether.fi offers weETH—a wrapped version that reflects yield as claimable rewards.
Ether.fi rewards LRT holders with both EigenLayer points and its proprietary ether.fi Loyalty Points. To reduce sell pressure and expand utility, Ether.fi partners with various DeFi protocols, allowing users to deposit LRTs and continue accumulating points. It also runs campaigns to boost loyalty points for users actively engaging with LRTs in DeFi.
Users can utilize eETH or weETH in various DeFi activities, such as:
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Providing liquidity for weETH/WETH pools on DEXs like Curve and Balancer
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Using weETH as collateral in lending protocols like Morpho Blue and Silo
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Issuing over-collateralized stablecoins backed by weETH on protocols like Gravita
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Using weETH in derivative protocols like Pendle and Gearbox
Through these activities, users can earn both EigenLayer points and ether.fi Loyalty Points while generating yield or leveraging LRT-backed tokens. Recently, Ether.fi enabled LRT bridging to Ethereum L2s Arbitrum and Mode Network, reducing gas fees for DeFi usage.
On March 18, Ether.fi announced the TGE of its governance token $ETHFI, distributing 6% of total supply via loyalty points. A second airdrop of 5% is scheduled for June 30.
Currently, Ether.fi leads all LRPs in TVL with approximately $3 billion, representing about a quarter of total restaked liquidity on EigenLayer.
3.3.2. Kelp DAO
Kelp DAO started as a basket-style LRP offering LST restaking for two assets—stETH from Lido Finance and ETHx from Stader Labs—and issuing a single LRT, rsETH.
Initially, as EigenLayer raised LST restaking caps, users rushed to fill quotas, facing high gas fees and time zone barriers. In response, Kelp DAO introduced a solution: users deposit LSTs into the protocol, and once capacity is reached, Kelp DAO handles restaking. Depositors earn Kelp DAO’s proprietary Kelp Miles points, attracting a large user base. Like other LRPs, it boosts Kelp Miles for users who deploy LRTs in specific DeFi protocols, encouraging engagement.
Kelp DAO has since added native restaking, offering unlimited EigenLayer point farming. Similar to Ether.fi, it focuses on improving user convenience by supporting restaking on Arbitrum, enabling seamless LRT usage in DeFi.
Additionally, Kelp DAO differentiates itself by allowing users to convert earned EigenLayer points into a token called $KEP.
Users can convert accumulated EigenLayer points into $KEP tokens for a 0.5% fee. They can then sell $KEP on markets to monetize points or provide liquidity on DEXs like Balancer to earn additional yield and Kelp Miles. Even non-depositors can buy $KEP on secondary markets, gaining similar benefits to direct restaking via Kelp DAO.
3.3.3. EigenPie
EigenPie is a sub-DAO launched under the MagPie ecosystem, aiming to aggregate governance power to influence key DeFi decisions, especially within EigenLayer. It supports restaking for all LSTs supported by EigenLayer and adopts an independent model, issuing distinct LRTs for each deposited LST.
By isolating each LST pool, EigenPie avoids concentration risk and can more easily partner with specific LST protocols. For example, LSP Swell Network partnered with EigenPie in a campaign rewarding users who deposited swETH (Swell’s native LST) with Swell’s proprietary points.
Depositors on EigenPie accumulate both EigenLayer points and EigenPie points. Official announcements confirm that eligible users will qualify for airdrops and an IDO of its upcoming governance token $EGP via this program.
However, EigenPie does not support native restaking, making it subject to EigenLayer’s LST restaking caps. Additionally, issuing twelve different LRTs leads to fragmented liquidity, resulting in fewer DeFi integrations compared to competitors.
4. Leveraged Points Farming
LRPs serve as intermediaries for restaking, offering LRTs that simplify access to EigenLayer points. By introducing proprietary point systems and partnering with DeFi protocols to boost point accumulation, they’ve attracted a large number of airdrop farmers into the EigenLayer ecosystem.
Initially, few lending protocols supported LRTs as collateral, so users could only farm points passively based on their LRT holdings.
Gravita, an over-collateralized stablecoin issuance protocol, allows users to mint stablecoins using Ether.fi’s weETH as collateral. Users can then employ a looping strategy—using the borrowed stablecoins to buy and deposit more LRTs—to amplify point farming. However, high Ethereum gas fees and Gravita’s minimum threshold (at least 2,000 stablecoins) posed significant entry barriers.
This changed on January 10, 2024, when Pendle Finance began supporting Ether.fi’s eETH, enabling leveraged point farming with minimal capital. This sparked significant interest among airdrop farmers, driving substantial growth in TVL for both EigenLayer and LRPs.
4.1. Pendle Finance
Pendle Finance is a DeFi protocol that enables trading of yield-bearing tokens like LSTs and LRTs by splitting them into a Principal Token (PT) and a Yield Token (YT) with a fixed maturity date.
The sum of YT and PT always equals the underlying asset value. YT holders are entitled to accrued yield from purchase until maturity. As maturity approaches, YT value trends toward zero, while PT trades at a discount reflecting market demand for yield.
Pendle Finance partnered with Ether.fi to list eETH as the first LRT on its platform. Ether.fi designed a system to distribute both EigenLayer points and ether.fi Loyalty Points to holders of YT-eETH. This allows users to buy near-expiry YT-eETH (which are cheap) and collect accumulated yield and points before expiry.
Here’s an example:
As of writing, details of the Pendle Finance eETH product are as follows:
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Maturity date: June 27, 2024 (~103 days from now)
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eETH 7-day average APY: 3.13%, current price: $3,872
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YT-eETH price: $196 (implied yield: -99.8%)
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PT-eETH price: $3,676 (implied yield: 20.02%)
As of writing, the exchange ratio between eETH and YT-eETH is roughly 1:20. Ether.fi is running a campaign offering double loyalty points to YT-eETH holders. Thus, a user exchanging one eETH for YT-eETH and holding until expiry would earn:
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Interest equivalent to holding 20 eETH
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EigenLayer points equivalent to 20 eETH
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Loyalty points equivalent to 40 eETH
However, since YT-eETH value decays to zero, users ultimately recover only the underlying yield—around $640, or about one-sixth of one eETH’s value. This shows users are willing to absorb losses to participate in cheaper point farming.
Due to high demand for YT-eETH in point farming, discounted PT-eETH has become an attractive investment, increasing its discount rate. Additionally, LP demand for Pendle’s eETH pool has surged. Currently, about one-third of all LRTs issued on Ethereum are used within Pendle Finance.
Following its success with Ether.fi, Pendle Finance expanded support to other LRPs and brought leveraged point farming to Arbitrum. Recently, undercollateralized PT-eETH has appeared as collateral in Silo Finance, helping Pendle benefit from the EigenLayer ecosystem—its TVL has grown nearly tenfold since年初.
4.2. Gearbox
Gearbox is a leveraged yield protocol that differs from traditional lending platforms and has attracted attention in a unique way.
On Gearbox, borrowers must first create a “credit account” smart contract. They then deposit collateral and borrow assets into this account to leverage their position. The borrower can use leveraged assets for margin trading or participate in DeFi yield farms like Convex and Yearn Finance.
Using this structure, Gearbox launched leveraged point farming in partnership with LRPs. It allows EigenLayer points and LRP-native points to accrue within credit accounts and be transferred to users’ wallets, offering up to 9x leverage on point farming.
Gearbox leveraged point farming, source: Gearbox
Compared to Pendle Finance, Gearbox offers a more intuitive UI/UX, making leveraged point farming accessible even to novice DeFi users. Within just three weeks of launching this feature, Gearbox increased its TVL by approximately 5x.
5.Risks
Many protocols using ETH staked on Ethereum are interconnected, forming a vast ecosystem. Currently, derivative protocols leveraging LRPs, LRTs, and EigenLayer points are emerging rapidly, sparking discussions about EigenLayer’s growth potential. However, concerns about its risks persist.
The EigenLayer whitepaper outlines fundamental risks: collusion among operators providing AVS security leading to fund misappropriation; slashing due to unexpected bugs in AVS code. Proposed mitigations include monitoring systems for collusion and incentivizing diversification across smaller AVSs. For unexpected slashing, solutions include rigorous AVS audits and community veto rights over slashing events.
Even if these risks are addressed, unobserved risks remain because staking delegation to EigenLayer operators and core AVS security functions are not yet live on mainnet. Additionally, using LRTs and derivatives introduces risks such as smart contract or oracle exploits. Over-leveraging LRTs could trigger cascading liquidations even from minor slippage in EigenLayer.
Vitalik Buterin, Ethereum’s co-founder, expressed concerns in an article titled “Don’t Overload Ethereum’s Consensus”, warning that validators might exploit social consensus via EigenLayer restaking to force favorable hard forks on Ethereum.
6.The Future of EigenLayer
In the short term, EigenLayer is preparing to launch its first AVS—EigenDA—and roll out Phase 2, enabling security sharing and reward reclamation on AVSs.
Developed by EigenLabs, EigenDA is an Availability Security Layer (AVS) that uses EigenLayer’s security to provide data availability without its own consensus. Several Layer 2 chains—including Celo, Mantle, and Fluents—have already announced plans to use EigenDA as their data availability layer.
Following Phase 2, a Phase 3 test is planned to enable security sharing with AVSs beyond EigenDA. Notable projects like Ethos, Hyperlane, and Espresso plan to integrate with EigenLayer post-Phase 3.
It remains uncertain whether EigenLayer will launch a token, what role it would play, and what incentives it would offer to point accumulators. However, assuming an eventual token launch, let us assess EigenLayer’s medium- to long-term outlook from the author’s perspective.
6.1. EigenLayer’s Tokenomics
Assets staked in EigenLayer secure AVSs. Thus, EigenLayer’s TVL serves not just as a measure of staked assets but also as an indicator of overall AVS security. However, after a potential airdrop, airdrop farmers may withdraw liquidity, causing TVL to decline.
Therefore, if EigenLayer announces a tokenomics plan, it may focus on designing incentives to retain existing restaked liquidity, attract more AVSs, and encourage continued restaking to strengthen network effects.
At launch, additional incentives may be offered to diversify operator participation. When multiple AVSs register on EigenLayer for security, EigenLayer tokens may be distributed to operators and restakers as incentives for risk diversification.
6.2. Relationship Between LRPs and AVSs
AVSs may airdrop their own tokens to attract more security. RaaS (Rollup-as-a-Service) protocol AltLayer, soon to become an AVS on EigenLayer, has already issued its $ALT token and airdropped part of it to EigenLayer restakers.
In January 2024, protocols like Dymension and SAGA announced using Celestia for data availability and revealed plans to airdrop their native $TIA tokens to investors, doubling $TIA supply overnight. Similarly, AVS airdrops targeting restakers could drive restaking as a major market narrative post-EigenLayer token launch.
From an AVS perspective, promoting through LRPs—where restakers and security choices are abundant—can achieve greater impact at lower cost than broad, unilateral marketing. Hence, increased collaboration
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