Terminologies Explained:
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EigenLayer: A restaking collective for Ethereum, consisting of a set of smart contracts. It allows Ethereum stakers to validate new software modules built on the Ethereum ecosystem by imposing additional slashing conditions on their staked Ether (ETH). This increases the security of decentralized applications (DApps) and offers new fee-sharing opportunities, A layer built on top of the Ethereum blockchain that allows for agile innovation without compromising the democratic governance of Ethereum’s base layer.
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Consensus layer Ether (ETH): Ether is the native cryptocurrency of the Ethereum blockchain. The consensus layer refers to the part of the blockchain responsible for reaching agreement on the state of the network.
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Smart contracts: Self-executing contracts with the terms of the agreement directly written into code. They run on the Ethereum blockchain and automatically enforce the conditions specified in the contract.
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Slashing conditions: Rules that penalize stakers by taking away a portion of their staked ETH if they behave maliciously or do not follow the protocol.
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Cryptoeconomic security: A security model that uses economic incentives and cryptography to ensure the proper functioning and security of a network.
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Decentralized applications (DApps): Applications that run on a blockchain, like Ethereum, instead of a centralized server. They are typically open-source and use smart contracts to facilitate user interactions.
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Ethereum Virtual Machine (EVM): The runtime environment for Ethereum smart contracts, allowing developers to create and execute smart contracts on the Ethereum network.
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Rollups: A Layer-2 scaling solution for Ethereum that bundles multiple transactions into a single proof, which is then submitted to the Ethereum blockchain. This increases throughput and reduces transaction costs.
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Optimistic rollups: A type of rollup that uses cryptoeconomic guarantees (fraud proofs) to validate transactions, allowing for faster and cheaper transactions on the Ethereum network.
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ZK-rollups: A type of rollup that uses cryptographic guarantees (succinct validity proofs) to validate transactions, providing increased privacy and scalability for Ethereum transactions.
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Actively validated services (AVS): Services that require their own distributed validation semantics for verification, such as sidechains, data availability layers, new virtual machines, keeper networks, oracle networks, bridges, threshold cryptography schemes, and trusted execution environments.
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Bootstrapping problem: The challenge of creating a new trust network for a new AVS, which can be difficult and resource-intensive.
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Value leakage: The diversion of fees from Ethereum to AVS trust pools, reducing the value accrued by Ethereum.
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Capital cost: The opportunity cost and price risk associated with staking in a new system, such as an AVS. To attract stakers, an AVS must provide a high enough return to cover this cost.
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Annual percentage return (APR): The annual rate of return earned by stakers for securing a system like an AVS.
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Pooled security via restaking: Pooled security is when multiple parties combine their resources to provide greater overall security for a system. In EigenLayer, Ethereum validators can “restake” their Ethereum by opting into new modules built on EigenLayer. This means they commit their staked Ether to also secure these new modules, increasing the overall security of the system.
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Beacon chain withdrawal credentials: These are the details required for validators to withdraw their staked Ether in Ethereum. Validators can set their withdrawal credentials to the EigenLayer smart contracts, allowing them to restake their Ether in EigenLayer modules.
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Proof-of-custody: A proof that demonstrates a validator is actually holding and maintaining the data they are responsible for. In the example given, restakers in a Data Availability layer can be subject to slashing conditions based on proof-of-custody.
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Free-market governance: EigenLayer provides an open market mechanism that allows validators to choose which modules to opt into, based on their own risk and reward analysis. Validators can decide which modules to secure, making them akin to venture capital funds for early-stage startups.
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Opt-in dynamics: These are the choices that validators make when deciding to opt into or out of specific modules built on EigenLayer. Opt-in dynamics give validators the freedom to assess their own risk/reward trade-offs and participate in the growth of pooled security.
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Heterogeneous resources: In the context of EigenLayer, this refers to the different resources, capabilities, and preferences of validators. By allowing validators to opt-in to specific modules, EigenLayer can take advantage of the different resources among validators, resulting in better trade-offs between security and performance.
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Liquid Staking: A service that enables users to deposit their Ether (ETH) into a staking pool and receive a liquid staking derivative token. This token represents a claim on their ETH and its staking yield. Liquid staking derivatives can be traded in the DeFi ecosystem and redeemed for their underlying ETH value after a waiting period.
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Superfluid Staking: A staking method that modifies the core consensus protocol to allow staking of Liquidity Provisioning (LP) tokens. LP tokens represent a share of the total liquidity in a DeFi exchange, such as Uniswap or Curve.
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Yield Staking: A process that allows stakers to earn additional yield from securing new AVSs on EigenLayer. Yield staking can occur across different layers of the blockchain: core protocol, AVS, and DeFi.
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Native Restaking: A method where validators restake their staked ETH natively by pointing their withdrawal credentials to the EigenLayer contracts. This is equivalent to L1 (core protocol) → EigenLayer yield staking.
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LSD Restaking: A method where validators restake their Liquid Staking Derivatives (LSDs) by transferring them into the EigenLayer smart contracts. This is equivalent to DeFi → EigenLayer yield staking.
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ETH LP Restaking: A method where validators stake the LP token of a pair that includes ETH. This is equivalent to DeFi → EigenLayer (EL) yield staking.
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LSD LP Restaking: A method where validators stake the LP token of a pair that includes a liquid staking ETH token, such as Curve’s stETH-ETH LP token. This is equivalent to L1 (core protocol) → DeFi → EigenLayer yield staking.
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Delegation in EigenLayer: A feature that allows restakers holding ETH or LSDs to delegate their assets to other entities running EigenLayer operator nodes. The operators can deposit the delegated stake to spin up new Ethereum validator nodes, subject the delegated stake to slashing, and receive fees from both Ethereum beacon chain and EigenLayer modules.
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Solo Staking: A model where solo stakers, who are natively restaked, can either participate directly in AVSs on EigenLayer or delegate EigenLayer operations to another entity while continuing to validate for Ethereum themselves.
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Trust Model: The EigenLayer delegation model requires restakers to place trust in their chosen operator. If the operator doesn’t fulfill its obligations, the deposited stake may be subject to slashing, which affects the restakers who delegated their stake.
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Fee Model: EigenLayer restakers should consider the ratio of fees that operators share back to delegators. As there will be multiple operators to choose from, a free market of delegation between restakers and operators in EigenLayer will emerge. Each operator will use a delegation contract on Ethereum that specifies the fee split and routes fees accordingly.
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Majority-trust security guarantees: Security guarantees that rely on the assumption that a certain percentage of validators will act honestly and in the best interest of the network.
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Withdrawal credentials: Information that links a validator’s Ethereum PoS stake to the EigenLayer smart contracts, enabling the withdrawal of staked ETH through EigenLayer.
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On-chain slashing contract: A smart contract within the AVS (Application-specific Validator Set) that enforces the slashing mechanism, penalizing misbehaving validators.
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Principal-agent problems: Issues that arise when the interests of the holders of fungible positions (principals) and the operators who run the nodes (agents) do not align, potentially leading to conflicts or inefficiencies.
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Token toxicity: The loss of value in a cryptocurrency due to factors such as a loss of utility or trust in the network.
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Fraud-proof: A technique used in blockchain networks to verify the correctness of state transitions or transactions, enabling the detection and prevention of fraud.
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Locked value: The total amount of cryptocurrency held within an AVS or a smart contract.
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Cryptoeconomic risk: The potential for financial losses or security breaches in a blockchain network due to the interaction between economic incentives and cryptographic protocols.
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Ossify: In the context of an AVS, it means that the codebase and infrastructure become stable and reliable over time as it becomes battle-tested.
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Governance layer: A structure within the EigenLayer protocol that enables decision-making by prominent members of the Ethereum and EigenLayer community, such as the ability to veto slashing decisions.
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Multisig veto committee: A group of reputable individuals from the Ethereum and EigenLayer community that has the authority to veto slashing decisions, enable upgrades to EigenLayer contracts, and admit new AVSs into the slashing review process.
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Reputation-based committee: A committee composed of individuals with a strong reputation in the Ethereum and EigenLayer community, responsible for governance tasks such as upgrades, slashing event reviews, and AVS onboarding.
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Restakers: Ethereum validators who have restaked their ETH through EigenLayer to secure additional yield from AVSs.
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Hyperscale AVS: An Application-specific Validator Set designed for horizontal scaling, where the total computational workload is distributed across all participating nodes. This design allows for high throughput and reduces the incentives for centralized validation.
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Horizontal scaling (scale-out): A method of distributed computing in which a system’s capacity is increased by adding more nodes, allowing it to handle more workload and improve overall performance.
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Data availability protocol: A protocol that ensures data is available and accessible within a distributed network, such as a blockchain. In the context of a hyperscale AVS, the data is divided into chunks and distributed across nodes.
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Lightweight AVS: A type of Application-specific Validator Set that performs tasks that require low computational resources and minimal cost, allowing even smaller validators to participate in EigenLayer without excessive centralization pressure.
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Attesting: In the context of blockchain, it is the act of witnessing and confirming certain events or messages, such as validating a block or a transaction.
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Zero-knowledge proofs: A cryptographic method that allows one party to prove to another party that they possess certain information without revealing the information itself.
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Light nodes: Lightweight versions of blockchain nodes that do not store the entire blockchain but instead rely on other nodes to access and verify specific data. They consume fewer resources and are easier to set up and maintain.
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Oracle price feeds: Data sources that provide real-time price information from external sources to a blockchain, typically used by decentralized finance applications to obtain accurate market data.
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Blockspace: The limited amount of data that can be included in a single block of a blockchain network. In Ethereum, the block limit is determined by the weakest validator’s infrastructure to maintain decentralization.
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Hyperscale Data Availability Layer (Hyperscale AVS): A data availability layer that can handle large amounts of data and provide high data availability rates at a low cost. It uses EigenLayer restaking and cutting-edge ideas from the Ethereum community, such as Danksharding.
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Decentralized Sequencers (Lightweight/hyperscale AVS): These are used by rollups for managing their own Miner Extractable Value (MEV) and censorship resistance. Decentralized sequencers can be built on EigenLayer using a quorum of ETH stakers and provide ordering services for multiple rollups.
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Light-Node Bridges (Lightweight AVS): These are bridges between blockchains, like the Rainbow Bridge between NEAR and Ethereum. They can be built on EigenLayer to reduce latency and improve off-chain verification.
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Fast-Mode Bridges for Rollups (Lightweight AVS): EigenLayer can enable faster verification for ZK rollups and optimistic rollups by using a large collateral pool to certify stateroots under the risk of slashing.
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Oracles (Lightweight AVS): Price feeds and other types of data feeds can be built using EigenLayer, providing an opt-in layer for these services.
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Opt-in Event-Driven Activation (Lightweight AVS): EigenLayer enables event-driven actions like liquidations and collateral transfers, which are not natively available on Ethereum.
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Opt-In MEV Management: Various opt-in MEV management methods become feasible under EigenLayer, including Proposal-Builder Separation, MEV smoothing, and threshold encryption for transaction inclusion.
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Settlement Chains with Ultra-Low Latency: EigenLayer enables the creation of high-speed settlement chains with low latency and high throughput.
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Single-Slot Finality (Lightweight AVS): EigenLayer enables the possibility of single-slot finality, where nodes attest to the finality of a block, potentially creating a new finality pathway.
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Staker heterogeneity: EigenLayer takes advantage of differences in computational resources, risk preferences, reward preferences, and identity among stakers to create opt-in validation tasks and offer unique opportunities for stakers.
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Blockspace expansion: EigenLayer enables the use of excess computational resources from higher-capacity nodes, increasing blockspace and offering more flexibility in performance and security for decentralized applications (DApps).
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Democratic governance: A decision-making process that involves the input and opinions of a large number of stakeholders. It is more inclusive but slower.
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Agility in innovation: The ability to quickly adapt to new ideas, innovations, and changes. Faster decision-making and execution.
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Ethereum protocol: The underlying set of rules and processes for the Ethereum blockchain.
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Off-chain governance: A decision-making process that occurs outside the blockchain, usually involving community discussions and consensus.
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Binance Smart Chain (BSC): A competing blockchain to Ethereum, with a more centralized decision-making process, resulting in faster innovation but less democracy.
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Permissionless innovation: The ability for anyone to create and implement new ideas and solutions without needing approval from a central authority.
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Staging network: A separate network that serves as a testing ground for new ideas and innovations before integrating them into the main blockchain.
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Danksharding-based data availability layer: A technical innovation being tested on the staging network to improve Ethereum’s design.
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Ethereum Staker Decentralization: The goal of having Ethereum validator nodes spread across many participants, reducing the risk of centralization.
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Threshold encryption system: A cryptographic technique that protects data by requiring multiple parties to collaborate in order to decrypt the data.
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AVS (Application-specific Validation System): A system tailored for specific applications that require validation and verification on the blockchain.
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Quorum: A group of participants in a blockchain network that collectively make decisions, validate transactions, or reach consensus.
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Restaked ETH: Ethereum tokens that have been staked again, often to participate in a specific validation system.
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Business models on EigenLayer: Different ways in which AVSs can generate revenue or create value on top of EigenLayer.
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SaaS (Software as a Service) economics: A business model where users pay a subscription fee to access software or services, typically hosted in the cloud.
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Dual staking utility: A model that allows participants to stake two different types of tokens to provide security to an AVS via EigenLayer.
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Death spiral: A situation where a token’s value drops rapidly, potentially causing the collapse of the underlying protocol or system. EigenLayer’s dual staking model allows protocols to hedge against this risk by using restaked ETH.
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Lightweight and hyperscale modules: Modules built on EigenLayer that can vary in size and complexity, catering to different needs and use cases. Lightweight modules require fewer resources, while hyperscale modules can handle large-scale operations.
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Heterogeneity between stakers: The differences between Ethereum stakers in terms of their available computational resources, risk tolerance, and personal or organizational identity. Modules on EigenLayer can leverage these differences to create a diverse and robust ecosystem.
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Agile, decentralized, and permissionless innovation: The goal of EigenLayer is to promote rapid, distributed, and open innovation on blockchain platforms, allowing for new ideas and technologies to emerge without the need for centralized control or permission.
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Free market for decentralized trust: EigenLayer establishes a competitive environment where various modules can obtain trust and validation services from Ethereum stakers, allowing for more efficient and secure blockchain operations.
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Base layer blockchain: The foundational blockchain network that provides security for other layers built on top of it, such as Ethereum.
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Middleware: Software that bridges the gap between applications and the underlying blockchain, facilitating communication and data exchange.
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Cost of corruption (CoC): The financial expense required for an attacker to compromise the security of a module or decentralized application (DApp) within a blockchain system.
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Tasks: Operations or activities secured by EigenLayer that require validation and security services from stakers.
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Stakers: Participants who commit their cryptocurrency holdings as collateral to validate and secure blockchain operations in exchange for rewards.
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Restaking: Reallocating staked cryptocurrency to secure different modules or tasks within a blockchain ecosystem.
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Validators: Participants who validate and confirm transactions or operations within a blockchain network.
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Overcollateralization and undercollateralization: A staker is overcollateralized when they have committed more cryptocurrency than necessary to secure a task, while undercollateralized means they have not committed enough.
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Quasi-concave objective: A mathematical function used in optimization problems where the objective is to maximize or minimize a value, which possesses specific mathematical properties that make it easier to solve.
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Linear constraints: Limitations or requirements in an optimization problem that are represented as linear equations or inequalities.
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Data Availability: Restaking can enable a hyperscale Data Availability (DA) layer, with a high DA rate and low cost. EigenLabs is building the first DA layer on EigenLayer, called EigenDA.
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Decentralized Sequencers: ETH restakers can form a single decentralized sequencer quorum that serves many rollups, enabling MEV management and censorship resistance.
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MEV Management: A variety of MEV management methods are feasible under EigenLayer, including PBS, MEV smoothing, and threshold encryption for transaction includeion.
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Oracles: Oracles that enshrine price feeds into Ethereum can be built via EigenLayer if they require majority trust on restaked ETH, and are opt-in layers.
Reference: https://eigenlayer.xyz & https://eigenlayer.xyz/whitepaper.pdf
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