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Decentralised Finance

Glossary of DeFi concepts and meaning.

Actively Validated Services (AVS)​

Any system that requires its 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.

Alpha​

The capacity of an investment strategy to beat the market, or its edge, is referred to as alpha.

Alpha is also known as excess return or abnormal rate of return, which alludes to the assumption that markets are efficient and that there is no way to systematically achieve returns that are higher than the general market.

The Greek letter beta (which reflects the wide market's overall volatility or risk, known as systematic market risk) is frequently employed in conjunction with alpha.

Information Asymmetry: When one party in a transaction is in possession of more information than the other

Cryptoeconomic Security​

A security model that uses economic incentives and cryptography to ensure the proper functioning and security of a network.

Delegation in EigenLayer​

A feature that allows restakers holding ETH or LSTs to delegate their assets to other entities who will operate off-chain software containers of service modules built on EigenLayer, rather than operating the software themselves.

EigenPod​

A contract that is deployed on a per-user basis that facilitates native restaking.

Fee Markets​

Fee markets in cryptocurrencies are dynamic systems that determine transaction costs based on network demand and capacity. Elements to evaluate include:

  1. Purpose: Fee markets ensure efficient transaction processing and incentivize miners/validators to maintain the network.
  2. Mechanism: Users compete for limited block space by offering higher fees for faster transaction confirmation.
  3. Factors influencing fees:
    • Network congestion
    • Transaction complexity
    • Block size limitations
    • Computational requirements
  4. Variability: Fees fluctuate based on real-time network conditions, often rising during periods of high activity.
  5. User control: Many wallets allow users to set custom fees, balancing cost against confirmation speed.
  6. Impact: Fee markets affect transaction costs, network security, and overall blockchain usability.
  7. Differences: Fee structures vary across cryptocurrencies, with some using fixed fees and others employing more complex models.
  8. Evolution: Technological advancements and network upgrades can significantly impact fee market dynamics over time.

This market-driven approach ensures that blockchain networks remain decentralized and self-regulating while providing an economic incentive for network participants.

Free-market governance​

EigenLayer provides an open market mechanism that allows stakers to choose which services to opt into, based on their own risk and reward analysis.

Liquidity​

The amount of a currency/token available for trading.

Liquidity Provider: A user who provides liquidity to a pool.

Liquid Staking​

A service that enables users to deposit their ETH into a staking pool and receive a liquid staking token. This token represents a claim on their ETH and its staking yield. Liquid staking tokens can be traded in the DeFi ecosystem and redeemed for their underlying ETH value after a waiting period.

LST Restaking​

A method where LST holders restake their Liquid Staking Tokens (LSTs) by transferring them into the EigenLayer smart contracts.

Maximal Extractable Value (MEV)​

Maximal Extractable Value (MEV) refers to a strategy to include, omit, or reorder transactions when making a new block to maximize profit.

See Crypto Adoption Problems

Native Restaking​

A method where Ethereum stakers restake their staked ETH natively by pointing their withdrawal credentials to the EigenLayer contracts.

On-chain slashing contract​

A smart contract deployed by service modules on EigenLayer that enforces slashing, specifying and penalizing any misbehavior.

Operator​

An Operator is a user who helps run the software build on top of EigenLayer. Operators register in EigenLayer and allow Stakers to delegate to them, then opt in to provide various services built on top of EigenLayer. Operators may themselves be Stakers; these are not mutually exclusive.

Pooled security via restaking​

Pooled security is when multiple parties combine their resources to provide greater security for a system. In EigenLayer, Ethereum stakers can “restake” their ETH or Liquid Staking Tokens (LST) by opting into new services built on EigenLayer.

Restaking Points​

A measure of your total EigenLayer restaking contribution. Based on amount of ETH staked over time, in units of ETH per second. For a precise definition of how Restaking Points are calculated, please refer to the next section.

Transaction Settlement​

The layer at which a transaction is settled.