EigenLayer, which replicates Web2 cloud services, is exploring new scenarios beyond finance.

Written by: Babywhale, Techub News

A notable characteristic of a16z's investments in the Web3 space is that they do not blindly follow trends, but rather accurately identify key sectors often before the general market consensus is formed. For example, before the DeFi boom in 2021, as well as the rise of new public chains and NFTs, they invested in projects and companies such as Compound, NEAR, OpenSea, and Yuga Labs. In the past two years, the sectors and projects that a16z has clearly favored are EigenLayer in the staking domain and Story Protocol in the intellectual property domain.

When it comes to EigenLayer, our first reaction often still revolves around the three words "re-staking." Everything indeed started from re-staking, but as it has developed to this point, EigenLayer's goals are no longer limited to bringing more profits to users participating in staking; rather, it aims to build a Web3 version of a cloud platform based on re-staking. In a Web3 where "taxation" is the main profit model, EigenLayer, in which a16z has invested over a hundred million dollars at a time, has come up with something new.

The Rise of Web2 Cloud Services

Few people know that a16z's two founders, Marc Lowell Andreessen and Ben Horowitz, founded Loudcloud in 1999, which is recognized by the industry as the earliest cloud service company, even 3 years earlier than the current largest cloud service provider, Amazon Web Services. This may also be one of the important reasons why a16z has a strong affection for the cloud concept.

The founder of MeiHua Network, Ren Xianghui, wrote in his 2020 article "A Brief History of Cloud Computing" that "the economic and convenient cloud computing services we enjoy today mainly come from two driving forces: one is the virtualization technology of computing resources, and the other is the economies of scale. The former originated from the Hypervisor virtualization software launched by VMWare after 2000, which no longer relies on a host operating system, allowing users to divide hardware and network resources into multiple units, thus achieving pooling, sharing, and on-demand scheduling of computing resources. In 2006, Amazon launched the S3 object storage service and SQS simple queue service, pioneering public cloud computing services."

The former laid the technological foundation, while the latter pioneered a business model. For developers who need to develop online services with related resources, building their own servers is time-consuming, labor-intensive, and costly, and it cannot flexibly respond to the increase or decrease in resource demand. In contrast, large-scale cloud services can not only achieve cost advantages and high-quality resources through economies of scale but also provide higher security, disaster recovery, flexibility, and other advantages.

According to a research report published by Guosen Securities in 2018, in 2017, AWS (Amazon Web Services) achieved a terrifying market share of 47.10% in the public cloud IaaS (Infrastructure as a Service) sector. Amazon successfully turned a profit in 2015 through its cloud services.

In China, the business giant Alibaba invested in the establishment of Alibaba Cloud in September 2009, becoming one of the first large internet companies in the country to make cloud computing a strategic core. In 2011, Jack Ma once said in an internal speech, "Invest 1 billion in Alibaba Cloud every year for 10 years, and if we can't make it happen, then we’ll talk." Prior to this, there was an interesting episode at the "IT Leaders Summit" held in China in 2010. During the discussion on cloud computing, Li Yanhong said that cloud computing was "new wine in an old bottle," while Ma Huateng believed that it would take hundreds or even a thousand years for cloud computing to become "utilities" like water, electricity, and gas. Only Jack Ma stated that if Alibaba did not engage in cloud computing, it would die in the future.

At that time, the misjudgment of large domestic Internet companies regarding the importance of cloud computing was evident. As of today, according to a report released by Guosen Securities in February of this year, the market share of the global public cloud market in 2024 will reach 54% for the United States and 21% for Western Europe, while China only accounts for 5%. However, within this 5%, Alibaba Cloud holds over (or at least close to) one-third of the share in IaaS, PaaS, and SaaS.

It can be seen that a sufficiently large market, an early entry, and a sufficiently large scale allow cloud computing giants to reap long-term dividends and achieve a high market share. But will the same thing be true in the Web3 space?

What does EigenLayer want to do?

For Web3 developers, creating a decentralized product that requires its own consensus has always been a tedious issue concerning the true establishment, improvement, and security of consensus, much like Web2 developers building a website or app. If there were a product that could establish a complete set of infrastructure for Web3 developers, allowing them to focus solely on the characteristics of the blockchain itself—including communication, validation, consensus establishment, and other issues—all could be solved in one place. Moreover, unlike development tools, it would only require providing the logic for validating transactions to directly launch the product. Could this be a "cloud service" aimed at Web3 products?

At least that's what EigenLayer thinks. The logic of providing transaction verification mentioned above refers to what we commonly call AVS, Active Verification Service. Literally interpreting "Active Verification" means that EigenLayer can offer different verification functions executed according to customer requirements. For example, the verification logic of Layer 1 may be the most complex, while Layer 2 may default to the validity of transactions and then execute challenges subsequently to ultimately confirm the transactions. Oracles may require some mechanisms to ensure the authenticity of the data being fed. These are all distinctions in the matter of "verification." Even for L1, different consensus mechanisms will have different designs in terms of verification, while other aspects may be relatively unified.

The above may be a relatively simple explanation of AVS, and we will not delve into overly detailed technical aspects here. EigenLayer initially focuses on "re-staking," allowing users to stake their Ethereum or Ethereum's LST tokens to EigenLayer, using them as collateral to provide validation services for new products. Consider this from a security perspective: for example, if EigenLayer provides a validation node with collateral worth 100 million dollars for a new product, then the attacker's cost would need to exceed 100 million dollars, assuming they cannot breach EigenLayer, similar to the so-called 51% attack in the Bitcoin and Ethereum networks.

In a recent article, EigenLayer elaborated on the working principle of AVS: the state is generated by EigenLayer, transmitted to the contract of the target product or chain in some way, and the off-chain computation included in the state ultimately needs to be verified on Ethereum.

EigenLayer also stated that Eigen Labs is developing a multi-chain validation solution for utilizing the EigenLayer state transmitted via RPC. This article analyzes the implementation of AVS in various environments using shared sequencer, SVM environment, and Cosmos application chains as examples. In addition, EigenLayer also plans to add more development components in the future to help developers more easily launch products or services.

Becoming the Amazon of the "Web3 Cloud" space may be EigenLayer's goal and a16z's expectation. From the perspective of feasibility, there is indeed considerable room for development, but is that really the case?

Is there enough demand in the Web3 market?

The feasibility of EigenLayer's vision actually depends on whether there will be enough projects in the future Web3 space that can and are willing to use AVS. According to the current information on the official website, there are nearly 40 supported AVS, with about 30 of them backed by re-staking assets valued at over $100 million, but the specific yield rates are currently unknown.

From the author's perspective, it is undoubtedly true that there will be a resurgence of flourishing projects in the future; the key issue is when this day will come. Compliant RWA and stablecoin projects may not easily choose external validators, and will rely more on the growth of the native ecosystem. However, the crux of Web3 right now seems to be that there are no new scenarios apart from finance. Most users are here to make money, not to spend it.

If Web3 is only a game of shifting finance from one hand to the other, then EigenCloud's ceiling will be very limited. The explosion on the application side must continuously meet various demands, such as Web2 applications satisfying needs for shopping, entertainment, socializing, etc., which have given rise to tens of thousands or even hundreds of thousands of applications. Web3 is not a revolutionary technological advancement like the internet; at best, it is a new module built on top of the internet. Apart from attempts to "redo everything in Web3" and the so-called attempts to change collaborative methods, aside from constantly issuing new assets, how many products that need to prioritize security in the early stages will truly determine the height of EigenCloud's development.

Non-financial applications serving consensus security.

The core of EigenCloud is to directly extend the security established by Ethereum over the years to any product based on its AVS, ultimately putting off-chain computations on Ethereum for verification, which means using Ethereum as the underlying guarantee for all products. This is actually similar to the operating systems of cloud products in Web2.

EigenCloud's vision for the cloud cannot be considered innovative, but the idea of using Ethereum's security as the underlying layer, without designing for decentralization just for the sake of decentralization, and not using its own issued token as a means of payment, provides a new design approach for native products. At the same time, it serves as an excellent model for non-financial projects.

Finance was first introduced to Web3 because blockchain is inherently a ledger, a "sanctuary" for asset issuance. Stablecoins and applications like RWA tokenization have already gained mainstream acceptance, but the ceiling for asset issuance and trading is clearly visible. If applications in non-financial fields, like the once popular TON mini-games, can be accepted like stablecoins, then the ceiling for EigenCloud can be raised exponentially. I believe EigenLayer is also motivated to drive the arrival of such an era and will share the design experience of EigenCloud, which is itself a non-financial native product.