Actively Validated Services (AVSs) are a critical component in ensuring the reliability and security of blockchain networks.
Understanding the role of AVSs in the blockchain ecosystem
Over the years since its genesis, thousands of apps and tokens have been launched on Ethereum, giving it a significant first-mover and network advantage. As the network grew in popularity, demand for additional services and functionality, such as access to off-chain data, additional data storage, or faster processing, also increased. Ethereum itself became slower and more expensive under the weight of congestion, creating further demand for scalability.
Thus, as the Ethereum dApp ecosystem has grown, the supporting infrastructure that’s able to interact with the ecosystem has also developed. Examples include Layer 2s and side chains, oracles, bridges, privacy protocols, and more.
However, to preserve decentralization, many projects set up their consensus mechanisms from scratch, which created fragmentation. These networks inevitably operate with a small number of nodes, making them easy targets for attacks. Fragmentation doesn’t serve Ethereum either since it can draw value away from staked ETH.
These external utilities or infrastructural services may not be able to access Ethereum’s security in the same way as dApps can, but dApps can benefit significantly from features, such as interoperability or access to off-chain data, that these services provide.
This is where actively validated services come in. AVSs are services that can tap into the underlying security of Ethereum’s proof of stake consensus to ensure active validation of transactions within their own services. Sharing security in this way overcomes the challenges of fragmentation while preserving decentralization.
This development came about thanks to an innovation known as restaking, pioneered by EigenLayer.
What is restaking?
Restaking is a process whereby those who participate in Ethereum’s proof of stake consensus can “restake” the same tokens on another network. Effectively, the same set of tokens are used to participate in the security of several networks simultaneously. The concept is similar to that of rehypothecation in traditional finance, where collateral provided for the purposes of a loan is used to secure credit for the loan issuer.
From the perspective of the staker, this is capital-efficient since the tokens could generate several sets of rewards concurrently. Therefore, there is a significant incentive for Ethereum stakers to participate in restaking, since there are low barriers for potentially high rewards.
The key risk for stakers is in slashing rewards. When a validator (or operator, as they are called in restaking networks) doesn’t act in the interests of the network, their stake may be “slashed.” Since many people participate in staking indirectly using liquid staking pools, this risk may not be within the control of the staker.
AVSs operate on the other side of the incentive as services willing to pay restakers for the opportunity to tap into Ethereum’s cryptoeconomic security.
Restaking was pioneered by EigenLayer, which launched in June 2023. Within a year of launch, the project had over $20 billion of restaked ETH locked into its mainnet, providing security to many different types of AVSs that had chosen to build on EigenLayer.
Since EigenLayer launched, the popularity of restaking has drawn several other projects to develop competing iterations of the same concept. Two examples are Symbiotic and Karak.
Types of AVSs
There are many different types of Actively Validated Services operating in crypto currently, providing a wide array of functionality to the Ethereum ecosystem.
Data availability layers
Data availability layers exist to solve the challenge of data availability in the Ethereum ecosystem. Over time, the amount of transaction data processed by the Ethereum base layer is increasing, while data held on Layer 2 ecosystems is becoming more fragmented. Data availability layers provide a decentralized off-chain solution for data storage that ensures it is reliably available at all times of need.
One example of a data availability AVS is EigenDA.
Interoperability protocols
Bridges and interoperability protocols play a crucial role in the ability to move assets and data between different sovereign blockchain networks. However, as independent protocols with their own rules, they once became popular targets for attackers. The shared security of restaking is, therefore, an important development for blockchain interoperability.
Hyperlane and Omni Network are both interoperability frameworks based on EigenLayer.
Oracle networks
Oracle networks are necessary for the operation of any dApp that relies on off-chain data – most typically, price and market data or random number generation. Decentralized oracle networks source this data from an array of off-chain sources so it can be cross-checked and verified by a network as genuine.
Eoracle is an oracle network running as an AVS.
Settlement and consensus layers
Settlement and consensus layers can be set up as an AVS to benefit from the shared security, incentives, and reduced fragmentation that it offers compared to operating a standalone consensus. This gives freedom to developers to choose from a wide array of solutions that suit different use case demands, considering factors such as speed, fees, security demands, and more.
AltLayer Mach and Ruffle Fast Finality Layer are examples of consensus and settlement layers operating on EigenLayer.
Actively Validated Services essentials
- Actively Validated Services (AVSs) are blockchain protocols and applications that require their own consensus layer to operate, such as bridges, oracles, Layers 2s and side chains, and data availability networks.
- AVSs leverage Ethereum’s crypto-economic security via a process known as restaking, pioneered by EigenLayer, a leading AVS protocol.
- Restaking provides additional incentives to stakers while sharing Ethereum security reduces the risk of protocol hacks and fragmentation of value throughout the blockchain ecosystem.