EigenLayer unveils rewards v2 and slashing for 2025
The content in this post is for informational purposes only and should not be considered financial advice or a solicitation to buy or sell any financial products.
EigenLayer, the leading restaking protocol by TVL, is preparing two major upgrades to offer more granularity in reward distribution granularity and introducing slashing capabilities.
This article explores these upcoming upgrades in detail and examines their potential impact on the restaking ecosystem.
This upgrade is a highly requested enhancement to existing EigenLayer Rewards distribution system released in 2024.
Rewards v2 introduces improved flexibility in the way rewards are accounted for, distributed, and claimed. Below are the key changes expected with the release of ELIP-001 in early Q1, based on the current testnet implementation:
Rewards v2 introduces enhanced flexibility in reward flows between AVSs, operators, and stakers, paving the way for a more equitable and sustainable distribution system.
While these improvements make restaking more attractive for operators, the addition of slashing mechanisms is essential to ensure the long-term viability of the ecosystem for AVSs. Without slashing, operators have no economic stake at risk, reducing the incentive for AVSs to distribute rewards effectively and align operator performance with network goals.
The initial version of the EigenLayer security model allowed each Operator to opt into a subset of AVSs, with their entire delegated stake being slashable by any of those AVSs.
The current design introduced several challenges:
- Operators had limited control over their exposure slashing risks
- AVSs lacked assurance that sufficient slashable stake would be available when needed
- A protocol-wide protocol veto committee was required to mitigate systemic slashing risk, adding complexity and potential bottlenecks
- AVS onboarding had to remain permissioned to shield the veto committee from potential legal or social liabilities
In this section, we will explore how the slashing mechanism is being reengineered and analyze its implications for operators and stakers.
Timeline
ELIP-002 has been available on testnet since December 19th, with mainnet deployment proposed for late Q1 2025. While slashing represents a new protocol feature, EigenLayer itself does not make or enforce slashing decisions—each AVS independently determines when to enable and apply slashing.
Introducing a new restaking setup for operators
Eigen Labs has proposed a revamped restaking setup to introduce slashing, allowing operators to allocate a portion of their stake to specific AVS-requested tasks in exchange for rewards. This allocated portion is referred to as a Unique Stake, and operators working on the same task from AVS form an Operator Set.
The process works as follows:
- AVSs create an operator set for a specific task and define the assets required as economic security
- Operators request to allocate their Unique Stakes (assets) to the Operator Set
- AVSs can either manually approve these requests or use automated onchain logic for approval
The allocated Unique Stake defines the maximum amount that an AVS can slash if an operator fails to fulfill its assigned responsibilities.
Below is a visualization of restaking at scale.
Impact on stakers
When stakers delegate their assets, these are automatically allocated according to the operators' selected allocation percentages, making these assets immediately slashable.
- Operators can modify the allocations at any time without requiring the staker’s consent. However, there is a 14 day delay between an allocation change and its implementation, offering stakers some predictability.
- Stakers can request withdrawals of restaked assets at any time. After a 14-day exit queue period (increased from 7 days), the requested amount becomes unslashable and can be withdrawn.
EigenLayer does not enforce specific guidelines or standard logic for slashing. Instead, each AVS can design custom slashing policies by invoking the slashing function.
- AVSs can request a slashing event by providing evidence of operator misconduct, such as poor performance or task failures.
- When funds are slashed:
- For ERC-20s tokens, slashed funds are permanently locked by sending them on a 'dead' address (token burn)
- Natively restaked ETH, slashed funds are permanently locked in EigenPod contracts
- The outcome is that slashed funds become irretrievable, effectively "burning" the value to reinforce accountability
Rewards distribution
Rewards v2 introduces granular control over reward distribution
- AVSs can distribute rewards to specific Operator Sets, based on the complexity and effort required for their tasks
- Operators can set custom fees at an Operator Set level. If no custom fee are configured, rewards default to:
- AVS-level fee, or
- The global default of 10%
This system empowers AVSs to incentivize operators for their contributions.
How Kiln will handle AVS allocations
At Kiln, we are actively engaging with multiple AVSs to assess the risks associated with allocating staker delegations to specific AVSs.
- We expect gaining greater clarity by end of Q1 2025, as AVSs finalize their slashing implementation and establish Operator Sets along their corresponding reward structures.
- Kiln will focus on operator tasks that present the lowest operational risk while maintaining competitive restaking rewards for stakers.
- We will collaborate with our enterprise customers to design tailored restaking strategies that align with their specific risk-reward preferences, ensuring optimal outcomes for all stakeholders. Kiln is also offering white-label AVS operators for more advanced strategies.
Conclusion
The introduction of slashing conditions empowers AVSs to establish cryptoeconomic commitments, ensuring operators are held accountable with penalties for dishonest or inadequate task performance. Meanwhile, Rewards v2 simplifies the process of tracking and claiming rewards while enabling AVSs to fairly compensate operators and stakers for taking on additional slashing risks.
Together, these upgrades represent a significant step forward in EigenLayer's evolution into a more open and flexible protocol. AVSs and operators now have greater autonomy, with tools to tailor their participation and reward structures. However, the expanded range of options and lack of standardized guidelines for slashing may pose challenges in implementation and coordination between operators and AVSs.
Despite these complexities, these changes establish a robust foundation for a more sophisticated, transparent and secure restaking ecosystem.
Restaking with Kiln
Stakers can delegate asset to Kiln EigenLayer operator. For enterprise customers, we are offering white label services and APIs so you can offer restaking to your users following your own risk strategy, if you are interested or have any questions please reach out.
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