EigenLayer’s reward system marked a key step in creating incentives for active participation within its ecosystem. While the Rewards MVP (v1) provided a foundational mechanism for stakers and operators to claim rewards, its limitations highlighted the need for a more flexible and efficient model. This is where Rewards V2 steps in.

With Rewards V2, EigenLayer addresses these shortcomings by introducing a system that better aligns incentives across AVSs, operators, and stakers. The upgrade includes key features like operator-directed rewards, allowing AVSs to tailor incentives to their specific needs, and variable operator fees, giving operators the freedom to set custom fee rates. Additionally, the introduction of batch-claiming reduces gas costs and simplifies the reward claiming process.

In this article, we’ll examine how Rewards V2 improves upon the MVP, its core innovations, and the broader impact it has on enhancing decentralization and security within the EigenLayer ecosystem. Let’s dive in!

A brief (re)introduction to EigenLayer

EigenLayer is an innovative protocol designed to unlock new possibilities for already staked assets within the Ethereum ecosystem. Traditionally, staked assets are tied to securing a single layer or project, limiting their potential. EigenLayer changes the paradigm by enabling these assets to restake, extending their use to secure additional protocols without requiring new tokens to be staked.

This restaking mechanism doesn’t just provide stakers with additional flexibility but also enhances the security and resilience of decentralized systems. By reusing the security guarantees of Ethereum, EigenLayer allows staked assets to contribute to the safety of other protocols, such as Actively Validated Services (AVSs), without compromising the integrity of the original layer.

Beyond security, restaking introduces opportunities for operators and stakers to align with multiple AVSs and protocols. Stakers can allocate their assets to specific operators and AVSs, actively contributing to their security while earning rewards based on their performance and stake allocation.

The proposal that revamps EigenLayer’s rewards structure—referred colloquially to as “Rewards V2” in this article—is ELIP-001. (“ELIP” is short for EigenLayer Improvement Proposal). We encourage checking out the proposal and subsequent proposal-related discussions over at the EigenLayer Forum.

Why rewards needed an upgrade: Addressing the challenges

EigenLayer’s rewards MVP (v1) was an important initial step in creating a reward system to incentivize participation within the ecosystem. It introduced foundational mechanisms to enable operators and stakers to claim rewards. However, as the protocol evolved and new use cases emerged, certain limitations became apparent.

One of the primary challenges in the MVP was the lack of flexibility in how rewards were distributed. The system operated on fixed rules that couldn’t adapt to the diverse needs of AVSs (Actively Validated Services) and operators. For example, all operators received rewards in a uniform manner, regardless of their individual contributions or performance, which restricted AVSs from implementing tailored incentives.

Additionally, the fixed fee structure for operators posed a barrier to broader adoption. Operators were limited to a default fee rate, which didn’t account for the varying operational costs or the need to attract more stake for specific AVSs. This lack of customization created inefficiencies in aligning incentives between operators, AVSs, and stakers.

Another notable issue was the inefficiency in reward claiming. Gas costs for claiming rewards individually were significant, making the process less appealing, especially for those involved in multiple AVSs.

To address these challenges, EigenLayer introduced Rewards V2, a significant innovation designed to enhance the flexibility, efficiency, and alignment of its reward system.

What’s new in rewards V2: Core innovations

Rewards V2 introduces a series of key upgrades to address the challenges identified in the rewards MVP (v1). These innovations aim to enhance flexibility, efficiency, and alignment within EigenLayer’s reward system, creating a more dynamic and user-friendly experience for AVSs, operators, and stakers alike. Here’s what’s new:

Operator-directed rewards:

• AVSs can now allocate rewards to specific operators based on custom logic, such as their performance, decentralization contributions, or other criteria defined by the AVS. This flexibility allows AVSs to tailor incentives, fostering a more dynamic and purposeful reward distribution model.

Variable operator fees:

• Operators are no longer restricted to a fixed fee rate. With Rewards V2, operators can set their own fees for each AVS, ranging from 0% to 100%. This change introduces economic flexibility, enabling operators to better align their fees with operational costs or to attract additional stake for specific AVSs. Fee changes are activated after a 7-day delay to ensure transparency.

Batch-claiming:

• Stakers and operators can now claim multiple rewards in a single transaction, significantly reducing gas costs. This improvement makes the reward claiming process more efficient, particularly for those managing multiple AVSs or large amounts of stake.

These innovations collectively enhance the usability and scalability of EigenLayer’s reward system. By building on the foundation established in the MVP, Rewards V2 delivers a more equitable and flexible mechanism that meets the diverse needs of the ecosystem, supporting the protocol’s overarching goals of decentralization and security.

Why it matters: Impact across the ecosystem

EigenLayer’s ELIP-001 brings meaningful improvements to how rewards are distributed, directly benefiting AVSs, operators, and stakers. By addressing the limitations of the MVP, rewards V2 creates a more dynamic and tailored incentive system for all participants.

For AVSs:

• Enhanced control over operator rewards, enabling better alignment with decentralization and security goals.

For operators:

• Greater economic freedom with customizable fee rates, encouraging participation in diverse AVSs.

For stakers:

• Improved transparency into AVS reward structures, allowing smarter and more strategic stake allocation.

This upgrade also addresses a key issue in traditional staking models, where rewards are proportional to stake size, often leading to centralization as larger stakers accumulate more power. With ELIP-001, AVSs can implement custom reward mechanisms, breaking this cycle and fostering a more decentralized, secure, and balanced environment for all participants.

How it works: Simplified mechanics

Rewards V2 introduces a streamlined and flexible way to distribute rewards within the EigenLayer ecosystem. Here’s how it works in simple terms:

AVSs define reward logic:

• Actively Validated Services (AVSs) set their own rules for distributing rewards, which can be implemented either off-chain or on-chain, depending on their needs. This could be based on operator performance, specific tasks completed, or other criteria that align with their goals.

Operators customize fees:

• Operators can adjust their fee rates for each AVS they support. These changes are signaled to stakers and the AVS, taking effect after 7 days, during which stakers have the opportunity to withdraw their stake if they choose.

Batch-claiming simplifies rewards:

• Stakers and operators can claim multiple rewards at once using a single transaction, saving both time and gas costs.

By allowing AVSs to tailor their reward logic, operators to adjust fees, and stakers to efficiently manage their claims, rewards V2 creates a flexible and balanced system that aligns with the needs of all participants. It’s designed to be user-friendly, fair, and adaptable.

Conclusion

EigenLayer’s rewards V2 represents a significant evolution in how incentives are structured within its ecosystem. By introducing operator-directed rewards, customizable fees, and batch-claiming, it addresses the key limitations of the MVP and creates a more dynamic, fair, and decentralized environment. These improvements not only empower AVSs, operators, and stakers but also set the stage for greater flexibility and innovation.

As EigenLayer continues to refine its systems, the introduction of Rewards V2 highlights its commitment to building a more secure and collaborative blockchain ecosystem. With these advancements, the future of staking and incentives on EigenLayer looks brighter and more inclusive than ever.

Disclaimer:

1. This article is reprinted from [2077 Research]. All copyrights belong to the original author [2077 Research]. If there are objections to this reprint, please contact the Gate Learn team, and they will handle it promptly.
2. Liability Disclaimer: The views and opinions expressed in this article are solely those of the author and do not constitute any investment advice.
3. Translations of the article into other languages are done by the Gate Learn team. Unless mentioned, copying, distributing, or plagiarizing the translated articles is prohibited.