The Next Evolution in Slashing: Redistribution Coming to EigenLayer

What is Redistribution?

Redistribution is the next phase of EigenLayer’s Slashing upgrade.  AVSs will soon be able to repurpose and distribute slashed funds according to their use case, instead of burning them. This is an expressive change for slashing, opening up new use cases–such as lending and insurance protocols– by enabling fund redistribution when commitments are broken or conditions change, like a liquidation or user reimbursement. Redistribution specifically benefits AVSs that need increased liquidity and stronger risk management capabilities. 

Does redistribution change anything from EigenLayer’s latest slashing release?

Redistribution adds new capabilities to EigenLayer’s Slashing upgrade by enabling fund repurposing rather than just burning. It does not fundamentally change any other slashing mechanisms and uses much of the same architecture and code pathways. With this new redistribution upgrade, AVSs can now determine a redistribution recipient that receives the slashed funds. 

Key Reminders:

• Fully opt-in for AVSs and Operators: Like all slashing condition features, redistribution is opt-in only for AVSs and Operators. AVSs can choose to enable redistribution, then Operators choose whether to accept these conditions. Stakers can decide to delegate to Operators who run redistribution, but the Operators make the choice of which AVSs to run.
• Asset compatibility: For the first release of Redistribution, all non-ETH assets, including LSTs, EIGEN, USDC, and AVS tokens, can be used for redistribution. ETH will not be eligible for redistribution yet. 

Timing & Process:

Testnet:

• May - Redistribution is live on Holesky, Sepolia, and Hoodi Testnets.

Mainnet:

• June - Redistribution will be live on mainnet for AVSs to begin using.

What Can Each User Group Expect?

AVSs & Service Builders

The Opportunity:

Redistribution creates new possibilities for AVSs to build  advanced use cases on EigenLayer. This feature extends the Slashing upgrade, allowing AVSs to not only penalize Operators for missed commitments but also strategically redirect those funds. AVSs can now design systems that potentially reward reliable Operators using funds from those who underperform. 

How AVSs Can Best Prepare:

Redistribution is fully opt-in for AVSs. If they do choose to opt in, each AVS should plan to take certain security and risk management measures, such as:

• Key Management: Follow industry best practices for securing keys. An attacker that gains access to AVS keys on the `slasher` and `redistributionRecipient` can drain the entirety of the Operator and Staker allocated stake for a given Operator Set.
• Incentive Design: Redistribution modifies the incentive to slash by the AVS, so when leveraging this feature, AVSs need to carefully consider incentives in their designs. When designed appropriately, AVSs gain more liquid stake and can create balanced risk-reward structures that properly compensate Operators for the increased risk they accept.
• Commitments & Immutability: With both of the above in mind, AVSs should consider how they can make commitments about the safety of their designs, like immutable contracts, vetoable slashes, multi-sig architecture, fixed slashing conditions, and more. 

Operators

The Opportunity:

Redistribution gives Operators more choice of AVS use-cases to run. Operators can better align their risk profiles with compatible AVSs–specifically choosing whether to work with those that redistribute slashed funds rather than burn them.  This strategic alignment creates potential for higher rewards when services run successfully. The protocol will provide meta-data and legibility around which AVSs are using redistributable slashing so Operators (and their Stakers) can make the right decisions.

How Operators Can Best Prepare:

Operators can decide to opt in to AVSs with redistributable slashing conditions. When doing so, they should:

• Prioritize security: Like AVSs, Operators must focus on key management and op-sec when running any redistributable AVS. A compromise in an Operator key could cause a malicious actor to register for a malicious AVS, and slash and redistribute allocated Staker funds to some address. Operators could suffer potentially irreparable reputational damage and distrust from Stakers. 
• Consider profile implications: Operator metadata will identify them as `Redistributable` when participating in any redistributing Operator Sets. This transparency helps Stakers assess risk, but might affect an Operator's staking appeal. Operators should weigh this profile change against the potential for higher rewards from protocols with different risk/reward structures.

Stakers

The Opportunity: 

Stakers gain deeper insight into AVS and Operator priorities by seeing who adopts the redistribution feature. Stakers will be able to participate by delegating to Operators that opt in to AVSs that have enabled redistributable slashing. Stakers can now evaluate Operators based on which AVSs and Operator Sets they join, particularly noting their exposure to redistributable slashing. This transparency helps Stakers choose Operators whose risk tolerance matches their own preferences and rewards that appropriately compensate that risk. 

How Stakers Can Best Prepare: 

• Evaluate risk/reward profiles: Stakers should carefully consider the protocols that their delegated Operators are running, and consider the risk and reward trade-offs. Redistributable Operator Sets may offer higher rewards, but these should be considered against the increased slashing risks. While Operators may get slashed, it’s Stakers’ funds that are being impacted. 
• Consider security implications: Additionally, Stakers are potentially at risk from malicious AVSs and Operators. If the AVS’s governance or its slashing functionality is corrupted, an attacker may be able to drain Operator-delegated funds. If an Operator itself is compromised, it may stand up its own AVS to steal user funds. Stakers should carefully consider the reputation and legitimacy of Operators when making delegations. These attack scenarios are outlined in more detail here.

Resources & How to Get Involved

We value our community’s input into our protocol updates and proposals. Please review our resources and provide feedback on the ELIP.

• Read the Redistribution ELIP and comment on our Discussion Post.
• Reach out with questions on Discord.
• Track our ongoing Protocol Updates on Forum.