Original | Odaily Planet Daily

Author | Nan Zhi

Restaking is undoubtedly one of the hottest narratives in the past two years.

The top Ethereum restaking protocol EigenLayer TVL exceeds 770,000 ETH, and the open deposit window has reached the open limit in a very short time. Based on EigenLayer's restaking protocol, Renzo went online only three months ago, and the TVL has exceeded 100 million US dollars, with this growth mainly achieved in January this year.

What advantages does Renzo have to occupy a place in the Restaking track?

Restaking and EigenLayer

What is Restaking

The concept of Restaking was proposed by Eigenlayer founder Sreeram Kannan. Its core mechanism allows ETH and various LST to be restaked on other protocols or chains and participate in their verification process. EigenLayer directly connects Ethereum's security and liquidity through Actively Validated Services (AVS), allowing users to enjoy Ethereum's security without the need to establish a separate economic and verification system.

In short, EigenLayer is a token economic security leasing market.

Token economic security refers to the decentralized nature of various protocols to ensure effective operation, requiring network validators to participate in projects by staking tokens. If validators fail to fulfill their obligations, their staked tokens will be slashed.

As a platform, EigenLayer raises assets from LST holders and uses the raised LST assets as collateral to provide convenient and low-cost AVS services to demand-side entities such as middleware, application chains, and Rollups. EigenLayer matches service providers and has dedicated staking service providers responsible for specific staking security services.

Supply and demand sides of Restaking

Before the emergence of the Restaking model, if a project wanted to achieve secure startup and operation by building its own verification node network, it would incur high economic and time costs. The project would need to establish a network, issue tokens at a high valuation to meet the validator reward demand, validators would need to invest in hardware and stake initial tokens, leading to continuous incentive selling pressure.

Through Restaking, various protocols can reduce the cost of building their own trust network, enjoy sufficient security at a low cost, and adjust security levels according to their different development stage needs.

For LST providers (such as stETH, rETH, cbETH, etc.), through EigenLayer, they can not only receive native staking rewards but also further receive additional rewards from demand-side entities.

Renzo

What issues does EigenLayer face?

EigenLayer uses LST as collateral to protect AVS. However, this does not mean that the verification services of AVS can provide the same level of security as Ethereum. Ethereum's strong security is provided by its large number of nodes and ETH staking amount, which the node quantity and staking amount of the AVS purchased from EigenLayer cannot match. In short, the security provided by EigenLayer is limited.

In addition, the Renzo white paper points out the issue of allocation strategy at EigenLayer:

Users need to decide to protect one or more combinations of many AVS. The ideal situation is that users can protect all AVS 100%, the operator's behavior is honest, and the slashing risk is minimal. However, to establish a robust Restaking system, restakers must be able to quantify the slashing risk and choose to protect certain more favorable AVS while reducing participation in other less attractive AVS.

Renzo assumes a scenario with only 3 AVS, which would result in 7 allocation strategies:

① Protect only AVS A; ② Protect only AVS B; ③ Protect only AVS C; ④ Protect both AB; … ⑦ Protect all ABC simultaneously

With the increase of AVS, the choices will grow exponentially. There are 32,767 possible strategies for just 15 AVS running on EigenLayer. In addition, there are multiple factors to consider, including expansion requirements, security audits of AVS, and the economic model of AVS itself.

How does Renzo solve this?

Renzo stated that it abstracts the complex process of Restaking for end users, so restakers do not need to worry about the active selection and management of operators and reward strategies.

Renzo categorizes AVS risk into two types: slashing risk and liquidity risk, and builds an investment portfolio through quantitative calculations.

• Slashing risk: Calculate the maximum loss (MaxLoss) of protecting one or more AVS. The higher the maximum loss, the greater the strategy risk. This helps to determine the additional risk of protecting new AVS or to weigh the choice of one AVS over another with greater risk.

• Liquidity risk: Renzo defines a risk-adjusted reward ratio (RAR) to calculate by considering staking rewards, base costs, and maximum loss. Similar to the Sharpe ratio, it evaluates the performance of investments by calculating the return and risk of investments. Users would want to maximize the RAR of the investment portfolio and allocate more funds to AVS that improve RAR (i.e., provide higher returns and lower slashing risk).

Renzo stated that more details will be released in subsequent documents, but they are not currently public.

Financing situation

A week ago, the EigenLayer ecosystem liquidity restaking protocol Renzo announced the completion of a USD 3.2 million seed round financing, led by Maven11, with participation from SevenX Ventures, IOSG Ventures, Figment Capital, Bodhi Ventures, OKX Ventures, Mantle Ecosystem, Robot Ventures, Paper Ventures, and others. According to OKX Ventures, this is their first official investment project in the EigenLayer ecosystem.

Points program

On January 4th, Renzo announced the launch of the points program Renzo ezPoints. ezPoints aims to reward users who contribute to the protocol. The first way to earn points is by minting ezETH, which is Renzo's liquidity restaking token. It automatically earns rewards and ensures liquidity, allowing users to participate in DeFi while retaining restaking rewards. Users who provide liquidity to ezETH in DEX will also receive an additional multiplier reward in ezPoints.

In addition, Renzo stated that there is a limit on the amount of LST deposits in EigenLayer, but there is currently no limit on native ETH deposits. However, most users find it difficult to obtain because it requires users to own 32 ETH and run an Ethereum node integrated with EigenLayer to operate EigenPods. There is no limit to depositing tokens in Renzo, which has become one of the main factors for the explosive growth of Renzo's TVL.

Conclusion

EigenLayer completed a USD 50 million Series A financing in March last year, and each round of deposit limits quickly reached the hard cap. The unlimited deposits provided by Renzo offer users a smooth way to participate and receive multiple rewards from EigenLayer and Renzo. On the other hand, EigenLayer will not start protecting AVS until mid-2024, and the specific operational processes and details are still to be explored further; Renzo provides practical logic and method guidance for Restaking in addressing the fundamental token economic security allocation issues.

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