Summary

The development of Restaking is the result of the continuous upgrading of the staking track, and Restaking was first proposed by the founder of Eigenlayer.

The security sharing mechanism of Eigenlayer mainly relies on the two mechanisms of pooled security and open marketplace.

With the development of modularity, Eigenlayer contributes to the rapid, convenient, and low-cost deployment of applications for projects.

Why has Restaking emerged as a dark horse?

The development of the Restaking track is the result of the continuous upgrading of the staking track, which mainly originated from Ethereum's transition from POW to POS in September 2022. The purpose of staking on Ethereum is to allow users to become network validators by staking ETH, thereby ensuring the secure operation of the Ethereum network. The more network validators there are, the higher the security and decentralization of the Ethereum ecosystem, which can support the continuous development and growth of the ecosystem.

After Ethereum staking was introduced, in order to address the accompanying drawbacks of staking, liquidity staking became popular. The biggest drawback of Ethereum staking is the high threshold (32 ETH) and the lock-up period. To address these issues, derivatives of liquidity staking (LSD) form pools with ETH staked by retail users to meet the requirement of 32 ETH for Ethereum validation nodes, effectively reducing the participation threshold for users. In addition, when users deposit ETH into the staking pool, they will receive ERC-20 derivative tokens minted by the protocol at a 1:1 ratio (such as stETH issued by Lido), which have strong liquidity and support trading and redemption.

Simply put, Restaking involves staking assets that have already been staked, driven by the potential to receive staking rewards and project airdrops. In the real world, oracles, DeFi, DALayer, and others all require security. In the context of insufficient project funds, it is difficult to establish self-owned validation nodes. In this background, Eigenlayer first proposed the concept of Restaking to meet this demand. When projects use the security provided by Restaking, the market expects them to provide airdrop rewards.

How does the Restaking protocol Eigenlayer build a security sharing system?

Restaking was initially proposed by the founder of Eigenlayer, and it provides four Restaking modes:

1. Native Restaking: Ethereum base network validators can restake their staked ETH by directing the withdrawal certificate to EigenLayer contracts.

2. LST Restaking: Validators can restake their LST, where ETH has been restaked through protocols like Lido and Rocket Pool, transferring their LSD to EigenLayer smart contracts. Note: LST (Liquid Staking Token) refers to liquid staking tokens, such as stETH from Lido or CbETH from Coinbase.

3. ETH LP Restaking: Validators restake a pair of LP tokens, including ETH.

4. LST LP Restaking: Validators restake a pair of LP tokens, including the liquid staked ETH token, such as Curve's stETH-ETH LP token.

So, how does Eigenlayer achieve security sharing through Restaking? From the whitepaper, its implementation mechanism mainly relies on pooled security and open marketplace.

Pooled security mainly operates on the principle that Ethereum validators can set their beacon chain withdrawal certificates to EigenLayer smart contracts and choose to build new modules based on EigenLayer. These modules can impose additional reduction conditions on the ETH staked by validators who choose to join the module. In return, validators can receive rewards from the staked certificates and also earn additional income from projects using AVS (Active Validation Service).

Open marketplace governance: EigenLayer's open market mechanism is mainly used to manage how validators provide their pooled security and how AVS uses their pooled security. Validators can choose whether to join or exit each module built on EigenLayer. Each module needs to sufficiently incentivize validators to allocate re-staked ETH to their module, and considering the possibility of additional reduction, validators will help determine which modules are worth allocating additional pooled security. In other words, the original intention of open marketplace governance is to establish a competitive market decided by supply and demand, where validators can freely choose which protocols to serve based on their risk and return.

In addition, in terms of penalty mechanisms, Eigenlayer has significantly increased the cost of malicious attacks, and the entire penalty is executed by smart contracts, with the potential to penalize malicious investors up to 50% of their ETH.

Advantages and Potential Risks of Restaking

Eigenlayer has to some extent improved the efficiency of asset operation on Ethereum and extended the security consensus on the Ethereum main chain, which is very beneficial to the prosperity of the Ethereum ecosystem itself. Essentially, it provides SaaS services (or RaaS). With the competition of public chains, DApps are emerging one after another, and projects like Eigenlayer are expected to be welcomed by the market by providing Ethereum security consensus. However, from a risk perspective, Eigenlayer is still in the early stages of development and carries its own risks of failure. Overall, with the development of modularity, Eigenlayer's model is also imaginative and contributes to the rapid, convenient, and low-cost deployment of applications for projects.

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