Restaking
Last updated
Last updated
Restaking is an innovative crypto primitive introduced by EigenLayer that enables the reuse of ETH staked on the Ethereum beacon chain to secure new protocols and generate additional revenues for restakers in the process. Restaking has evolved from traditional staking and liquid staking. YieldNest is a Liquid Restaking protocol.
Restakers, EigenLayer’s crypto-economic security providers, can restake or deposit their native ETH or any token (L1) into EigenLayer’s smart contracts and delegate it to operators. Operators are entities that specialize in running AVS software and providing various validation and security services to AVSs. In return for providing crypto-economic security, restakers can earn an additional yield—on top of the native ETH yield from staking on the beacon chain—from various AVSs simultaneously.
Currently, there are two types of restaking methods enabled on EigenLayer:
Native Restaking: Native restakers who run Ethereum validators can restake on EigenLayer by setting their withdrawal credentials to the so-called Eigenpod, a smart contract deployed on a per-user basis to facilitate native restaking. This type of restaking is significantly more demanding than liquid restaking due to the technical knowledge and the minimum of 32 ETH required for running an Ethereum validator.
Restaking: Restakers who hold any ERC20 token can restake by depositing them into the EigenLayer protocol. This method offers higher flexibility to restakers as it eliminates the minimum 32 ETH requirement and the need for restakers to run the validators themselves.
Restaking allows for Ethereum’s crypto-economic security to be exported to other protocols that need it but can’t necessarily afford to build their own consensus mechanism and validator networks. Naturally, this novel primitive offers many advantages to both the restakers and the protocols that leverage it (AVSs) while also raising some concerns.
Higher Yields: Restakers can earn additional revenue from multiple AVSs in addition to the ETH staking rewards. For example, a restaker could earn 4% APY for securing AVS X and 5% APY for securing AVS Y on top of the current 3% staking rewards for securing Ethereum, for a total of 12% APY.
Improved Security: Restaking allows new protocols to utilize Ethereum’s unmatched security and distributed validator set in a relatively simple, safe, and inexpensive manner. For AVSs, tapping into Ethereum’s crypto-economic security is almost always a better alternative than building out their own security from scratch.
Faster Innovation: The above also leads to much faster innovation as new protocols no longer need to bootstrap their own validator networks and security, which is a very expensive and time-consuming process.
Complexity: Restaking introduces another layer of complexity to Ethereum’s consensus mechanism, potentially raising the burden on Ethereum validators by increasing smart contract and slashing risks.
Centralization: EigenLayer could potentially impose additional computational demands on Ethereum validators, leading to greater centralization.
Opportunity Costs: Unlike liquid staking, restaking with EigenLayer is illiquid, meaning that restakers potentially miss out on better investment opportunities. For example, restakers can’t lend or use their restaked ETH as collateral on decentralized money markets.
Complex Slashing Conditions: From a restaker’s perspective, restaking often involves securing multiple AVSs with vastly different reward and slashing conditions. This makes conducting proper risk assessment and due diligence significantly more challenging for amateur restakers, increasing their risk of getting slashed.
An Actively Validated Service (AVS) can be any protocol that requires its own decentralized validation mechanism. This could be anything from a rollup or a sidechain to a decentralized price oracle network.
The value proposition of becoming an AVS lies in the simplicity, cost-effectiveness, bootstrapping speed, and, ultimately, greater security that protocols can achieve compared to the conventional method, where they source their own security by issuing tokens to incentivize validator participation.
Consider a decentralized RPC provider, as a real-world example. It developed an innovative method for submitting RPC nodes in a decentralized manner, enabling the use of decentralized RPC endpoints. However, instead of concentrating on its primary mission, it first had to create an entire decentralized validator set named Blast. If a decentralized RPS provider had been developed as an AVS on EigenLayer, it could have skipped this expensive and time-consuming process and instead leveraged Ethereum’s already established and unprecedently decentralized validator network, allowing it to direct all of its resources towards its core objective. Becoming an AVS would have saved the decentralized RPC time and money and ultimately yielded it better security.
In EigenLayer, operators are specialized entities (individuals or organizations) that opt to provide a range of services, including running validators, to AVSs, enhancing the security and overall reliability of their networks.
Similar to how Ethereum validators must stake ETH to participate in securing the Ethereum network, EigenLayer operators must pledge staked ETH (restake) or other ERC20 tokens to run AVSs’ software and secure their networks.
EigenLayer operators can—but don’t necessarily have to—be restakers. They can either restake their own ETH or receive token delegations in the form of native ETH or ERC20 tokens from other restakers in the network. In the latter case, they play a similar role to staking-as-a-service providers on Ethereum, where they run the validators or AVS software using restakers’ staked ETH instead of their own.
The best way to understand the difference between operators and restakers in EigenLayer is to consider operators as technical service providers and restakers as crypto-economic security providers. The operators run the actual AVS software and validators, while the restakers provide the capital needed to run the validators.
To that point, operators can provide technical services to multiple AVSs simultaneously, reusing the same staked ETH as collateral, or other ERC20 tokens, which is why this process is called restaking. This allows them to earn revenues from multiple sources or AVSs simultaneously. However, like staking-as-a-service providers on Ethereum, operators siphon most of the income earned from AVSs to the crypto-economic security providers or restakers while keeping only a small portion for themselves as compensation for their technical services.
When operators opt to secure an AVS, they’re subject to the slashing conditions determined by that specific AVS. This means they risk losing their stake and rewards if found guilty of misconduct while providing the technical services to the AVSs, highlighting the importance of diligent delegation for restakers.
EigenLayer offers a dynamic marketplace where AVSs and operators engage in mutually beneficial partnerships. Operators assess the incentives and risks associated with securing AVSs, while AVSs evaluate operators based on their experience and reputation. This free-market approach promotes transparency and accountability, ensuring the integrity of the ecosystem.
