Why ‘Restaking’ Has Taken Over Social Media

IntermediateMay 07, 2024
The restaking protocol offers new solutions to many issues and is an important narrative within the liquidity staking derivative track. The following article briefly discusses ‘restaking’, as well as some underlying implementations and security risks.
Why ‘Restaking’ Has Taken Over Social Media

TL;DR

The restaking protocol proposed by EigenLayer has been receiving increasing attention recently. It offers new solutions to many issues and is an important narrative within the liquidity staking derivative track. The following article briefly discusses ‘restaking’, as well as some underlying implementations and security risks.

EigenLayer Protocol

Staking and Liquid Staking

Ethereum’s staking refers to users locking their ETH into the Ethereum network to support its operation and security. In Ethereum 2.0, this staking mechanism is part of the Proof of Stake (PoS) consensus algorithm, which replaces the previous Proof of Work (PoW) mechanism. Users can become validators by staking ETH, participating in the block creation and confirmation process, and in return, they receive staking rewards.

Ethereum Staking and Validator Trends

This native staking method has many issues, such as requiring significant capital (32 ETH or multiples thereof), needing to provide hardware for the validation node and ensuring its availability, and the inflexibility of locked staked ETH.

Thus, Liquid Staking Derivatives (LSD) came into being, aiming to solve the liquidity issue in traditional staking. It allows users to obtain liquidity tokens representing their staking share (such as Lido’s stETH or Rocket Pool’s rETH) while staking their tokens. These liquidity tokens can be traded, borrowed, or used for other financial activities on other platforms. This way, users can participate in staking to earn rewards while maintaining the flexibility of their funds.

Liquid staking tokens are generally issued by the project and maintain a fixed exchange ratio with the original staked asset, such as Lido’s issue of stETH with a 1:1 exchange relation to ETH.

Popular Liquidity Staking Projects

Is liquidity the only issue with staking?
Clearly not. More and more middleware, DAs, cross-chain bridges, and oracle projects are adopting a node plus staking model of operation, which continuously decentralizes consensus. By airdropping and offering higher staking yields, they attract users away from larger consensus circles into their smaller circles. \
Additionally, for most startup projects, creating a PoS consensus network is difficult, and it’s not easy to convince users to give up other earnings and liquidity to participate.

Problems Solved by EigenLayer

Restaking is not about reinvesting earnings; these are entirely different things.

In the Ethereum consensus protocol, the core mechanism that constrains validating nodes is the slashing mechanism. EigenLayer’s proposed restaking protocol expands on this slashing logic, allowing many Actively Validated Services (AVS) to also write logic to punish malevolent actors, constrain behavior, and achieve consensus.

EigenLayer is an innovative protocol on Ethereum that introduces the Restaking mechanism, allowing for the reuse of Ethereum and Liquid Staking Tokens (LST) at the consensus layer. As of February 2024, the locked value on the EigenLayer protocol has reached $4.5 billion, with LSTs accounting for about 40%. Meanwhile, renowned investment firm a16z has just announced an investment of $100 million. Its ecosystem projects Renzo, Puffer, and others have also received investments from Binance, OKX, and more. These also signify its significant progress in improving Ethereum’s scaling infrastructure and enhancing crypto-economy security.

Locked value surpasses $4.5 billion

EigenLayer’s core function is to diversify the security of Ethereum. In the example below (from the whitepaper), three AVSs more easily gain consensus security due to greater fund volumes via the restaking protocol, without weakening the ETH Layer1:

EigenLayer centralizes consensus

EigenLayer includes three core components, which correspond to the three types of users in the restaking protocol:

  • TokenManager:Handles staker’s staking and withdrawal.
  • DelegationManager:Registers operators and tracks and manages their shares.
  • SlasherManager:Manages slashing logic, providing a punishment capability interface for AVS developers.

EigenLayer Simplified Architecture Diagram

From the figure, we can see the collaborative relationships between various roles:

  1. Stakers stake their LST through the TokenManager and earn extra revenue while also trusting the corresponding operators (this is no different from staking on Lido or Binance; the basis of an operator’s operation is gaining trust).
  2. Operators, once registered via the DelegationManager , receive LST assets to provide node services for projects that need AVS services, extracting gains from the project’s node rewards and fees.
  3. AVS developers implement some general or specific Slasher running on nodes, offered to projects (AVS demanders). These projects, such as cross-chain bridges, DAs, oracles, etc., purchase these services through EigenLayer to directly gain consensus security.

All roles can earn profits within the EigenLayer protocol, and overall, it is a ‘win-win-win’ situation with no loss.

How to Implement Restaking

To simplify the explanation of the implementation logic, Operator and DelegationManager are hidden, which slightly differs from the architecture diagram above.

Firstly, taking the restaking of liquid staking tokens as an example, the simplest TokenPool implementation only needs to fulfill three functions: staking, withdrawal, and slashing. The result implemented in Solidity is as follows:

contract TokenPool {
   // staking balance
   mapping(address => uint256) public balance;

   function stake(uint256 amount) public; // staking
   function withdraw() public;            // withdrawal

   // executing slashing logic
   function slash(address staker, ??? proof) public;
}

To horizontally expand the slash logic and provide a standard interface to AVS developers, the following modifications can be made. Multiple registered slashers can execute in sequence as demanded and appropriately reduce staked funds when malicious acts occur (similar to native staking).

contract Slasher {
   mapping(address => bool) public isSlashed;
   // implementing slashing logic
   function slash(address staker, ??? proof) public;
}
contract TokenPool {
   mapping(address => uint256) public balance;
   // managing registered slasher
   mapping(address => address[]) public slasher;

   function stake(uint256 amount) public;
   function withdraw() public;
   // registering slasher
   function enroll(address slasher) onlyOwner;
}

Registering a slasher is actually a rigorous process, only the slashing logic that has been reviewed can be accepted by EigenLayer and users. How to distribute staked tokens is another core issue.

Currently, EigenLayer supports 9 different types of liquid staking tokens (LSTs). It has implemented a higher-order TokenManager on top of the TokenPool:

contract TokenManager {
   mapping(address => address) tokenPoolRegistry;
   mapping(address => mapping(address => uint256)) stakerPoolShares;

   // staking stETH to stETHTokenPool
   function stakeToPool(address pool, uint256 amount);
   // withdrawing stETH form stETHTokenPool
   function withdrawFromPool(address pool);
   // ...
}

Thus far, we have been able to implement a simple LSD restaking contract. Consider a small question 🤔: Where do the slashed LSTs go (for example, 1 stETH)? Are they destroyed, or does EigenLayer deposit them into the treasury, or are they used for other purposes?

The principle of native restaking is easier to understand, but its execution is more complex, as the staked ETH resides on the Beacon Chain. The EigenLayer protocol functions as a smart contract on Ethereum’s execution layer, utilizing oracles to access data from the consensus layer (such as node validator balances). This part can be referenced in the contract implementation:

Eigenlayer-Contract

The Bursting Restaking Ecosystem

Since 2023, the narrative of restaking has become increasingly profound, with many projects building on the EigenLayer protocol to create upper-layer wrappers and seeking consensus and security through the protocol. Below are a few popular projects:

Puffer Finance (pufETH) is a liquidity restaking protocol based on EigenLayer. It aims to lower the entry threshold for individual stakers, focusing on the ‘native staking’ area within EigenLayer, such as reducing the minimum requirements for node operators from 32 ETH to 2 ETH.

Puffer emphasizes a remote signing tool called Secure-Signer, which is a module in the validator that allows key management and signing logic to be moved outside the consensus client. Secure-Signer runs on TEE devices like Intel SGX, providing validators with stronger key security and slashing protection guarantees.

As the only project to receive investments from both Binance and EigenLayer, Puffer is also quite popular among ordinary investors. We can also participate in Puffer staking to receive pufETH and a certain amount of points.

The Flywheel between Stakers and NoOps

Renzo Protocol is a high-level wrapper for the Strategy Manager within the EigenLayer protocol. Its goal is to protect AVS and offer higher staking rewards. Based on the principles of EigenLayer, we know that slashing logic is provided by AVS developers, and the combination strategies among these AVSs will become complex as their numbers grow. Renzo provides protection for node operators and AVS developers through a layer of packaging.

Renzo has also received investments from OKX Ventures and Binance Labs this year. It is believed that in the upcoming restaking track, it will be an important player.


Renzo Protocol Architecture

EigenPie is a restaking protocol launched in partnership between MagPie and EigenLayer. The name is easily mistaken for an official project, but in fact, it is not strictly accurate. Earlier this year, EigenPie started its first round of staking point activities, where participants can triple benefit: EigenLayer points, EigenPie points, and IDO shares.

KelpDAO (rsETH) is a triple-reward restaking protocol based on EigenLayer. Like other ecosystem projects, KelpDAO focuses on the cooperative relationship between node operators and AVSs, providing high-level packaging to protect the interests and cooperation of both parties;

KelpDAO is a very important leading project in the restaking track that has not yet issued tokens, and the ‘loot army’ is also actively participating.

New Security Risks

Restaking, while bringing additional returns, also introduces greater risk exposure.

Firstly, the contract security risk of the restaking protocol itself. Funds for projects built on the EigenLayer protocol are mostly stored in their contracts. If the EigenLayer contract is attacked, both project and user funds could be at risk.

Next, restaking protocols have issued more LSTs, such as Puffer’s pufETH, KelpDAO’s rsETH, etc. Compared to traditional LSDs (like stETH), their contract logic is more complex and thus more likely to experience LST de-pegging or project RUGs leading to asset losses.

Apart from the EigenLayer protocol itself, most other Restaking protocols have not yet implemented withdrawal logic, so early adopters can only obtain some liquidity through the secondary market, possibly suffering from liquidity insufficiency.

Additionally, EigenLayer itself is still in the early stages (Stage 2), so some contract functions are not perfectly refined (like StrategyManager ), and early adopters should be aware of these risks.

Conclusion

Since 2023, the restaking track has been very hot, with many independent investors and investment institutions from the chain circle eagerly participating. Technically, EigenLayer’s restaking protocol brings new ideas to liquid staking, solving more problems.

On the other hand, the concept of restaking is still relatively new, and many restaking projects, including the EigenLayer protocol, are still in the early testnet phase, with opportunities and challenges coexisting.

Currently, the restaking track is dominated by EigenLayer alone, but it is expected that more projects will join in the future, exploring new modes of liquid staking and providing new consensus security solutions for projects.

As restaking protocols gradually rise, ZAN provides professional node services and auditing services for early restaking projects, helping them advance steadily in this promising field.

Recent explosive growth in TVL (Total Value Locked)

Disclaimer:

  1. This article is reprinted from [@zan.top/why-restaking-has-taken-over-social-media-3f2a871e7324">ZAN], All copyrights belong to the original author [jeason.eth]. 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.

Why ‘Restaking’ Has Taken Over Social Media

IntermediateMay 07, 2024
The restaking protocol offers new solutions to many issues and is an important narrative within the liquidity staking derivative track. The following article briefly discusses ‘restaking’, as well as some underlying implementations and security risks.
Why ‘Restaking’ Has Taken Over Social Media

TL;DR

The restaking protocol proposed by EigenLayer has been receiving increasing attention recently. It offers new solutions to many issues and is an important narrative within the liquidity staking derivative track. The following article briefly discusses ‘restaking’, as well as some underlying implementations and security risks.

EigenLayer Protocol

Staking and Liquid Staking

Ethereum’s staking refers to users locking their ETH into the Ethereum network to support its operation and security. In Ethereum 2.0, this staking mechanism is part of the Proof of Stake (PoS) consensus algorithm, which replaces the previous Proof of Work (PoW) mechanism. Users can become validators by staking ETH, participating in the block creation and confirmation process, and in return, they receive staking rewards.

Ethereum Staking and Validator Trends

This native staking method has many issues, such as requiring significant capital (32 ETH or multiples thereof), needing to provide hardware for the validation node and ensuring its availability, and the inflexibility of locked staked ETH.

Thus, Liquid Staking Derivatives (LSD) came into being, aiming to solve the liquidity issue in traditional staking. It allows users to obtain liquidity tokens representing their staking share (such as Lido’s stETH or Rocket Pool’s rETH) while staking their tokens. These liquidity tokens can be traded, borrowed, or used for other financial activities on other platforms. This way, users can participate in staking to earn rewards while maintaining the flexibility of their funds.

Liquid staking tokens are generally issued by the project and maintain a fixed exchange ratio with the original staked asset, such as Lido’s issue of stETH with a 1:1 exchange relation to ETH.

Popular Liquidity Staking Projects

Is liquidity the only issue with staking?
Clearly not. More and more middleware, DAs, cross-chain bridges, and oracle projects are adopting a node plus staking model of operation, which continuously decentralizes consensus. By airdropping and offering higher staking yields, they attract users away from larger consensus circles into their smaller circles. \
Additionally, for most startup projects, creating a PoS consensus network is difficult, and it’s not easy to convince users to give up other earnings and liquidity to participate.

Problems Solved by EigenLayer

Restaking is not about reinvesting earnings; these are entirely different things.

In the Ethereum consensus protocol, the core mechanism that constrains validating nodes is the slashing mechanism. EigenLayer’s proposed restaking protocol expands on this slashing logic, allowing many Actively Validated Services (AVS) to also write logic to punish malevolent actors, constrain behavior, and achieve consensus.

EigenLayer is an innovative protocol on Ethereum that introduces the Restaking mechanism, allowing for the reuse of Ethereum and Liquid Staking Tokens (LST) at the consensus layer. As of February 2024, the locked value on the EigenLayer protocol has reached $4.5 billion, with LSTs accounting for about 40%. Meanwhile, renowned investment firm a16z has just announced an investment of $100 million. Its ecosystem projects Renzo, Puffer, and others have also received investments from Binance, OKX, and more. These also signify its significant progress in improving Ethereum’s scaling infrastructure and enhancing crypto-economy security.

Locked value surpasses $4.5 billion

EigenLayer’s core function is to diversify the security of Ethereum. In the example below (from the whitepaper), three AVSs more easily gain consensus security due to greater fund volumes via the restaking protocol, without weakening the ETH Layer1:

EigenLayer centralizes consensus

EigenLayer includes three core components, which correspond to the three types of users in the restaking protocol:

  • TokenManager:Handles staker’s staking and withdrawal.
  • DelegationManager:Registers operators and tracks and manages their shares.
  • SlasherManager:Manages slashing logic, providing a punishment capability interface for AVS developers.

EigenLayer Simplified Architecture Diagram

From the figure, we can see the collaborative relationships between various roles:

  1. Stakers stake their LST through the TokenManager and earn extra revenue while also trusting the corresponding operators (this is no different from staking on Lido or Binance; the basis of an operator’s operation is gaining trust).
  2. Operators, once registered via the DelegationManager , receive LST assets to provide node services for projects that need AVS services, extracting gains from the project’s node rewards and fees.
  3. AVS developers implement some general or specific Slasher running on nodes, offered to projects (AVS demanders). These projects, such as cross-chain bridges, DAs, oracles, etc., purchase these services through EigenLayer to directly gain consensus security.

All roles can earn profits within the EigenLayer protocol, and overall, it is a ‘win-win-win’ situation with no loss.

How to Implement Restaking

To simplify the explanation of the implementation logic, Operator and DelegationManager are hidden, which slightly differs from the architecture diagram above.

Firstly, taking the restaking of liquid staking tokens as an example, the simplest TokenPool implementation only needs to fulfill three functions: staking, withdrawal, and slashing. The result implemented in Solidity is as follows:

contract TokenPool {
   // staking balance
   mapping(address => uint256) public balance;

   function stake(uint256 amount) public; // staking
   function withdraw() public;            // withdrawal

   // executing slashing logic
   function slash(address staker, ??? proof) public;
}

To horizontally expand the slash logic and provide a standard interface to AVS developers, the following modifications can be made. Multiple registered slashers can execute in sequence as demanded and appropriately reduce staked funds when malicious acts occur (similar to native staking).

contract Slasher {
   mapping(address => bool) public isSlashed;
   // implementing slashing logic
   function slash(address staker, ??? proof) public;
}
contract TokenPool {
   mapping(address => uint256) public balance;
   // managing registered slasher
   mapping(address => address[]) public slasher;

   function stake(uint256 amount) public;
   function withdraw() public;
   // registering slasher
   function enroll(address slasher) onlyOwner;
}

Registering a slasher is actually a rigorous process, only the slashing logic that has been reviewed can be accepted by EigenLayer and users. How to distribute staked tokens is another core issue.

Currently, EigenLayer supports 9 different types of liquid staking tokens (LSTs). It has implemented a higher-order TokenManager on top of the TokenPool:

contract TokenManager {
   mapping(address => address) tokenPoolRegistry;
   mapping(address => mapping(address => uint256)) stakerPoolShares;

   // staking stETH to stETHTokenPool
   function stakeToPool(address pool, uint256 amount);
   // withdrawing stETH form stETHTokenPool
   function withdrawFromPool(address pool);
   // ...
}

Thus far, we have been able to implement a simple LSD restaking contract. Consider a small question 🤔: Where do the slashed LSTs go (for example, 1 stETH)? Are they destroyed, or does EigenLayer deposit them into the treasury, or are they used for other purposes?

The principle of native restaking is easier to understand, but its execution is more complex, as the staked ETH resides on the Beacon Chain. The EigenLayer protocol functions as a smart contract on Ethereum’s execution layer, utilizing oracles to access data from the consensus layer (such as node validator balances). This part can be referenced in the contract implementation:

Eigenlayer-Contract

The Bursting Restaking Ecosystem

Since 2023, the narrative of restaking has become increasingly profound, with many projects building on the EigenLayer protocol to create upper-layer wrappers and seeking consensus and security through the protocol. Below are a few popular projects:

Puffer Finance (pufETH) is a liquidity restaking protocol based on EigenLayer. It aims to lower the entry threshold for individual stakers, focusing on the ‘native staking’ area within EigenLayer, such as reducing the minimum requirements for node operators from 32 ETH to 2 ETH.

Puffer emphasizes a remote signing tool called Secure-Signer, which is a module in the validator that allows key management and signing logic to be moved outside the consensus client. Secure-Signer runs on TEE devices like Intel SGX, providing validators with stronger key security and slashing protection guarantees.

As the only project to receive investments from both Binance and EigenLayer, Puffer is also quite popular among ordinary investors. We can also participate in Puffer staking to receive pufETH and a certain amount of points.

The Flywheel between Stakers and NoOps

Renzo Protocol is a high-level wrapper for the Strategy Manager within the EigenLayer protocol. Its goal is to protect AVS and offer higher staking rewards. Based on the principles of EigenLayer, we know that slashing logic is provided by AVS developers, and the combination strategies among these AVSs will become complex as their numbers grow. Renzo provides protection for node operators and AVS developers through a layer of packaging.

Renzo has also received investments from OKX Ventures and Binance Labs this year. It is believed that in the upcoming restaking track, it will be an important player.


Renzo Protocol Architecture

EigenPie is a restaking protocol launched in partnership between MagPie and EigenLayer. The name is easily mistaken for an official project, but in fact, it is not strictly accurate. Earlier this year, EigenPie started its first round of staking point activities, where participants can triple benefit: EigenLayer points, EigenPie points, and IDO shares.

KelpDAO (rsETH) is a triple-reward restaking protocol based on EigenLayer. Like other ecosystem projects, KelpDAO focuses on the cooperative relationship between node operators and AVSs, providing high-level packaging to protect the interests and cooperation of both parties;

KelpDAO is a very important leading project in the restaking track that has not yet issued tokens, and the ‘loot army’ is also actively participating.

New Security Risks

Restaking, while bringing additional returns, also introduces greater risk exposure.

Firstly, the contract security risk of the restaking protocol itself. Funds for projects built on the EigenLayer protocol are mostly stored in their contracts. If the EigenLayer contract is attacked, both project and user funds could be at risk.

Next, restaking protocols have issued more LSTs, such as Puffer’s pufETH, KelpDAO’s rsETH, etc. Compared to traditional LSDs (like stETH), their contract logic is more complex and thus more likely to experience LST de-pegging or project RUGs leading to asset losses.

Apart from the EigenLayer protocol itself, most other Restaking protocols have not yet implemented withdrawal logic, so early adopters can only obtain some liquidity through the secondary market, possibly suffering from liquidity insufficiency.

Additionally, EigenLayer itself is still in the early stages (Stage 2), so some contract functions are not perfectly refined (like StrategyManager ), and early adopters should be aware of these risks.

Conclusion

Since 2023, the restaking track has been very hot, with many independent investors and investment institutions from the chain circle eagerly participating. Technically, EigenLayer’s restaking protocol brings new ideas to liquid staking, solving more problems.

On the other hand, the concept of restaking is still relatively new, and many restaking projects, including the EigenLayer protocol, are still in the early testnet phase, with opportunities and challenges coexisting.

Currently, the restaking track is dominated by EigenLayer alone, but it is expected that more projects will join in the future, exploring new modes of liquid staking and providing new consensus security solutions for projects.

As restaking protocols gradually rise, ZAN provides professional node services and auditing services for early restaking projects, helping them advance steadily in this promising field.

Recent explosive growth in TVL (Total Value Locked)

Disclaimer:

  1. This article is reprinted from [@zan.top/why-restaking-has-taken-over-social-media-3f2a871e7324">ZAN], All copyrights belong to the original author [jeason.eth]. 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.
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