Why has "re-staking" taken over social media?

Author: ZAN Team

The Restaking protocol proposed by EigenLayer has recently gained increasing attention, providing new solutions to many issues and serving as an important narrative in the liquid staking derivatives space. Below, we briefly discuss "Restaking," along with some related underlying implementations and security risks.

Staking and Restaking

Ethereum's Staking refers to users locking their ETH in the Ethereum network to support the operation and security of the network. 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. By staking ETH, users become Validators and participate in the creation and confirmation of blocks, earning staking rewards in return.

Ethereum Staking and Validator Trends

This native staking method has many issues, such as requiring a significant amount of funds (32 ETH or its multiples), needing to provide some hardware as a validation node and ensuring availability, and the locked ETH being inflexible.

Thus, Liquid Staking Derivatives (LSD) emerged to address the liquidity issues in traditional staking, allowing users to obtain liquidity tokens (such as Lido's stETH or Rocket Pool's rETH) that represent their staked share while staking tokens; these liquidity tokens can be traded, lent, or used for other financial activities on other platforms, enabling users to participate in staking for rewards while maintaining liquidity.

Liquid staking tokens are generally issued by project parties and maintain a fixed exchange ratio with the original staked asset, for example, the exchange relationship between Lido's stETH and ETH is 1:1.

Popular Liquid Staking Projects

Is liquidity the only issue with staking?

Clearly not. An increasing number of middleware, DAOs, cross-chain bridges, and oracle projects operate using a node + staking model, continuously decentralizing consensus and attracting users away from larger consensus circles into their smaller ones through airdrops and higher staking yields.

Moreover, for most initial projects, creating a PoS consensus network is challenging, and persuading users to give up other yields and liquidity to participate is not easy.

Problems Solved by EigenLayer

Restaking is not about yield compounding; these are two completely different matters.

In the Ethereum consensus protocol, the core mechanism constraining validation nodes is its slashing mechanism, while the core of the Restaking protocol proposed by EigenLayer is to extend the slashing logic in some way, allowing many Actively Validated Services (AVS) to write logic to punish malicious actors, constrain behavior, and achieve consensus.

EigenLayer is an innovative protocol on Ethereum that introduces the Restaking mechanism, allowing 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 LST accounting for about 40%; at the same time, the renowned investment firm a16z has just announced a $100 million investment, and its ecosystem projects Renzo, Puffer, etc., have successively received investments from Binance, OKX, and others. These also mark significant progress in improving Ethereum's benchmark infrastructure and enhancing the security of the crypto economy.

Locked value exceeds $4.5 billion

The core function of EigenLayer is to diversify the security of Ethereum. In the example below (from the white paper), three AVS have more easily obtained the consensus security brought by larger amounts of funding through the Restaking protocol, without weakening ETH Layer 1.

EigenLayer centralizes consensus

EigenLayer consists of three core components, corresponding to three types of users in the Restaking protocol:

• TokenManager: Handles staking and withdrawals for stakers.
• DelegationManager: Registers operators and tracks operator shares.
• SlasherManager: Manages slashing logic and provides punishment capability interfaces for AVS developers.

EigenLayer Simplified Architecture Diagram

From the diagram, the collaborative relationships between various roles can be clearly seen:

1. Stakers stake their LST through TokenManager and earn additional rewards, while stakers also trust the corresponding operators (this is no different from staking in Lido or Binance; the foundation of an operator's operation is trust).
2. Operators, after registering through DelegationManager, obtain LST assets and provide node services for projects needing AVS services, extracting profits from the rewards and fees provided by the projects.
3. AVS developers implement some general or special Slasher logic running on nodes for projects (AVS demanders) to use. These projects (such as cross-chain bridges, DAOs, or oracles) purchase such services through EigenLayer, directly obtaining consensus security.

Each role can earn profits within the EigenLayer protocol, creating an overall "win-win-zero-loss" situation.

How to Implement Restaking

For simplicity in explaining the implementation logic, the Operator and DelegationManager are hidden, differing slightly from the architecture diagram above.

First, let's take the Restaking of liquid staking tokens as an example. The simplest TokenPool implementation only needs to satisfy three functions: staking, withdrawal, and slashing, implemented in Solidity as follows:

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

    function stake(uint256 amount) public; // Staking
    function withdraw() public; // Withdrawal

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

To horizontally expand the slashing logic and provide a unified interface for AVS developers, the following modifications can be made. Registered multiple slashers will execute and pass through according to demand, appropriately reducing the staked amount in certain scenarios of misconduct (similar to native staking):

contract Slasher {
    mapping(address => bool) public isSlashed; // Implement slashing logic
    function slash(address staker, ??? proof) public;
}

contract TokenPool {
    mapping(address => uint256) public balance; // Manage already registered slashers
    mapping(address => address[]) public slasher;

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

Registering a slasher is actually a relatively strict process, and only reviewed slashing logic can be accepted by EigenLayer and users. How to allocate staking tokens is also another core issue.

Currently, EigenLayer supports nine different liquid staking tokens (LSTs), achieved by encapsulating a higher-level TokenManager on the TokenPool:

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

    // Stake stETH to stETHTokenPool
    function stakeToPool(address pool, uint256 amount);
    // Withdraw stETH from stETHTokenPool
    function withdrawFromPool(address pool);
    // ...
}

At this point, we can implement a simple LSD Restaking contract. Consider a small question: Where do the slashed LSTs (for example, 1 stETH) go? Are they destroyed, deposited into EigenLayer's treasury, or used for other purposes?

The principle of native Restaking is easier to understand but more complex to implement because the staked ETH resides on the Beacon Chain. The EigenLayer protocol runs as a smart contract on Ethereum's execution layer, leveraging oracles to obtain data from the consensus layer (such as validator balances, etc.). This part can refer to the contract implementation: https://github.com/Layr-Labs/eigenlayer-contracts/blob/master/src/contracts/pods/EigenPod.sol

The Emerging Restaking Ecosystem

Since 2023, the narrative around Restaking has deepened, with many projects building on the EigenLayer protocol and seeking to gain more consensus and security through it. Here are a few popular projects:

Puffer Finance (pufETH) is a liquidity Restaking protocol based on EigenLayer, aiming to lower the entry barrier for individual stakers, focusing on the "native staking" area within EigenLayer, such as reducing the minimum requirement for node operators from 32 ETH to 2 ETH.

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

As the only project currently invested in by both Binance and EigenLayer, Puffer is also quite popular among ordinary investors, and we can participate in Puffer staking to earn pufETH and certain points.

The flywheel between stakers and NoOps

Renzo Protocol is a high-level wrapper for the StrategyManager within the EigenLayer protocol, aimed at protecting AVS and providing higher staking yields. Through the principles of EigenLayer, we know that the slashing logic is provided by AVS developers, and the combination strategies among these AVS become more complex as their number increases. Renzo provides protection for node operators and AVS developers through a layer of encapsulation.

Renzo has also received investments from OKX Ventures and Binance Labs this year, and it is expected to be an important player in the Restaking space in the near future.

Renzo Protocol Architecture

EigenPie is a Restaking protocol launched in collaboration between MagPie and EigenLayer. This name can easily be mistaken for an official project, but it is not precise; earlier this year, EigenPie launched its first round of staking points activities, allowing participants to gain three benefits at once: EigenLayer points, EigenPie points, and IDO shares.

KelpDAO (rsETH) is a triple-yield Restaking protocol based on EigenLayer. Like other ecosystem projects, KelpDAO focuses on the collaborative relationship between node operators and AVS, providing some advanced packages to protect the interests and collaboration of both parties.

KelpDAO is a very important top-tier unlaunched project in the Restaking space, and the yield farming community is actively participating.

New Security Risks

Restaking not only brings additional yields but also introduces greater risk exposure.

First, there are security risks associated with the contracts of Restaking protocols. The funds of projects built on the EigenLayer protocol are primarily held in its contracts; if the EigenLayer contract is attacked, both project funds and user funds may be at risk.

Secondly, Restaking protocols have issued more LSTs, such as Puffer's pufETH and KelpDAO's rsETH, which are more complex in contract logic compared to traditional LSDs (like stETH), making them more susceptible to asset losses due to LST de-pegging or project rug pulls.

Apart from the EigenLayer protocol itself, most other Restaking protocols have not yet implemented withdrawal logic, meaning early participants can only obtain some liquidity through secondary markets, which may lead to losses due to insufficient liquidity.

Moreover, EigenLayer itself is still in its early stages (Stage 2), so some contract functionalities (like StrategyManager) are not fully developed, and early participants need to be aware of these risks.

Conclusion

The Restaking space has been very popular since 2023, with many independent investors and investment institutions in the blockchain community participating. From a technical perspective, the Restaking protocol proposed by EigenLayer provides new ideas for liquid staking and solves 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 testing phases, presenting both opportunities and challenges.

Currently, EigenLayer dominates the Restaking space, and more projects are expected to join in the future, exploring new models for liquid staking and providing new consensus security solutions for projects.

With the gradual rise of Restaking protocols, ZAN provides professional node services and auditing services for early Restaking projects, helping them move steadily in this promising field.