Restaking

AVSs are the decentralized services that consume security from restaked assets. They represent the primary use case for restaking. Examples include:

• Alt Layer-1s & Sidechains: New blockchains that use restaked ETH for validator set security.
• Data Availability Layers: Networks like EigenDA that provide cheap, scalable data availability for rollups.
• Oracle Networks: Decentralized oracle services that require slashing guarantees for data accuracy.
• Bridge Protocols: Cross-chain bridges that secure asset transfers with restaked collateral.

AVSs pay fees to the restaking protocol and its operators for this security-as-a-service model.

LRTs are a financial primitive built on top of restaking. Protocols like Ether.fi, Renzo, and Kelp DAO issue a liquid token (e.g., ezETH, weETH) representing a user's restaked position. This unlocks liquidity and composability.

• User Benefit: Holders earn multiple layers of rewards (staking + AVS rewards) while maintaining a liquid, tradable asset.
• DeFi Integration: LRTs can be used as collateral in lending protocols, liquidity pools, and yield strategies, creating a restaking flywheel.
• Operator Aggregation: LRT protocols often manage the complex task of selecting and delegating to optimal AVSs on behalf of users.

Restaking solves the cold-start problem for new protocols. Instead of spending years building a token's value and validator ecosystem, a new AVS can rent security from Ethereum's established economic base. This creates a shared security marketplace.

• Economic Efficiency: Capital is reused, increasing the yield for stakers and reducing costs for service providers.
• Security Inheritance: AVSs inherit the robust cryptoeconomic security of Ethereum, making them more resilient from launch.
• Modular Design: Separates the provision of security (via restaking) from the implementation of service logic (the AVS).

The operator is the active participant in the restaking ecosystem. They run node software for one or more AVSs and face slashing risk. Users can delegate their restaked assets to operators they trust.

• Role: Operators perform validation work (e.g, signing, attesting, computing) for AVSs.
• Delegation Model: Similar to proof-of-stake delegation, but with multi-service slashing conditions.
• Market Dynamics: A competitive market for operators emerges based on performance, fee structures, and AVS selection, with aggregators helping users choose.

For stakers, restaking is primarily a yield strategy. It allows for the stacking of multiple reward streams:

• Base Layer Rewards: Native Ethereum staking rewards.
• AVS Incentives: Additional token rewards or fees paid by the services being secured.
• LRT Points & Airdrops: Incentives from LRT protocols and potential future AVS token distributions.

This yield amplification comes with risk stacking. Stakers are exposed to slashing conditions from every AVS their operator is servicing, creating a complex risk profile that requires active management or delegation to expert operators.

Liquid Restaking Tokens are derivative tokens issued when users deposit ETH or LSTs into a restaking protocol. They represent a claim on the underlying restaked position and its accrued rewards.

• Examples: EigenLayer's eigenPOD mints LRTs for native restakers. Protocols like Ether.fi (eETH), Renzo (ezETH), and Kelp DAO (rsETH) aggregate user deposits to manage restaking.
• Utility: LRTs can be traded, used as collateral in DeFi, or deposited into other yield-generating strategies, creating a restaking flywheel.

An Actively Validated Service is any decentralized service that requires its own distributed validation logic and economic security. Restaking provides this security by pooling from Ethereum validators.

• Types of AVS: New blockchains (data availability layers, sidechains), bridges, oracles, and keeper networks.
• Economic Model: AVS operators pay fees or rewards to the pool of restakers who secure their network, creating a new marketplace for cryptoeconomic security.

A full restaking stack has emerged, with different layers handling specific functions:

• Settlement & Security Layer: Ethereum (base layer for slashing).
• Restaking Coordination Layer: EigenLayer (manages operator sets and AVS opt-ins).
• AVS Layer: Individual services like AltLayer, EigenDA, and Omni Network.
• LRT & DeFi Layer: Protocols that tokenize positions and integrate them into broader DeFi (e.g., lending, DEX liquidity).

Restaking introduces novel risks that participants must assess:

• Slashing Risk: Validator stake can be slashed for faults on any opted-in AVS, potentially compounding penalties.
• Liquidity Risk: LRTs may trade at a discount or premium to their underlying asset value.
• Protocol Risk: Smart contract vulnerabilities in restaking or AVS code.
• Centralization Pressure: The economic efficiency of restaking may lead to concentration of security provision among large operators.

Restaking's primary adoption metric is Total Value Restaked (TVR). This represents the value of assets (ETH or LSTs) deposited into restaking protocols.

• Scale: As of early 2024, the TVR in EigenLayer exceeded $15 billion, making it one of the largest DeFi protocols by TVL.
• Growth Driver: The ability to earn additional yield (restaking rewards) on already-staked capital has driven rapid user adoption from stakers and developers building AVs.

Restaking exposes a single stake to multiple slashing conditions across different services (e.g., an EigenLayer AVS and the underlying Ethereum consensus). A fault in one service can lead to slashing penalties that are compounded across all services where the stake is allocated. This creates a higher potential for loss than traditional solo staking.

Delegators must place significant trust in the node operators they select. Risks include:

• Operator Misconduct: Malicious or negligent actions leading to slashing.
• Technical Failure: Poor infrastructure causing downtime and penalties.
• Censorship: Operators could censor transactions for specific services. This creates a trust-minimization challenge, shifting risk from protocol code to operator reputation.

Restaking protocols are governed by complex smart contracts that manage stake deposits, withdrawals, and slashing logic. Key risks include:

• Code Vulnerabilities: Bugs or exploits in the restaking contract could lead to fund loss.
• Upgrade Governance: Malicious or faulty upgrades could be pushed by governance.
• Oracle Reliance: Slashing often depends on oracles to report faults, introducing a potential failure or manipulation point.

Restaked assets are subject to lock-up periods and withdrawal queues, similar to Ethereum staking. However, exiting a restaking position may require:

• Unbonding from multiple services sequentially.
• Navigating potentially conflicting withdrawal conditions.
• Facing liquidity scarcity if many participants exit simultaneously during stress, which could impact the value of liquid restaking tokens (LRTs).

The concentration of large amounts of stake (e.g., ETH) into a few restaking protocols creates systemic interconnectedness. A major slashing event or protocol failure could:

• Trigger a cascading liquidation event across DeFi.
• Destabilize the economic security of multiple networks simultaneously.
• Lead to correlated failures where problems in one AVS spill over to others.

Actively Validated Services (AVSs) built on restaking have their own risk profiles that delegators inherit:

• Untested Code: New AVSs may have unaudited or experimental code.
• Economic Viability: An AVS may fail to attract enough operators or usage, rendering its token rewards worthless.
• Incentive Misalignment: AVS reward mechanisms may not adequately compensate for the slashing risk undertaken.

Slashing is the punitive mechanism in restaking where a portion of a restaker's staked assets is burned or confiscated if their delegated Operator acts maliciously or fails to perform its duties for a secured Actively Validated Service (AVS).

• Purpose: Enforces accountability and aligns economic incentives, ensuring Operators faithfully execute the validation logic of the AVSs they secure.
• Risk: Introduces correlated slashing risk, as a single set of restaked assets can be slashed for faults across multiple AVSs simultaneously.
• Conditions: Each AVS defines its own slashing conditions in a slashing contract, which is audited by restakers and Operators before they opt-in.

Shared Security is the foundational concept behind restaking, where a single pool of staked capital (like Ethereum's validator set) is used to secure multiple, independent applications or systems.

• Core Principle: Security is not siloed per application but is pooled and leased out, creating economies of scale.
• Analogy: Similar to how cloud providers share physical infrastructure across many customers, restaking shares cryptoeconomic security across many AVSs.
• Benefit vs. Risk: Dramatically reduces bootstrap costs for new networks but introduces systemic risk if the security pool is over-extended or if slashing events are correlated.