Overview of Restaking

Restaking is a project group with strong growth in 2023 - 2024. This segment is even more exciting after EigenLayer officially announced the AVS mainnet.

Restaking Overview

What is Restaking?

Introduced by EigenLayer in 2022, Restaking proposes to expand the role of ETH validators, allowing them to participate in validating various networks and services through a set of smart contracts built on Ethereum.

The core idea of Restaking is shared security or Security as a Service for other infrastructure entities. At the same time, improve the efficiency of capital use of staked assets.

How Restaking works

EigenLayer is the project that initiated the Restaking concept, they are also the first project to implement this idea on the mainnet. EigenLayer provides a framework that allows Restaker, Operator and AVS to interact with each other.

·      Restaker: Stake ETH/LST and accept additional cut conditions to provide validation services to selected AVS, in return they will earn additional revenue.

·      Operator: Manages the technical aspects on behalf of Restaker including setting up the necessary hardware and software to provide authentication to AVSs, in return they receive a portion of the income.

·      AVS (Actively Validated Services): infrastructure requires independent confirmation, they will pay Restakers and Operators to "rent" security.

Outstanding parameters of Restaking

Basic parameters when considering the group of projects in the Restaking segment:

·      TVL (total value locked): Total amount of assets locked inside

·      LST (liquid staking token) represents tokenized versions of ETH staked in Ethereum's consensus layer.

·      LRT (liquid staking token): represents the user's staked ETH/LST (liquid staking token) in EigenLayer.

·      nLRT: native liquid staking token

·      According to Defillama, TVL Restaking is nearly $14B, ranking 5th in total TVL in the crypto market. Notably, more than 98% of this TVL comes from EigenLayer.

EigenLayer offers two forms of Restaking:

·      Native Restaking

·      Liquid Restaking.

As the project is still in the early stages of development, EigenLayer is balancing the goals of protocol development with limiting risks for participants. Currently, EigenLayer is placing limits on Liquid Restaking during this period.

However, the attraction of EigenLayer is so great, the Liquid Restaking limit is always filled quickly every time the project increases the LST pool.

To participate in EigenLayer, users must participate through Native Restaking. However, Native Restaking requires participants to directly operate an Ethereum Validator, which means requiring a sizable financial sum of 32 ETH, knowledge and skills about operating an Ethereum validator.

This unintentionally promoted a strong development of the nLRT project group, which lowered the barrier to entry for EigenLayer similar to the case of Liquid Staking and Ethereum.

Leveraging EigenLayer's strategy and development direction, native liquid staking protocols achieved impressive TVL growth, increasing more than 35 times in the first 4 months of 2024. Currently, nLRTs account for nearly 90% of the total amount of native ETH restaking on EigenLayer.

Native Restaking TVL

Considering the Liquid Restaking Protocol group alone, they account for 71% of EigenLayer's total TVL. Among them, the highest TVL projects are EtherFi (eETH), Renzo (ezETH) and Puffer (pufETH), respectively, accounting for more than 83% of the total TVL of the Liquid Restaking Protocol project group.

All three projects above are native staking protocols and use similar development strategies. EtherFi is the leading protocol in developing native Liquid Retaking.

Current Restaking ecosystem

The concept of Restaking has become more visible and attractive, motivating different groups to develop their own Restaking Protocols.

Even so, the leading edge that EigenLayer holds is very clear, with the majority of the Restaking ecosystem, including Liquid Restaking Protocol, AVS (Actively Validated Services) and NO (Node Operator) mainly focusing on development on EigenLayer.

Restaking Protocol

The Restaking Protocol provides a framework that allows Restakers, Operators, and AVS to interact with each other.

On the current market, there exist many Restaking Protocols. Although based on the same Restaking keyword, their implementation and uses are very diverse.

Some notable Restaking Protocols include: EigenLayer, Babylon, and Picasso.

EigenLayer

EigenLayer is the most prominent and notable project. It allows investors to leverage ETH staked in Ethereum's consensus layer to secure other infrastructure.

EigenLayer does not build a specialized infrastructure but takes full advantage of Ethereum's EVM, the whole system is built as a smart contract on Ethereum. EignenLayer's architecture focuses on simplicity and modularity, providing many opportunities for other teams to build on and extend its functionality.

Babylon

Babylon enables direct BTC staking on the Bitcoin blockchain by leveraging Bitcoin's scripting language and advanced cryptographic techniques.

However, due to Bitcoin's inherent limitations, Babylon relies on the Cosmos SDK to build a private blockchain for security, scalability, and censorship resistance. In addition, Babylon's use case is also more limited compared to EigneLayer, it focuses on PoS chains that want to use BTC to increase the security of their chains.

Picasso

Picasso also built a staking protocol on Solana, the system will be deployed as a smart contract on Solana. Its focus is to provide features to make Solana compatible with IBC, thereby enabling seamless compatibility between Solana and major ecosystems such as Cosmos, Ethereum.

Liquid Restaking Protocol

The limitation of EigenLayer is that it locks the staker's capital. The Liquid Restaking Protocol was born to unlock the liquidity of ETH/LST staked in EigenLayer.

Currently, the market has dozens of Liquid Retaking Protocols built on EigenLayer. Although the number is large, the majority of TVL comes from 4 main protocols Ether.fi, Renzo, Puffer and KelpDAO.

Ether.fi is a native Liquid Restaking Protocol (nLRP), allowing users to stake ETH and receive eETH at a 1:1 ratio.

Puffer Finance is a native Liquid Restaking Protocol (nLRP), a project that uses a token reward bearing model similar to Rocket Pool. In addition, Puffer Finance also provides solutions to help increase security and minimize risks related to slashing for validator nodes, through the use of Secure Signer technology.

Today, LRT protocols are placing emphasis on attracting TVL and increasing integration of use cases around LRT.

Due to the similar nature of LST and LRT, we can imagine what happened with LST and the Ethereum staking market could happen with LRT and EigenLayer. However, the problems of LRT may be more complex than LST due to the complex nature of AVSs.

AVS (Actively Validated Services) and NO (Node Operator) ecosystem

AVS (Actively Validated Services) are services built on the EigenLayer protocol to take advantage of the general security of Ethereum.

The AVS ecosystem on EigenLayer is very diverse, including many different topics: blockchain layer 1, specialized data availability layer (Data Availability Layer), sequencer, cross-chain interaction. Some typical projects include:

EigenLayer has also developed its own AVS, called EigenDA, a specialized data availability layer for rollups that publish transactional data. EigenDA is currently active on mainnet and is considered one of the top 3 prominent Alt-DAs on the market.

Omni is a cross-chain messaging protocol that uses staking as a double security mechanism. The project has just announced that it will launchpool on Binance.

Espresso is a shared sequencer that uses staking to enhance the security of arranging transactions for Rollups.

AVS Ecosystem

NO (Node Operator) plays a key role in authenticating AVS, thereby improving the security and integrity of the network. Now, anyone can become NO in the ecosystem by registering with EigenLayer.

EigenLayer has a diverse NO ecosystem, including individuals and professional node service companies inside and outside the Crypto industry. Notably, traditional technology giants like Google are also among the NO in EigenLayer's ecosystem.

Development direction of Restaking in the future

EigenLayer will launch its platform in several phases, starting with staking on the mainnet, then incentivizing operators to join the ecosystem, and finally launching AVS.

Currently, EigenLayer is in the final stages of its AVS mass launch. Just two days after the Eigenlayer and Eigen DA mainnet went live, over 400,000 ETH was delegated to NO. This proves the attraction of EigenDA in particular and EigenLayer in general.

AVS on EigenLayer are appearing more and more, some prominent AVS include: Lagrange State Committees, EigenDA, Witness Chain and AltLayer MACH and the number will continue to increase in the future.

On the other side, NO is trying to register as many as possible because currently slashing is not enabled so NO is not at risk, but this will change in the future.

Overall, Restaking is growing extremely strongly, TVL is continuously breaking its ATH, the AVS and NO ecosystems are continuously expanding and this growth shows no signs of slowing down.

summary

The Restaking ecosystem is in its early stages but has strong growth. Many newly launched projects offer airdrop/retroactive or farming opportunities. Investors should do their own due diligence before participating in these protocols. On the technical side, AVS implementation requires careful consideration of slashing risks, which is critical to maintaining system reliability.