RBC.ru - EigenLayer and other restaking services have created a trend in the cryptocurrency market
EigenLayer and similar re-staking services have formed a popular trend among crypto investors, but the technology itself is not without risk. We'll tell you how it works

In less than a year, the EigenLayer project, which offers a “restaking” of the Ethereum cryptocurrency, has accumulated more than $15 billion in deposits, which will theoretically be used to secure new cryptocurrency applications and protocols.

At the end of February, Andreessen Horowitz (a16z) invested $100 million in EigenLayer, making it one of the largest venture deals of 2024 in the cryptocurrency space. Prior to this, the startup raised $50 million from the crypto venture fund Blockchain Capital.

Restaking has quickly become a new investment trend in the crypto industry. It is based on the idea of ​​using the economic resources of the entire blockchain to ensure the protection of individual applications. While some tout restacking as a promising investment opportunity and a big leap forward in crypto security, others see it as a much riskier approach based on unstable fundamentals.

Staking and Proof-of-Stake

Restaking is another approach to the security question at the heart of all cryptocurrencies: how to use economic strategies to protect decentralized computing systems.

All blockchain networks are based on the idea of ​​decentralization. This means that a distributed network of operators (rather than just one) accepts transactions from users, records them in a digital ledger, and simultaneously ensures that all other operators provide data without fraud.

In Proof-of-Work blockchain networks (such as Bitcoin), the security of the network is ensured by the computing power of the miners. Proof-of-Stake blockchains (such as Ethereum, Cardano or Solana) are governed by “validators” who lock coins into the network in order to gain the right to keep it running. For processing transactions in such a blockchain, these validators receive a reward in the form of issuing new coins. The more staking funds they have, the greater their reward.

Staking also acts as collateral: if a validator tries to cheat the blockchain or operates in an incorrect configuration, the portion of its staked coins is invalidated by the network. This mechanism is called slashing.

Passive income in cryptocurrency. What you need to know about staking
The mechanics behind staking may vary from one blockchain to another, but all of these blockchains share a common principle: the cost of attacking a network or manipulating its data is approximately equal to the amount of money that was staked to protect that network. This is why Ethereum is considered the most secure blockchain - as of May 2024, the amount of ETH coins staked in dollar equivalent is more than 100 billion.

What is restaking

Restaking technology involves applying this strategy not only to the blockchain itself, but also to protect newly created blockchain applications and protocols. From an investor's point of view, re-staking is a way to earn an additional percentage from regular staking.

The startup EigenLayer is a leader in restaking in the Ethereum ecosystem. With its help, ETH coins that are already staked on Ethereum can be reused (i.e. “restacked”) in so-called Actively Validated Services (AVS). As of May 2024, these primarily include blockchain protocols that provide support for Ethereum scaling solutions. EigenLayer's own service, EigenDA, became the first AVS, followed by six others - AltLayer, Brevis, Eoracle, Lagrange, WitnessChain and Xterio.

Proponents of restaking technology argue that it helps improve the security of small blockchain applications that find it difficult to build an adequate security system, since it requires a significant amount of capital and an active community.

In an interview with Coindesk, EigenLayer founder Sriram Kannan explained how this works using the example of 100 blockchain protocols, each backed by $1 billion worth of staking: “Imagine that instead of each protocol having $1 billion, the amount was $100 billion.” would be a common staking pool for all these 100 protocols. To attack one such protocol, you will need to have $100 billion, not $1 billion.”

What is liquid restaking?

Restaking through a platform like EigenLayer typically involves depositing your ETH (or individual ETH derivatives) into the protocol, setting up an operator, and then choosing an AVS to provide security in exchange for interest.

An easier way is to use so-called liquid re-staking services such as Puffer, Ether.Fi or Renzo. These are intermediary services that accept assets from users, place them on EigenLayer and similar platforms, and issue derivative tokens to users - “liquid restaking tokens” (LRT), which earn interest and can be traded in decentralized financial services. to get even greater profitability.

Liquid restaking platforms take care of all the work of setting up software for operators and selecting AVS. Liquid tokens allow you to easily enter and exit restaking positions, and also provide the opportunity to reinvest them in decentralized financial protocols.

Platforms like Lido work on the same principle. They provide a “liquid staking” service on Ethereum, staking assets on behalf of investors and offering them a derivative token, Lido staked ETH (stETH), which is pegged to the price of ETH. StETH is hugely popular in the decentralized finance space, and up-and-coming liquid staking platforms are hoping to emulate Lido's success with their own derivative tokens.

Risks and Incentives in Restaking

Investors, developers and venture capital firms welcome the idea of ​​re-staking, but some members of the crypto community see risks in it for the entire crypto market.

One such risk is the possibility of “contagion.” If any operator gets slashed by one AVS, the consequences could spread throughout the entire staking ecosystem. This will reduce the cost of the entire restaking pool and reduce the security of all other AVS that use it. To solve this problem, the EigenLayer developers plan to use an insurance program called attributable security, but its details have not yet been confirmed.

With the increase in the number of liquid restaking tokens, in theory, even more risks arise. If protocols abuse the trust of users by staking their tokens, in theory a rehypothecation crisis could arise: one protocol places user tokens in staking, another puts their tokens in a liquid staking service, a third puts their tokens in a liquid re-staking service, and so on. Further. One fact of slashing or unbinding of an asset (as happened with the Renzo project token in April), in theory, can lead to the collapse of many projects.

EigenLayer was technically the first restaking protocol to launch on the Ethereum mainnet, but it is still in limited beta testing (as of May 2024). EigenLayer accepts deposits, but most of its key features (including slashing) are not yet live at the time of publication, and AVS can only register with the service, but cannot yet deploy the system.

The only incentive for re-staking and liquid re-staking remains “points” - the number of points recorded by EigenLayer and liquid re-staking protocols, on the basis of which investors expect future token airdrops to be conducted. The points themselves have no value, but users began trading them, sparking a speculative frenzy around the re-stake.