What is restaking?

Restaking is a new concept introduced by EigenLayer, a novel protocol built on Ethereum. The concept allows for the rehypothecation of staked Ethereum (ETH) on the consensus layer, extending the cryptoeconomic security to other applications on the Ethereum network. It involves a set of smart contracts that let users repurpose their staked ETH to provide validation services to other protocols that require their own actively validated system (AVS). This includes alternative consensus protocols and virtual machines, but also infrastructure critical to the Ethereum ecosystem such as bridges and data availability layers. Users who opt into EigenLayer's restaking mechanism grant the protocol additional enforcement rights on their staked ETH. This includes the ability to impose new slashing conditions, which persist above the consensus layer. The principle idea is to facilitate extensible security as new slashing conditions can be introduced to meet the demands of various projects built on top of Ethereum.

How restaking benefits Ethereum?

Restaking offers numerous benefits to Ethereum and its ecosystem. First, it introduces a pooled security system that repurposes staked ETH (otherwise locked into securing Ethereum) to provide validation services to other protocols, creating a more efficient use of capital. This system operates through free-market governance, allowing protocols to control the amount of pooled security consumed while enabling validators to determine their preferred set of risk and reward parameters before servicing a given protocol. This mechanism creates an open and competitive marketplace where protocols can purchase pooled security from ETH validators, and validators can sell pooled security to protocols. It accelerates innovation across Ethereum, increases profitability from staking, and mitigates the burden of bootstrapping network security for new protocols. Furthermore, restaking consolidates existing security into one place, enhancing the system's resilience against financial attacks and improving value accrual as stakers gain additional revenue streams by opting into EigenLayer to extend security.

What are the risks of restaking?

The primary risk associated with restaking lies in the new slashing conditions. Restaking involves taking locked staked ETH, and staking it on other services, which subjects it to greater slashing conditions. This means that users who opt into EigenLayer are still at risk of slashing on the consensus layer, in addition to the new slashing conditions imposed by the protocol. There are greater centralization risks as ETH stakers redirect their withdrawal credentials to EigenLayer, which creates a systemic risk for the Ethereum network. The protocol's governance layer is also controlled by a multisig with the ability to veto slashing decisions. Additionally, the system's security design success relies heavily on a rebalancing algorithm that accurately accounts for validators and their security capacity and usage. If this mechanism fails, EigenLayer could expose itself to various attack vectors, replicating the vulnerabilities it sought to solve. It is also important to note that the protocol initially launched with a maximum withdrawal delay of 7-days in order to manually review for any anomalies, but will decrease with time as this process is automated.