Intro to ETH Restaking

The basics of ETH restaking with suggestions for further learning

The beginning

The launch of the Ethereum Virtual Machine (EVM) opened up a whole new world with the introduction of modular blockchains. Mere mortals could build decentralized applications (DApps) permissionlessly on top of the network. The possibilities seemed endless until builders ran face first into the blockchain trilemma.

The blockchain trilemma describes the three essential aspects of blockchain technology: security, scalability, and decentralization.

Security: can the blockchain withstand malicious attacks from bad actors?

Scalability: can the blockchain handle more traffic without grinding to a halt and/or exploding gas fees?

Decentralization: is control of the blockchain sufficiently distributed to allow for permissionless and trustless interactions?

Like any good trilemma, these three elements relate in such a way that improving one often results in risk or damage to another. For example, scalability requires speed but, the servers needed to handle large transaction volumes quickly may not be sufficiently decentralized to maintain security and prevent exploits or takeover. In order to tackle these challenges, Ethereum switched to a roadmap focused on rollups.

Rollups outsource computation and execution and use EVM based smart contracts to send provable transaction data back to the Ethereum network. Optimistic rollups use cryptoeconomic guarantees via fraud proofs while zero knowledge (zk) rollups make cryptographic guarantees via validity proof. These tools increase the capacity of the Ethereum network. Modules deployed or proven on top of the EVM inherit the trust attached to the staked ETH securing the Ethereum network. Some popular optimistic rollups include Arbitrum One and OP Mainnet from Optimism. Zk rollups examples include Polygon zkEVM and Linea.

Offchain data

This is all well and good but, what happens when we need data derived from outside of the Ethereum network? How do we handle the case where our application needs data like price feeds from other chains, or even from tradfi sources? Enter Actively Validated Services (AVS). These systems offer services with their own security and verification systems, typically secured by their own native token. AVS take the form of products like bridges, oracle networks, sidechains, and data availability layers. It’s important to remember these products may interact with the EVM but they do not inherit the trust pooled in the ETH stake secured Ethereum network.

There are a few problems with the typical AVS setup. The requirement to design an independent mechanism to secure a new service creates a high barrier to entry for innovators in the space. A developer might have an idea for a revolutionary new protocol but, if they lack the knowledge to develop tokenomics and secure the service, the project may never get off the ground. Users are required to divert value away from the Ethereum network and purchase native tokens to interact with a new service. Prospective validators face a higher level of risk securing a new and unknown network. In exchange, services have to offer a high enough rate of return to make the investment attractive. Over time, these obligations to staked validators can become an overwhelming expense. Lastly, we have to keep in mind a service is only as secure as the minimum cost required to corrupt one of its dependencies. Native tokens tend to make a more attractive target than the robustly secured Ethereum network.

Restaking

Restaking protocols enable AVS modules to be secured by restaking the ETH of participating Ethereum network validators versus using their own native token. EigenLayer is one of the more widely used restaking protocols. An Ethereum validator can set their beacon chain withdrawal credentials to EigenLayer smart contracts and then opt into securing new modules built on top of EigenLayer. The validator will download any needed node software for the accepted modules which allows the AVS to customize slashing conditions to fit their individual protocol. The validator’s staked ETH is now subject to slashing for bad actor activity on both Ethereum and the AVS they are opting into securing. Omni is an example of a restake secured blockchain.

Learn more

You can read all about EigenLayer protocol via their downloadable whitepaper.

Wondering if restaking is a good or bad thing for Ethereum? This post from Bankless shares Vitalik’s view on the matter.

This dashboard from L2Beat allows you to view at a glance how active rollups are performing in terms of TVL, risks analysis, and transactions per second.