Introducing Tranched Delegation by Euclid
A framework aims to establish a trustless and permissionless operator network.
With EigenLayer, Ethereum stakers can help secure various services by restaking their staked ETH while still earning native ETH rewards. Reusing ETH to provide economic security across different services reduces the burden of capital costs for a staker and significantly increases the trust guarantees to individual services.
The emerging liquid restaking solutions offer numerous benefits to users but yet to address the challenges that restaking still faces, such as unintended slashing, operator authority bias, and trust assumptions. To tackle these challenges effectively, Euclid introduces the tranched delegation framework. This framework aims to create a fair delegation environment and contribute to the dencentralization of the operator network.
To understand the challenges and the solutions, let’s start from understanding the three distinct roles in the liquid restaking:
- Restaker: These individuals contribute their staked ETH to lend economic security through EigenLayer.
- Operator: Operating as nodes, these entities facilitate the construction of decentralized networks for services seeking security through EigenLayer. A more decentralized operator network equates to heightened security for the services provided by EigenLayer.
- Actively Validated Services (AVS): They borrow security services from operators via EigenLayer, such as blockchain networks, bridges, oracles, and more.
The flowchart below depicts how liquid restaking protocols help facilitate restaking for users. Restakers deposit ETH/LST to a liquid restaking platform. The platform then delegates these funds to operators based on their own selection. After receiving the delegation, these operators utilize the funds to provide security services for AVS. In return, operators will receive compensation rewards offered by AVS and distribute them to restakers.
While LRT platforms effectively streamline the restaking process, they still encounter inherent challenges associated with restaking.
- Unintended Slashing: Restakers might lose funds if an AVS or operator is exposed to an unintentional slashing vulnerability (for example, a programming bug) that gets triggered.
- Operator Authority Bias: Restakers or AVS intend to choose operators in a position of authority.
- Trust Assumption: Both restakers and AVS must trust that the operators will act honestly.
At Euclid, we recognize the potential for resolving these challenges by formalizing a delegation framework within LRT platforms. Therefore, we introduce a structured approach for operators to manage their delegate positions. This approach is called Tranched Delegation.
Under this structure, operators must pledge collaterals in addition to their delegate position, both of which are then organized into tranches of different seniority:
- The senior tranche comprises assets delegated by restakers;
- The junior tranches consist of assets including operator self-delegate assets and staked $ECL tokens, which serve as a security deposit.
In the unfortunate event of slashing, the tranched delegation framework ensures a specific order of priority for the slashing process. Initially, the self-delegate position is subject to slashing, followed by the staked $ECL tokens in the junior tranches.
Having this framework embedded in the operator network, it results in a win-win-win scenario for restakers, operators, and AVS, ensuring benefits and fairness for all involved parties. See the flowchart below that depicts the liquid restaking process with tranched delegation.
For operators
- The delegation framework ensures equal treatment for all operators. By pledging self-delegations and $ECL, operators can earn trust of both restakers and Eigenlayer solo stakers who rely on their service. With bearing the risk of slashing, operators demonstrate their commitment to acting honestly while providing services to AVS.
- This framework provides strong incentives for operators, including $ECL staking rewards and commission earnings from those choosing to delegate with them.
For AVS
- This framework enables greater participation from open and permissionless operators, minimizing the need for trust in a single operator.
- AVS can also significantly reduce the risk of operator collusion attacks and enhance decentralizing by leveraging both curated and permissionless sets of operators.
For restakers
- This framework effectively lowers the barrier to native ETH staking. Restakers gain the flexibility to convert any amount of ETH to elETH and stake it on EigenLayer. Moreover, it facilitates cross-chain restaking, enabling restakers to leverage the efficiency and cost-effectiveness of other networks.
- By enabling restakers to diversify their assets across a sufficiently decentralized operator network, this framework mitigates the risks linked to the single point of failure.
- Through tranched delegation, restakers are protected from unintended slashing incidents
About Euclid
Euclid is a member protocol of NGAD, specializing in Omnichain Liquid Restake Assets, the simplest way to restake your ETH and LSTs to Eigenlayer.
