Restaking through self-layering: Everything you need to know

In the Web3 and DeFi world, restaking Ether (ETH) with EigenLayer is one of the newer trends. We tested it and read the documentation. Now we introduce you to EigenLayer – which is much more than just a bonus on interest.

When you stake Ether, you often receive Liquid Staking Tokens (LST), such as stETH, which sit nicely in your wallet and accumulate interest. But since the tokens are already liquid, wouldn’t it be nice to stake them again to earn even more yield?

That’s exactly what EigenLayer promises. But the platform is more than that. The bonus interest is rather a byproduct of an idea. Above all, EigenLayer creates its own layer that uses the security inherent in the value of ETH tokens to secure other decentralized projects – from which stakers can naturally benefit.

By June 2024, over 5 million ETH, more than 20 billion dollars, were restaked through EigenLayer. Restaking is a big topic – and it’s time we delve into it.

Recycling Security

Once you understand EigenLayer, everything is clear and simple. But getting there is the challenge. Most articles you read about it are more confusing than enlightening.

The basic idea is that Ethereum stakers can do more than just validate the Ethereum blockchain. If there’s already a mechanism that uses the value of billions of dollars to validate consensus, why not use it to validate even more? You could simply offer stakers the chance to add additional mechanisms to secure other blockchains and projects, similar to how browser plugins use the browser’s infrastructure to interact with the internet.

At its core, EigenLayer revives the old idea of merged mining that Satoshi already proposed for Bitcoin. With merged mining, Bitcoin miners also validate other coins like Namecoin and sidechains like Rootstock, which has benefits but remains somewhat limited in its effect.

Restaking brings this concept to Ethereum — and meets a world of Web3, smart contracts, oracles, tokens, rollups, and sidechains.

The Short Walkthrough

So, to the point: how do you benefit from it? How can you make more out of your Ethereum staking? Essentially, it’s simple:

1. You have Liquid Staking Tokens (LST) like stETH. You get them by giving your Ether to a staking pool that supports LSTs. You can also buy them directly. One stETH corresponds to one Ether, with the advantage that it earns interest through staking.

2. You deposit your LST on the EigenLayer platform through the „Restaking“ function. There, you can select which LST you want to restake. Pure ETH is also possible, but you need to stake it yourself. Once you’ve done this, the tokens appear in your dashboard, and you collect „Restaking Points“. These are automatically distributed in relation to the duration of staking. They determine whether and to what extent you will participate in future airdrops.

To also earn ongoing returns, one more step is needed:

3. You delegate the LST. To do this, you choose a node operator who secures various projects. This is fairly confusing. Some focus on specific projects, others look specifically for airdrops, and others distribute their tokens like an investment fund across a variety of projects. How high the yields are, you will not know beforehand.

4. Before you blindly restake, you should finish reading this article. This way, you’ll understand whether EigenLayer’s interest bonus is simply fabricated or if the returns stand on solid ground.

The Components of EigenLayer

EigenLayer is its own layer. You could say it is a Layer Zero, a Layer 0, because it doesn’t build on Ethereum but starts before it, yet draws its security from the same source – the value of staked Ether.

EigenLayer is not a blockchain, sidechain, rollup, consensus model, or anything like that. This makes it somewhat difficult to grasp. EigenLayer is more of a protocol that allows projects to use the security of Ethereum stakers.

These projects are called „Actively Validated Services (AVS).“ It is a fairly colorful mix. Generally, these projects dock with Ethereum and improve something, such as rollups, oracles, and other services. You can think of them as decentralized infrastructure providers.

If you are validating yourself, you can also assign your stakes to AVS yourself. Most users, however, will not stake themselves but will use the tokens they received from a staking pool. In this case, you must delegate these to a node operator. Essentially, you instruct a staker to restake your tokens through EigenLayer.

However, there are also risks. Any intervention in block validation can lead to errors. If a staker makes a consensus-related mistake because the EigenLayer plugin had a bug – just as a browser plugin can have a bug – a penalty may occur through the protocol. The term for this is „slashing“; you lose a portion of the staked Ether.

The task of the delegates is, in their own interest, to critically examine the AVS to minimize the risk of slashing.

The AVS That Protect Restaking

The AVS have been live only since April 2024. The ecosystem around them has just begun to develop, expectations are high, but market-ready apps are unlikely. However, there are some interesting examples that show the direction being taken:

• EigenDA, a „Data Availability Provider“ for rollups – essentially a piece of infrastructure to improve rollups.
• eoracle, an oracle network that provides data from the „real world“ to smart contracts in a decentralized way.
• the Witness Chain, a network for the coordination of the DePIN ecosystem
• Brevis, a tool that helps smart contracts read data from the entire blockchain using Zero-Knowledge Proofs
• AltLayer MACH, a tool to accelerate the finality of rollups like Arbitrum and Optimism

Do you somewhat understand the pattern? These are highly technical, partially esoteric projects that even crypto nerds can find difficult to grasp immediately. Overall, they are more tools that help improve individual elements of Ethereum, similar to NPM for Node or PIP for Python. For example, I imagine a rollup becoming faster with MACH, a smart contract retrieving data with eoracle, or Brevis more effectively reading past transactions.

You could also look at it this way: A piece of protocol development is outsourced by offering functionalities that some might want, but others find too risky, in a modular and plugin-like manner to the stakers. The stakers, and not the protocol, bear the risk if these functionalities cause a consensus error.

Overall, a refreshing new architecture! However, there is not much to say about its success yet. I am unaware of any projects already being used in practice; at least Optimism has tested AltLayer in the testnet. The rewards are also quite stochastic so far, if they exist at all.

A Brief History of EigenLayer

EigenLayer started operating in mid-2023. Initially, the number of Ether or LST on the platform was limited, so not everyone could participate. During this time, restaking mainly involved collecting points.

This phase ended in May with the airdrop of the EIGEN token, distributed according to restaking points. It is a utility token that helps secure networks like EigenDA. Future airdrops are also expected to reward platform users who have accumulated many restaking points.

Shortly before that, AVS was allowed, and around the same time, the maximum restaking limit was lifted, causing the number of Ether in the EigenLayer ecosystem to explode. This has led to concerns that returns from EigenLayer will collapse because the AVS that attach to the stakes so far do not generate enough profits. If any at all.

The ecosystem is simply too young to reliably provide yield. The idea is good, and it is far too early to either write it off or declare it a success. But currently, restaking through EigenLayer is mainly point collecting for airdrops and a bet that more will come from it.