Is Restaking Good or Bad for Ethereum?
In 2024, people are still talking a lot about Layer2 chains and blockchain games. But another hot topic might be 'restaking.' Restaking is an idea from Eigen Layer. It's about letting people who have already put their digital currency, Ethereum, in a saving-like process (called staking) to do it again with Eigen Layer's service. This can increase their security and rewards. People who already did staking in Ethereum can do it again in Eigen Layer and get extra benefits. This idea could become as popular as other services like Lido Finance, which also use a similar process. However, people are still discussing whether this is a safe or risky thing to do.
Eigen Layer wants to solve a problem about how decentralized apps (DApps) work. Currently, Ethereum is run by over 900,000 validators, making it quite spread out and not controlled by just one group (this is what decentralization means). But the apps running on Ethereum often don't follow this pattern. They either use their own servers or depend on other services which might not be fully decentralized. It's hard for any app to reach the same level of decentralization as Ethereum. Eigen Layer's goal is to use these validators to help DApps become more decentralized by providing services that these apps need.
For example, many blockchain services use something called Chainlink for certain tasks, like bringing information from outside the blockchain into it. But Chainlink doesn't have as many operators as Ethereum, and to be an operator, you need at least 1000 LINK tokens. So, it's not as decentralized. But if Chainlink is integrated with Eigen Layer, those who have already staked in Ethereum could restake in Eigen Layer to run Chainlink and earn rewards from both Chainlink and Eigen Layer. Just like stETH shows the benefits of getting rewards from both Ethereum and Lido Finance, Eigen Layer wants to do the same.
Restaking is a bit more complex than the usual staking. Instead of just picking node operators like in Ethereum L1, you have to choose both the service and its operators. We might see apps that give out tokens for restaking, and each service within the app could have its tokens. For example, for Ethereum indirect staking, there are stETH and rETH, but in restaking, there could be tokens like stETH - A, stETH - B for different services. Eigen Layer would issue tokens like reETH - A, reETH - B for these services. This might get complicated, and some apps might try to simplify it by giving average rewards for all services. The amount of rewards might differ based on which restaking token you buy. So, we might see new types of tokens that combine different service tokens, and even tokens that use these service tokens in a more risky way (like leveraging). This could lead to more use of restaking in DeFi.
Restaking sounds interesting and has its benefits, but it also comes with risks. If something goes wrong with the assets in restaking, it could affect the security of the original Ethereum staking. This is a concern, especially since most restaking will be done by entities other than the original node operators. If these operators make mistakes, those who did the restaking could face problems. This brings up questions about how decentralized the apps that offer indirect staking really are.
Image source: Generated through OpenAI's DALL·E
