Restaking allows users to allocate their assets to support validation across many networks simultaneously, such as Ethereum and others that have been combined with a restaking protocol. It improves capital effectiveness by exploiting Ethereum's security framework and rewarding stakeholder validation efforts.

Restaking Advantages

  1. Economic Security for Protocols: Providing economic security for new protocols is challenging. EigenLayer provides developers with an affordable way to achieve this by utilizing both native ETH and LST technologies, hence expanding support across many network layers.

  2. Protocol Flexibility: Focus on application-specific decisions while retaining complete control over consensus and penalty terms, whether utilizing native ETH or LSTs.

  3. Enhanced Capital Efficiency: Stakers can receive more incentives by validating numerous services without investing additional funds, hence optimizing capital use and improving earnings. This applies to both native ETH and LST restaking scenarios.

Restaking Challenges

  1. High Fees and Liquidity Constraints: Both native ETH and LST restaking involve large fees when claiming rewards, which might have a substantial impact on smaller players. Once ETH is staked or restaked, it is locked and cannot be used until the unbonding period is completed, providing substantial problems for immediate risk mitigation.

  2. Opportunity Cost and Limited DeFi Composability: Stakers must consider the opportunity costs of restaking versus engaging in DeFi activities. EigenLayer limits the DeFi journey post-restaking, introducing liquidity issues and raising perceived risks for Layer 2 chains.

  3. Yield Accrual and Competition: There is fierce competition for Ethereum LST yield farming opportunities with higher incentives. This competitive environment affects both native ETH and LST restaking.

Further Considerations for Native ETH Restaking

  • Distinct Challenges in the AVS Ecosystem: Native ETH restaking confronts distinct challenges, such as the difficulty of establishing new trust networks, value leakage from transaction fees, and the high expenses of giving staking incentives when compared to operational costs. Multiple trust networks may impair dApp security since the cost of an attack equals the minimal cost of corruption across all dependencies.

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