Mark my words: Restaking will be the fastest growing category in 2024.
Rehypothecation is the 9th largest DeFi category, with a value of $2 billion on EigenLayer alone (a number that’s rising at the time of writing).
Don’t forget that the “liquidity re-hypothecation” category is ranked 13th and is worth $1 billion.
Now, with the release of the first AVS token ($ALT) and the opening of Eigenlayer deposits on February 5th, it’s time to get a clear picture of what’s happening in the industry.
In this article, I will briefly introduce Eingelayer restaking and the new Active Verification Service (AVS) application it supports. Really cool!
Eigenlayer will open deposits on February 5th. Here's what you need to know.
They modified the points system to encourage decentralization by limiting single deposits and LST/LRT allocations to 33%. To optimize Eigenlayer points, consider avoiding the top three TVL protocols:
eETH launched by EtherFi (197,000 Ethereum coins)
stETH launched by Lido (195,000 Ethereum coins)
swETH launched by Swell (112,000 Ethereum coins)
However, Swell and EtherFi offer double points via native token airdrops. My approach is to use a diverse mix of LSTs/LRTs to balance point accrual and risk.
Regarding the competition for LRT, I have hedged bets on several contenders:
EtherFi: LRT leader, accounting for 51% of the LRT market share.
Kelp DAO: Earn Eigenlayer points and KelpDAO miles by restaking stETH or ETHx.
Renzo: Like EtherFi, use Eigenpods for native Ethereum restaking. LRT market share grew to 21%.
Swell: You can deposit Ethereum to get swETH LST and re-stake on Eigenlayer. Or direct deposit to get rswETH LRT.
Eigenpie: New entrant but already has $100M TVL, supports 6 LSTs, and offers double points in the first two weeks. These points are used towards a 10% airdrop of $EGP tokens and earn 60% of $EGP tokens IDO at $3M FDV to incentivize early participation.
I will explain the differences in more depth in my next post.
Restaking
Back in September 2023, I detailed my views on re-staking and staking Liquidity Re-staking Tokens (LRT). But after that, things progressed a lot. There are multiple LRT protocols now on mainnet, and with AltLayer launching its token, things are heating up.
Many people still don’t know what Restaking is and often make it too complicated.
Simply put, restaking allows you to guarantee (stake) your ether for various Active Validation Services (AVS), thereby increasing the security of your chosen protocol. Including cross-chain, oracle and side-chain services, and more innovative concepts are about to emerge.
For example, Optimism and Arbitrum enable instant withdrawals, bypassing the 7-day fraud prevention window, as long as there is sufficient economic security (in this case, Ethereum) to support the withdrawal.
These "safety-guaranteed cross-chains" provide sufficient redistribution protection in the event of improper behavior of the validator (Validator). However, if you re-stake a "secured cross-chain AVS", you may lose some ether if the validator makes a mistake. (As far as I know, if there are loopholes in the smart contract, a secure cross-chain cannot protect your funds).
You can re-pledge Ethereum directly or re-pledge Ethereum through liquid pledge tokens such as stETH, rETH, cbETH. Eigenlayer has newly added support for LSTs, sfrxETH, mETH and LsETH.
The benefits of re-pledge are:
Multi-Protocol Rewards: Earn rewards from multiple protocols using the same Ether. For example, the cost of ensuring cross-chain security.
More secure: The new protocol leverages Ethereum’s security.
Developer freedom: No need to build new security layers, saving developers time and resources.
The risks are as follows:
Slashing Risk: Increased risk of losing ether due to malicious behavior.
Centralization risk: Ethereum may face systemic risks if too many stakers move to EigenLayer.
Smart contract risks: Such risks exist in every corner of DeFi.
I believe the risk is limited at this time as Eigenlaer is still in the Stage 2 testnet phase and does not have permissionless AVS deployment enabled. However, I agree with ChainLinkGod that these risks will mostly be ignored, and we’ll have the fun of it until at least 2025.
In the current Stage 2 testnet phase, restakers like you can delegate to an operator. AVS is verified by these operators. So, you won’t directly re-stake AVS!
圖源：Ignas
EigenDA (Data Availability) is the first AVS at Stage 2. Rollup can be integrated to improve throughput. Stage 2 mainnet will launch in the first half of 2024, and Stage 3 will launch more AVS later in 2024 (the real fun will begin then).
Interestingly, among the many operators, Deutsche Telekom stands out. It seems that Telekom will use Eigenlayer for its staking service.
圖源：Ignas
Regardless, are you ready to manually select AVS and carriers yourself? On mainnet with high gas fees? And get rewards from AVS? And then sell the rewards for more ether? If you are not a millionaire, the gas charges will be quite high.
I’m sure you can guess what I’m going to say: Liquidity Recollateralized Tokens (LRT). But I will introduce more about LRT in the next article. Now, let’s look at the application of the Active Verification Service (AVS), which will airdrop our shiny new tokens.
The first AVS was EigenDA, but I won't go into details as I doubt it will have a separate token (it's a data availability layer that helps rollups save on data storage fees).
AVS application
Don’t let the name AVS fool you. AVS is a fully fledged protocol that uses re-staking Ethereum to enhance its functionality. I mentioned “secured cross-chain” above, but the scope and impact of AVS will soon become more apparent.
The recently well-known Eigenlayer AVS application in the community is AltLayer, which is a re-staking Rollup and has already issued coins.
I've introduced AltLayer in a previous article, so I won't go into depth about its functionality in this article. But you need to know that AltLayer introduces three AVSs to achieve Rollup’s fast finality, decentralized sorting, and decentralized verification.
The $ALT token economics are interesting because $ALT needs to be co-collateralized with recollateralized Ethereum to ensure the security of these three AVS. Many people seem to overlook this.
If you farmed a Pool2 farm during the DeFi summer of 2020, you know the Ponzi effect it can have.
Currently, only 3% of the total supply is airdropped to the community, but more airdrops are planned in the future. The initial circulating supply is 11%. Could an FDV of $4.3 billion (at the time of writing) prove the success of a deal that no one was paying attention to even a few weeks ago?
Not necessarily, but it makes me more optimistic about the entire re-staking ecosystem.
Additionally, I suspect AltLayer is reserving liquidity mining rewards for restakers. As more AVS become available, various services will compete to attract high-value Ethereum deposits.
After all, AVS without an Ethereum deposit is worthless.
Time to look for the next $ALT on EigenLayer. Here are 8 EigenLayer AVS apps worth keeping an eye on.
(1) Ethos: Bringing the security of Ethereum to Cosmos
Ethos brings the economic security and liquidity of Ethereum to Cosmos.
The so-called Cosmos Consumer Chain usually issues its own native pledge tokens to ensure network security. However, it introduces more complexity and inflationary token economics. While Cosmos $ATOM stakers provide an inter-chain security (ICS) solution, the Ethereum ecosystem (Ethos + staking) is now expanding into Cosmos’ own industry.
Coupled with the release of Dymension, the $ATOM fork, and now Ethos, $ATOM seems to be under a lot of pressure.
Ethos was created inspired by Mesh Security (which allows staked tokens from one chain to be used on another chain), thereby increasing economic security without the need for additional nodes. For more detailed information, please refer to the official article.
Which security solution wins depends on adoption. Ethos is starting strong.
Sommelier, an automated revenue vault provider with $60 million in TVL, is the first partner. As far as I know, more "Consumer Chains" are coming soon.
The beauty of this structure is that $ETHOS may receive token airdrops (and proceeds) from partner chains. At the same time, $ETHOS tokens will be airdropped to Ethereum re-stakeholders on Eigenlayer while we farm $EIGEN tokens.
All you need to do is to stake your Ethereum again and claim the airdrop. very simple.
(2) Espresso: decentralized sorter
Long story short. Espresso focuses on Layer2 decentralized sorters. As you know, Layer2 has been criticized a lot due to the centralization of the sorter. For more information on how Espresso uses their HotShot consensus to solve this problem, check out their website.
AltLayer actually integrates with Espresso, so developers deploying an AltLayer stack can choose to use AltLayer's decentralized validation solution and/or the Espresso sequencer.
(3) Omni: the blockchain that connects all Rollups
Problem: Layer 2 reduces transaction costs, but leads to fragmentation of the ecosystem. This makes it difficult for builders to reach wider audiences, complicates user experience, and fragments mobility.
Cross-chain has also become a necessity, but each bridge usually issues a variety of wrapped tokens, which is risky. If the bridge is hacked, there will not be enough underlying assets to support cross-chain wrapped tokens. As a result, wrapped tokens are decoupled.
Solution: Omni
Omni is a "secure re-staking Layer1 blockchain" designed to unify all rollups of Ethereum.
Omni introduces a "unified global state layer" to ensure security through EigenLayer's re-pledge. This layer centralizes cross-domain management of various applications.
Applications include:
Cross Rollup margin accounts and leverage trading: post margin on one domain and then trade using that margin on another domain.
Minting across Rollup NFTs.
Cross-rollup lending: Deposit collateral on one domain and borrow against that collateral on another domain.
There are many more applications, does this all sound familiar? This is what LayerZero does.
LayerZero’s cross-chain messaging supports chain-wide fungible tokens (OFTs), not wrapper tokens. Manta’s $STONE token is the Ethereum OFT, and LayerZero issued the Lido wstETH OFT.
But what happens if there is a bug in the LayerZero messaging system? Omni will provide security by re-staking Ether, and if the validator misbehaves, the Ether will be slashed.
Consider a typical Degen who wants to use his Ethereum on Arbitrum to obtain a $USDC loan on Optimism. Transactions of this Degen on Arbitrum are monitored by Omni validators, who ensure the integrity of the data transmitted to Optimism. Validators verify and report these transactions, and they are incentivized by rewards and face the risk of losing their staked ether due to reporting errors.
LayerZero may use their token staking for cross-messaging security, but if something goes wrong with the LayerZero contract, the tokens get dumped and that security is... useless. Ethereum is a hard asset that ensures network security outside the system.
Injective has partnered with Omni to make $INJ the first asset on Omni’s open liquidity network. Omni issues xERC20 $INJ tokens, bringing $INJ into the Ethereum Rollup ecosystem.
In addition, Omni has received $18 million in support from well-known investment institutions such as Pantera Capital, Two Sigma Ventures, and Jump Crypto. So, I think it will go very well.
(4) Hyperlane: Like Omni, but better?
You thought it was cool that Omni connected to Ethereum Rollup. Omni, step aside for now, because the goal of Hyperlane is to connect all Layer1 and Layer2.
Using Hyperlane, developers can build cross-chain applications - applications that span multiple blockchains using cross-chain messaging, which guarantees their modular security stack with cross-chain security modules (whatever that means) And the security of re-pledged Ethereum.
Judging from Hyperlane’s official documents, it will support Ethereum Layer2, Cosmos ecological chain, Solana, Move chain, etc. This is really cool.
Hyperlane’s permissionless interoperability sets it apart, as Rollup can connect to Hyperlane itself without the need for cumbersome governance approvals, etc. They're really proud of it. However, LayerZero v2 also appears to support license-less deployment.
Unfortunately, I couldn’t find any token information on Omni or Hyperlane, so we’ll have to wait a little longer.
(5) Blockless: Provide computing power support for dApps when you use them
“To sum it up: when you open an app, you are naturally supporting it by using the app, and then the app rewards you.” - Twitter
This fascinates me.
In ordinary DApps, we cannot directly contribute computing power, and the App is limited to specific Layer1 or Layer2 functions, such as latency, transaction speed, Gas fees, etc.
Therefore, Blockless adopts a network-neutral application (nnApp) that allows users to support them just by using them. It uses "nested nodes", where each user's device acts as a node and contributes its resources to the network. This means that an application’s computing power increases as its user base expands, a significant shift from the traditional model.
In short, you run a node when you use the application.
圖源：Ignas
For example, some DApps may choose to keep governance on Ethereum and data availability workloads on Celestia or EigenLayer. But intensive calculations for applications such as machine learning, artificial intelligence interfaces, and games will be performed in faster and more efficient off-chain environments.
This results in the computing support for these applications growing directly with the number of users. More users will bring more computing power provided by the community.
I'm thinking of Grass, an app on Solana that lets you sell idle network bandwidth to train artificial intelligence, although that's outside the scope of Blockless' capabilities.
Blockless proof-of-stake secures the network, so the token will be more than just a meme.
As for restaking, Blockless will provide networking for applications developed on EigenLayer to minimize accidental slashing.
Wonder if nnApps will make my phone overheat...
Other AVS
You can check out the full AVS roster on the Eigenlayer website. But there are other AVS worth mentioning:
(6) Lagrange: Another competitor to LayerZero, Omni and Hyperlane, its cross-chain infrastructure supports the creation of universal state proofs on all major blockchains. Recently raised $4 million in seed funding from 1kx and others.
(7) Drosera: "Incident response protocol" to deal with vulnerability attacks. When a hack occurs, Drosera Trap detects the attack and takes steps to mitigate it. Sounds cool.
(8) Witness Chain: Use re-pledge to implement Proof of Diligence and ensure Rollup security, and use Proof of Location to establish physical node decentralization.
[Disclaimer] There are risks in the market, so investment needs to be cautious. This article does not constitute investment advice, and users should consider whether any opinions, views or conclusions contained in this article are appropriate for their particular circumstances. Invest accordingly and do so at your own risk.
This article is reproduced with permission from: "ForesightNews"
Original author: Ignas
Compiled by: xiaozou, Golden Finance