Understanding the Ethereum Re-Staking Race

In July 2023, the emergence of EigenLayer opened up a brand new market for re-staking, causing a stir in the industry. From the Total Value Locked (TVL), it is evident that each round of re-staking capacity is quickly filled, indicating a significant demand for re-staking in the market. In this article, we will delve into the principles and strategies of this track to provide a deeper understanding.

What are the issues with Ethereum staking? Why is re-staking necessary?

Ethereum staking facing three main issues:

  1. Lido occupies 31% of the market share, nearing the 33% threshold, which is centralization risks to Ethereum's consensus layer.

  2. The Annual Percentage Rate (APR) yield is too low, currently at only 3.5%, and it tends to decrease further as the amount of staked ETH increases.

  3. There are too many validators, resulting in significant machine resource idleness and waste. The primary income sources for Ethereum validators are:

  4. Providing attestation for ETH Beacon blocks, with current daily income at 0.002 ETH, approximately $7.

  5. Submitting ETH Beacon blocks, with each block earning 0.02 ETH, roughly $70. However, validators have an average of one block opportunity every 60 days.

  6. Execution Layer MEV income or transaction fee income, ranging from 0.01 to 0.1 ETH per block. This income is only available when producing blocks, occurring roughly every 60 days.

How does re-staking work? (Using EigenLayer as an example)

The working principle of re-staking is illustrated in the following diagram.

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The left diagram shows that DApp requires Ethereum and multiple Active Validated Services (AVS) without EigenLayer. In this case, if any of the AVS behaves maliciously, it could lead to a malfunction of the DApp, resulting in a financial cost is the min of $10B and $1Bs, equaling to $1B. On the right diagram, with EigenLayer in place, re-staking is performed, introducing a double-penalty for malicious behavior by AVS. This includes penalties from both the staking and re-staking, significantly increasing the cost of misconduct. Consequently, the total cost is the sum of all stakes, amounting to $13 billion.

Which DApp application will require the use of re-staking validators ?

Re-staking validators can be used in the following business scenarios:

  • Data availability

  • Decentralized Sequencer

  • Cross-chain bridges

  • Oracles

  • Liquidation

  • Low-latency settlements, such as ZK proofs In addition to these applications, there are many other application that combine on-chain and off-chain elements need re-staking validators to supply validating service. It is so essential that EigenLayer's revenue potential far exceeds that of current staking APR.

What are the different ways for users to participate in the re-staking application ?

There are several ways for users to participate in the re-staking application:

  • Solo Staker: Users who stake 32ETH and operate their own validator node. These users have full ownership of the node and validator key responsible for operating the node. By modifying the Withdrawal Credential to the re-staking project's contract address, they can complete the re-staking process.

  • Liquidity Staker: Users who stake less than 32ETH (similar to Lido, Rocket Pool users) and do not have full node ownership. These users can mint re-staking ETH to participate in staking.

  • Node Operator: Users responsible for operating re-staking validator nodes.

What are some worthwhile products to participate in the re-staking application ?

Currently, there are several mainstream re-staking products available on the market:

  • ether.fi: Users can mint eETH on the official website to participate in re-staking, or purchase eETH from a decentralized exchange (DEX). They can also sell eETH on the DEX to convert it back to ETH.

    • Key Features:

      • The governance token ETHFI has been issued, allowing users to purchase it. However, the governance token currently has limited utility.

    • Main Risks:

      • Contract risks, including vulnerabilities in the contract code.

      • Policy and compliance risks.

  • puffer.fi: Users can mint pufETH on the official website to participate in re-staking, or purchase pufETH from a DEX. They can also sell pufETH on the DEX to convert it back to ETH.

    • Key Features:

      • Unique anti-slash technology: puffer verifies the security of each signature to prevent double-signing incidents, reducing the risk of asset loss for stakers.

      • Governance token issuance is pending, with users able to earn points by staking ETH for potential governance token airdrops in the future.

    • Main Risks:

      • Contract risks, including vulnerabilities in the contract code.

      • Policy and compliance risks.

  • renzoprotocol.com: Users can mint ezETH on the official website to participate in re-staking, or purchase ezETH from a DEX. They can also sell ezETH on the DEX to convert it back to ETH.

    • Key Features:

      • Supports multiple chains and networks, allowing Layer 2 ETH to participate in re-staking.

    • Main Risks:

      • Contract risks, including vulnerabilities in the contract code.

      • Policy and compliance risks.

  • kelpdao.xyz: Users can mint rsETH on the official website to participate in re-staking, or purchase rsETH from a DEX. They can also sell rsETH on the DEX to convert it back to ETH.

    • Key Features:

      • Supports cross-chain transfers of rsETH through Stargate.

    • Main Risks:

      • Contract risks, including vulnerabilities in the contract code.

      • Policy and compliance risks.