Restaking is one of the most highly anticipated cryptoeconomic innovations as we move into 2024.
But underlying the excitment is significant concern about the risks and how they can be managed.
To discuss this, we were joined by Riad from Cubist, Walter from Gauntlet, and Shai from Chaos Labs.
In case you missed it, here are the top questions from the event!
1. What risks should potential restakers consider?
"Staking through EigenLayer opens up a whole new set of opportunities for users to capture more yield. The decision to join EigenLayer’s restaking ecosystem involves evaluating this expectation of extra yield versus potential risk. There will be a diverse set of AVS’s that are planning to launch on EigenLayer, each with their own magnitudes and probabilities for conditions when it comes to their slashing rules. Each AVS has different functionalities, goals, and services, and you can imagine that a data availability AVS such as EigenDA will have different slashing conditions compared to a bridge or oracle AVS. Stakers are also depositing their ETH or LSTs so there is also a chance that these underlying LSTs that are helping secure the AVS can undergo a slashing event. Naturally, each LST has a set of unique validators and mechanisms on how they accrue the native yield on L1, so these slashing profiles can differ as well.
Another component that first-time stakers should consider is that staking through EigenLayer can be complex and there can be a lot of overhead involved if a user wishes to run their own node operator. The trade offs and benefits are that they can choose the type of AVS they want to secure and have full granularity on what yield they are seeking, which gives them full control over how to optimize the rewards they receive."
— Walter, Gauntlet
"It is not just the risk of being slashed as a result of misbehavior that we need to worry about, it is also the risk of being slashed even though you are innocent. There are other kinds of slashing conditions where users and operators don’t have much experience yet, which is why EigenLayer’s decision not to turn on slashing immediately is a good one. In the case of Ethereum, there are a few well known, established clients that users use that have been studied and shaken out for quite some time yet we still experience bugs with them today. Now, we are going to have a number of AVS’s online which bring a number of new slashing rules, and also as a result there will potentially be more bugs.
It is going to be difficult for the average restaker just starting out to get a good picture of which operator or AVS they should opt into. We need to develop an information ecosystem where users can learn which operators and AVS’ they should work with. We are still in the early stages of how users can get that information and make those decisions."
— Riad, Cubist
"Right now, every restaker is a first time restaker and the lack of information available to users is probably the biggest risk as they don’t fully understand the choices they have. Trying to evaluate different operators and AVS’ based on their strategies is difficult because we don’t have any running history or data to learn from."
— Shai, Chaos Labs
2. What are the systemic risks associated with restaking and how should we think about them?
"Because there are many different types of AVS, there are different sorts of systemic risk that can occur. In general, it is the notion that operators can secure a whole portfolio of different AVS’ and one security of an AVS can impact the security of another AVS, which is ultimately some sort of systemic risk.".
— Walker, Gauntlet
"Operation concentration is the most evident systemic risk that can be identified at this point. The most catastrophic impact from that is if it somehow impacts the security of Ethereum. If EigenLayer eventually grows to be big in the ecosystem, then we could reach a point where systemic risk within EigenLayer will impact a large portion of ETH staked that is securing the beacon chain."
— Shai, Chaos Labs
"When you design your own AVS you can choose whichever slashing condition you want which is a systemic risk in itself. Historically we have seen that some users are willing to opt into riskier things so I would expect that we will see some AVS’ whose slashing conditions are highly correlated with one another. It is going to be very important to bring awareness to these different types of slashing conditions."
— Riad, Cubist
3. How can these risks be managed or mitigated and how is your company addressing this?
"It might be difficult to 100% mitigate these risks but to the extent in which we can, we want to prevent the increase in probability that these tail events do occur. From Gauntlet’s perspective, the best way to do that is to set the parameters that dictate how these transactions within EigenLayer work with the operators and AVS providers. Some of these parameters include caps on LSTs, the maximum amount of each LST that we are willing to take in, slashing quantities and a minimum stake or TVL associated with a protocol. There are a number of second order interactions within each of them which incentivises operators that supply that security."
— Walter, Gauntlet
"One thing that we have been thinking about is how to decouple the risk of slashing from the particular implementation of the AVS. At Cubist we are working on building key management infrastructure where the keys that you use as a validator to generate signatures are kept separate from the rest of your software stack. We have been working with Swell, EigenLayer and others on the Secure Staking Alliance, which is a research group that is working on improving the state of restaking to reduce risk for users in the future."
— Riad, Cubist
"Standardisation will make risk management for restaking better. The approach we are taking at Chaos Labs right now is to build a methodology that understands, evaluates and compares the types of risks of different operators and AVS’s."
— Shai, Chaos Labs
4. Flipping the script for a moment, what is the potential of restaking and what do we risk losing by not exploring it?
"Restaking through EigenLayer opens up a whole new space to acquire yield as we’ll be able to bootstrap new L2s and new use cases for Ethereum."
— Walter, Gauntlet
"One of the risks of not having something like EigenLayer is we lose innovation. There are people today that are building AVS’s, coming up with new ideas and taking new approaches which is all enabled by the shared security model where they can build an AVS and also participate in the security mechanism that underlies ETH. Without EigenLayer we don’t get to think systematically about the design of protocols in quite the same way."
— Riad, Cubist
"At the end of the day anyone who doesn’t engage in restaking is going to be behind. The restaking opportunities are going to offer more risk reward options, and if you continue to stick to traditional staking on Ethereum you are likely to be less efficient in terms of optimizing risk and reward."
— Shai, Chaos Labs
Thanks to everyone who attended the event!
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