Original author: IGNAS

Original compilation: Deep Chao TechFlow

Introduction

In 2024, the field of restaking will see explosive growth and become a major trend in the DeFi field. This article will analyze EigenLayer’s re-pledge mechanism, AVS application cases, etc. In addition, the article will also introduce different types of AVS, such as Ethos, AltLayer, Espresso, Omni, etc., and analyze their characteristics and functions.

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Mark my words: rehypothecation is the fastest growing area in 2024. Re-staking is the 9th largest DeFi category, with $2 billion in TVL for EigenLayer alone.

Don’t forget about number 13"Liquidity re-hypothecation", its scale has reached $1 billion.

With the launch of the first Active Verification Service (AVS) token ALT, and EigenLayer opening deposits on February 5, now is the time to track all the happenings in this space.

I will briefly explain re-staking of EigenLayer and will introduce emerging use cases for AVS enabled by re-staking.

EigenLayer will open for deposits on February 5th. Heres what you need to know.

They have modified their points system to encourage decentralization and decentralization by capping single deposits and LST/LRT allocations at 33%. No single LST/LRT has yet reached the 33% cap.

Swell and EtherFi are offering double points via native token airdrops. My approach is to diversify across different LSTs/LRTs to achieve balanced point accrual and risk.

Regarding the LRT competition, I am hedging bets on several projects:

• EtherFi: This is the leading LRT with 51% LRT market share. Use my referral link to earn an additional 1000 EtherFi Points per ETH and double points on partner DeFi protocols.

• Kelp DAO: Earn Eigenlayer Points and KelpDAO Miles by restaking stETH or ETHx.

• Renzo: Like EtherFi, use Eigenpods for native ETH re-staking.

• Swell: You can deposit ETH to get swETH LST and re-stake on EigenLayer. Or deposit directly into rswETH LRT.

• Eigenpie: Eigenpie already has $100 million in TVL, supports 6 LST, and offers double points in the first two weeks. These points are used for 10% EGP token airdrop, and 60% EGP token IDO is obtained with US$3 million FDV to encourage early users to participate.

Re-staking: ELI 5

Back in September 2023, I wrote in detail about restaking and staking Liquid Restaked Tokens (LRT). But a lot has changed since then. There are multiple LRT protocols now on mainnet, and things are heating up with AltLayer launching its token.

Many people are still confused about re-hyping and often make it complicated.

Simply put, it lets you stake (collateralize) your ETH against various Active Validation Services (AVS) to enhance the security of your chosen protocol. This includes services such as bridges, oracles, and sidechains, with more innovative concepts on the horizon.

For example, Optimism and Arbitrum can bypass the 7-day fraud proof window and enable instant withdrawals, as long as there is sufficient financial security (ETH in this case) to support the withdrawal.

These"insured bridges"Adequate reallocation is guaranteed in the event of validator errors. You re-stake ETH to"insurance bridge AVS", then in the event of an error in the validator, some ETH may be lost. (Judging from the current situation, if there is a vulnerability in the smart contract,"insurance bridge"and cannot protect your interests).

You can directly re-stake ETH, or you can re-stake through liquid pledge tokens such as stETH, rETH, cbETH, etc. EigenLayer added LST sfrxETH, mETH and LsETH this round.

Benefits of re-pledge:

• Multi-Protocol Rewards: Earn revenue from multiple protocols using the same ETH

• Improving security: Leveraging Ethereum’s security to implement new protocols

• Developer freedom: No need to build new security layers, saving developers time and resources

Risks of re-pledge:

• Risk Reduction: Increased risk of losing staked ETH due to malicious activity

• Centralization risk: If too many stakers move to EigenLayer, it may pose a systemic risk to Ethereum

• Smart Contract Risks: Like Elsewhere in DeFi

I believe the risk is limited at this time, as Eigenlayer is still in Phase 2 testnet and has not enabled permissionless AVS deployment. I agree with ChainLinkGod that while the risks will mostly be ignored, at least we’ll all be feeling good until 2025.

On the current Phase 2 testnet, restakers like you can delegate to operators. These operators verify AVS. So, you are not staking directly to AVS!

EigenDA (Data Availability) is the first AVS of the second phase. Rollup can be integrated to increase throughput. The second phase of the mainnet will be launched in the first half of 2024, and the third phase will be launched later in 2024 with more AVS.

You can actually see how operator delegation works on the Goerli testnet. according toGuide hereGet some goerliETH and exchange it for stETH. then go toEigenlayer testnetpage and deposit stETH. Then select the operator running EigenDA AVS.

Interestingly, among the many operators, one stands out: Deutsche Telekom. Telekom appears to be using Eigenlayer for its staking service.

Anyway, are you ready to manually select AVS and operators on mainnet yourself? Considering the high gas costs? And then collect rewards from AVS? Then sell the rewards to get more ETH to compound? If youre not particularly wealthy, youd expect gas costs to be high.

I’m sure you can guess what I’m going to say next: Liquidity Recollateralized Tokens (LRT). But more about LRT will be discussed in the next article. Now, let’s focus on the use cases for the new tokens that AVS will airdrop to us.

The first AVS is EigenDA, but I wont go into details as I doubt it will have a separate token (its a data availability layer for Rollup to save on data storage fees).

Active verification service

Dont be fooled by the name. AVS is a full-featured protocol that uses re-staking ETH to enhance its functionality. I mentioned the “insurance bridge” above, but the scope and impact of AVS will soon become more apparent.

I will introduce 7 AVS in very simple language in this blog. Because if we invest ETH into the Restake ecosystem, we need to understand AVS.

Ethos: Bringing ETH safely to Cosmos

Ethos brings the economic security and liquidity of Ethereum to Cosmos.

The so-called Cosmos Consumer chain typically issues its native staking tokens to secure the network. However, this introduces more complexity and inflationary token economics. While Cosmos ATOM stakers provide an inter-chain security (ICS) solution, the Ethereum ecosystem, through Ethos and re-staking, is now expanding into Cosmos itself.

Coupled with Dymension, the ATOM fork, and now the launch of Ethos, ATOM seems to be under a lot of pressure.

Ethos is inspired by Mesh Security (which allows staked tokens from one chain to be used on another chain), thereby enhancing economic security without the need for additional nodes.For more details check out the Ethos blog post here。

Which security solution wins depends on its adoption. Ethos is launching with momentum.

The first partner is Sommelier, an automated revenue library provider with a TVL of $60 million. As far as I know, more Consumer Chain is coming soon.

The advantage of this structure is that ETHOS may receive airdrops (and revenue) of partner chain tokens. At the same time, the ETHOS tokens themselves will be airdropped to ETH re-stakeholders on Eigenlayer as part of our harvest of EIGEN tokens.

All you need to do is stake ETH again and receive the airdrop.

AltLayer: Re-pledged Rollup

I just introduced AltLayer in a previous article, so I won’t go too deep into its functionality in this article.You can click here to view it.

But what you need to know is that AltLayer introduces three AVS to bring Rollup

• Quick finality

• Decentralized sorting

• Decentralized verification

The ALT token economic model is interesting because ALT must be staked along with re-staking ETH to protect these three AVS.

If you experienced DeFi Summer 2020, you will understand the Ponzi effect it can have.

Currently, only 3% of the community’s total supply is airdropped, but more airdrops are planned in the future. The initial circulating supply is 11%. Does $4.3 billion in FDV (at the time of writing) justify a deal that no one had heard of just a few weeks ago?

Not so sure, but it makes me more bullish on the entire restaking ecosystem.

Additionally, I suspect AltLayer reserves liquidity mining rewards for restakers. As more AVS is launched, various services will compete to attract valuable ETH deposits. After all, AVS without any deposited ETH is worthless.

Espresso: a decentralized sorter

Espresso is a Layer 2 decentralized sorter. As you know, L2 gets a lot of flak for the centralization of the sorter. There’s a nice visual representation of how Espresso leverages its HotShot consensus to achieve this,Please click here to go to their website to view。

AltLayer actually integrates with Espresso, so developers can choose to deploy on the AltLayer stack using AltLayers decentralized validation solution and/or the Espresso sequencer.

Omni: The blockchain that connects all Rollups

Problem: L2 reduces transaction costs but leads to ecosystem fragmentation. This makes it difficult for developers to reach a wide audience, complicates the user experience, and fragments mobility.

Bridging has also become necessary, but bridging usually issues wrapped tokens, which is risky. If the bridge is hacked, there won’t be enough underlying assets to support the bridge’s wrapped tokens. As a result, the wrapped token loses its peg.

Solution: Omni

Omni is a “restaking-protected L1 blockchain” that aims to unify all Ethereum rollups under one roof.

Omni introduces a “unified global state layer” that is secured through EigenLayer re-staking. This layer centralizes cross-domain management of applications under one roof.

Use cases include:

• Cross rollup margin accounts and leverage trading: post margin on one domain and trade with that margin on another domain

• Cross rollup NFT minting

• Cross-rollup lending: deposit collateral on one domain and borrow collateral on another domain

Theres a lot more, but does this sound familiar? This is what LayerZero does.

LayerZero’s cross-chain messaging enables Omnichain fungible tokens (OFTs) instead of wrapper tokens. Mantas STONE token is an ETH OFT, and LayerZero issued Lidos wstETH OFT.

But what if there is a vulnerability in the LayerZero messaging system? Well, Omni secures it with re-staking ETH, which will be forfeited if a validator misbehaves.

Consider a frequently speculating degen who wants to use his ETH on Arbitrum to obtain a USDC loan on Optimism. Degen’s transactions on Arbitrum are monitored by Omni validators, who ensure the integrity of data transferred to Optimism. These validators are incentivized by rewards and deterred by the risk of losing their staked ETH due to false reports.

LayerZero may use their token staking to secure cross messaging, but if something goes wrong with the LayerZero contract and the token goes down, that security is useless. ETH is an asset outside the system that is more difficult to secure on the network.

Competition is heating up for LayerZero

Injective partners with Omni to make $INJ the first asset on the Omni Open Liquidity Network. Omni issues xERC 20 INJ tokens, bringing INJ into the Ethereum rollup ecosystem.

Omni is backed by $18 million from high-profile investors such as Pantera Capital, Two Sigma Ventures, and Jump Crypto. So, I guess it will do well.

Hyperlane: Similar to Omni, but seems better

Do you think Omni is great at connecting Ethereum Rollup? But Hyperlane seems to be even better. Because the goal of Hyperlane is to connect all L1 and L2.

Using Hyperlane, developers can build cross-chain applications, applications that span multiple blockchains, using cross-chain messaging, secured through its modular security stack that includes cross-chain security modules and re-staking of ETH.

Judging from the documentation, Hyperlane will support Ethereum L2, Cosmos ecosystem chain, Solana, Move-based chains, etc.

Hyperlane’s permissionless interoperability sets it apart, as Rollup can connect to Hyperlane itself without the need for cumbersome governance approvals and more. Theyre very proud of it, as you can see from the tweet below. However, LayerZero v2 also appears to allow permissionless deployment.

Unfortunately, I cant find token information for Omni or Hyperlane at this time.

The Blockless: Powering dApps as they are used

In ordinary dApps, we cannot directly contribute computing power, and applications are limited to specific L1 or L2 capabilities, such as latency, transaction speed, gas fees, etc.

Therefore, Blockless adopts Net-Neutral Applications (nnApp), allowing users to power applications simply by using them. It uses nestled nodes where each users device acts as a node, contributing its resources to the network. This means that an applications computing power scales as its user base grows, a significant shift from the traditional model.

In short, you run a node while using your application.

Blockless landing page

For example, some dApps may choose to keep governance on Ethereum and data availability workloads on Celestia or EigenLayer. But computationally intensive work for use cases such as machine learning, AI interfaces, and gaming will be performed in a faster and more efficient off-chain environment.

This results in computing support for these applications scaling directly with the number of users, and more users means more computing power provided by the community.

This reminds me Grass, an app on Solana that sells idle internet bandwidth to train artificial intelligence, although its not part of Blockless.

Blockless uses proof-of-stake to secure its network, so the token is more than just a meme.

As for restaking, Blockless will make its network available to applications built on EigenLayer to minimize unexpected cuts.

other

You can view a complete list of all AVS on the Eigenlayer website. It is worth mentioning that:

• Lagrange: Another competitor to LayerZero, Omni, and Hyperlane, its cross-chain infrastructure is capable of creating universal proof of state across all major blockchains. It recently raised $4 million in seed funding from 1kx and others.

• Drosera: Incident response protocol, used to control vulnerabilities. When a hack occurs, Droseras trap detects it and takes action to mitigate the attack.

• Witness Chain: Use re-staking to perform Proof of Diligence and ensure the security of rollup, and use Proof of Location to establish physical node decentralization.