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‘Treat restaking like AI’: Ethereum’s emerging trend sparks concerns about network stability

‘Treat restaking like AI’: Ethereum’s emerging trend sparks concerns about network stability
Ethereum co-founder Vitalik Buterin and EigenLayer founder Sreeram Kannan
  • Restaking is an upcoming blockchain feature that will allow users to double-stake their Ether on other protocols or even different chains.
  • Ethereum co-founder Vitalik Buterin has expressed concerns about restaking’s potential impacts on the network’s stability.
  • EigenLayer, the company behind restaking, shares Buterin’s concerns and says its restaking models are safe.

The eagerly-awaited protocol of “restaking”, led by a company called EigenLayer, has stirred concerns over the practice’s potential impact on Ethereum’s stability. While EigenLayer says its restaking models will pose low risks, the company also acknowledges broader concerns surrounding the upcoming innovation.

Staking is the practice of committing funds to secure the Ethereum network while earning rewards. Restaking is a novel “primitive” — a blockchain feature — that will allow users to recommit their staked Ether — using the so-called liquid staking tokens like Lido’s stETH — on other decentralised applications on Ethereum and other blockchains.

But in a recent post, Ethereum’s co-founder Vitalik Buterin has raised concerns about “overloading” Ethereum with complex and poorly-designed restaking models.

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“We should [...] preserve the chain’s minimalism, support uses of restaking that do not look like slippery slopes to extending the role of Ethereum consensus” Buterin said in his post.

Restaking as a fully-fledged protocol is currently being developed by US company EigenLayer, which raised $50 million in a Series A round in March. It has recently deployed the protocol on Ethereum’s testnet, the mock version of the blockchain.

Ethereum's total value locked, a metric for investor deposits in DeFi

Restaking presents a tantalising prospect for investors, as it not only offers users Ethereum’s standard staking yields but also additional rewards upon restaking.

It can also open up opportunities for developers. Restaking allows for “easier creation of bridges, oracles and other services backed by the same primitives as staked Ether,” Marc-Thomas Arjoon, research associate at crypto asset management firm CoinShares, told DL News.

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“A new blockchain can even tap into this marketplace instead of bootstrapping its own validator set, which is difficult and expensive,” Arjoon said.

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But there is also a growing concern that restaking could introduce significant risks.

Spinning up new price oracles, bridges, and even chains that depend on the security of restaked Ether could potentially weaken Ethereum’s security. Any issue within one part of the system could cause a ripple effect on these added layers that are built on restaking, especially if they’re not meticulously designed.

“I would advocate for EigenLayer to treat restaking like AI and develop a strong internal ‘alignment’ culture and team,” Justin Drake, a researcher at Ethereum Foundation, told DL News. Drake is one of the two researchers who reviewed Buterin’s post prior to publication.

“Like AI, restaking has the potential to unlock awesome services and reshape the ecosystem. Also like AI, restaking likely introduces systemic risks that are hard yet essential to tackle.”

EigenLayer’s founder Sreeram Kannan told DL News that he “fully agrees” with Drake’s assessment and said he’s “glad Vitalik is urging caution in restaking protocols so that the low-risk use cases are cultivated without going over to the high risk ones.”

High risks of subjective slashing

Buterin’s primary concern, which he labels as “high risk”, revolves around the possibility that the deposits of restakers might be “slashed” if they breach the rules of another protocol. Such an event — if it impacts too many stakers — could have serious cascading effects on Ethereum.

“Slashing” refers to taking away some Ether from validators who either act maliciously, like trying to cheat the system, or don’t do their job correctly, like being offline when they should be checking transactions. It’s a way Ethereum keeps its system safe by punishing those who don’t follow the rules.

Arjoon said that in cases of mass slashing, the security of the Ethereum network could be at jeopardy since stakers may be “force-exited due to having less than the minimum required,” which is 32 Ether.

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Such a mass exit would require a major action to mitigate the risks of reduced network security.

“The risk of subjective slashing is that if the large group of other nodes lie, then honest stakers may be slashed. This may require forking of Ethereum to save honest nodes,” Kannan told DL News. Forking refers to creating a new version of the blockchain, which requires consensus of the Ethereum community.

But Kannan told DL News that EigenLayer doesn’t pose such high risks since “the set of use-cases we have been considering compatible for EigenLayer are all based on either objective attributability or no slashing.”

“All of them will be low risk in Vitalik’s classification,” he said.

Ethereum’s social layer and ‘bailouts’

If the high risks come to pass, Buterin and others suggest, Ethereum’s community — social layer or layer 0 as it’s often called — may need to mobilise to address a major crisis, echoing past events — a situation that many would prefer not to see repeated.

Ethereum’s design as an open-source project affords its community a critical role in its governance and development through social consensus.

“I see Vitalik’s post as an invitation for the community to recalibrate the cost-benefit analysis around the use of the social layer for application layer interventions,” Drake told DL News.

So the question is, how much of Ethereum’s social consensus — the people power — must be expended for technical troubles?

That question became especially relevant in the DAO hack in 2016, which saw $50 million in Ether stolen. The response efforts culminated in a hard fork — creating a new version of the Ethereum blockchain in which the hack was reversed.

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Many view that move as a bailout because it intervened in what would otherwise have been the natural consequences of the hack, restoring funds to DAO token holders as if the hack had never occurred.

“A bailout — as done for The DAO in 2016 — provides a one-off short-term relief,” Drake said. But avoiding such situations can benefit us more in the long run, as it builds trust and fairness, he added.

The DAO hack, and the subsequent action taken by leading Ethereum figures, led to a split in the Ethereum community, with those opposed to the hard fork continuing to support the original, un-forked chain, which came to be known as Ethereum Classic.

Ethereum Classic's total value locked, a metric for investor deposits in DeFi

There’s little appetite left among the community to engage in another bailout of that sort.

“Social consensus is necessary to fix consensus bugs and vulnerabilities. It is also useful to incorporate consensus-layer innovations like proof-of-stake, EIP-1559, and dankscaling,” Drake told DL News.

“Despite its necessity and utility, it is wise to minimise dependency on social consensus,” he said. “Indeed, social consensus is an expensive tool.”

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