EigenLayer Restaking Guide: All You Need to Know

TL;DR

• EigenLayer restaking allows users to earn additional rewards on top of their base staking returns by putting their staked ETH to secure other applications on the Eigenlayer network.

• There are two main ways to participate: liquid restaking with existing tokens or native restaking with validator nodes (requires technical expertise). 

• While EigenLayer offers increased yield and security for DeFi, users should also consider the added complexity and potential risks before getting involved.

There are constantly new protocols and mechanisms in the DeFi ecosystem that are emerging to optimize returns and security. EigenLayer restaking is one such innovation that's making waves for Ethereum users. This guide dives into everything you need to know about EigenLayer restaking, from its core concepts to practical implementation.

What Is Restaking?

Traditionally, staking your cryptocurrency involves locking it up to support a blockchain network's security (also known as a consensus mechanism). This consensus mechanism is a critical component for Proof-of-Stake (PoS) networks. The incentive for users to contribute to these consensus mechanisms via staking is to earn rewards. EigenLayer takes this concept a step further by introducing restaking.

Here's the gist of it: instead of staking your tokens on just one network (like Ethereum), EigenLayer allows you to reuse your staked assets to provide security to other applications, known as Actively Validated Services (AVS). This essentially creates a pool of restaked assets that these new applications or services can tap into for enhanced security. Think of it as continuing to stake your assets to support the Ethereum consensus mechanism, while also staking to validate applications (AVSs) that aren't directly built on Ethereum.

How Does Restaking Work?

EigenLayer functions as a marketplace between restakers and Actively Validated Services (AVS). Here's a simplified breakdown of the process:

1. Users stake their ETH on Ethereum or utilize existing liquid staking tokens (LSTs) like stETH, rETH, cbETH, and LsETH.

2. Users then choose to opt-in to EigenLayer's restaking smart contracts with their staked ETH or LSTs. 

3. Users can then delegate their restake to an operator or run their own validator for specific AVSs on EigenLayer.

4. AVSs decide how much yield to offer and operators/validators select which AVSs to validate for, enabling users to generate an additional yield on top of their base staking rewards.

Liquid vs Native Restaking

There are two primary ways to participate in EigenLayer restaking:

• Liquid Restaking Using LSTs: This is the simpler option. You can use your existing LSTs, which represent staked ETH on other platforms, and directly deposit them into EigenLayer's smart contracts for restaking.

• Native Restaking with Ethereum Validator Nodes: This method requires running your own validator node on the Ethereum network. Validators first need to set up an Eigen Pod to participate in native staking. It's a more technical approach that comes with higher potential rewards but also carries greater responsibility in maintaining the network's integrity.

How to Restake Your Tokens On EigenLayer

The specific steps for restaking your tokens will vary depending on whether you're using LSTs or running your own validator node. Here's a general overview:

Liquid Restaking Using LSTs

1. Visit the EigenLayer website

2. Navigate to Restake

3. Connect your crypto wallet that holds your LSTs.

4. Select the LSTs you wish to restake.

5. Approve the transaction and confirm your restaking participation.

Native Restaking with Ethereum Validator Nodes

Native restaking involves changing your Ethereum validator's withdrawal credentials to point toward EigenLayer's smart contracts. This allows you to participate in the EigenLayer restaking pool and potentially earn additional rewards on top of your base staking returns.

It is only for those who are already operating Ethereum Validator Nodes, if you’re not, it is recommended you first set it up. 

Once it is set up you can follow these steps to start Restaking:

1. Create a New or Upgrade an Existing EigenPod

2. Set Validator Withdrawal Credentials

3. Enable Restaking

How to Delegate to an EigenLayer Operator

If running your own validator node seems daunting, you can delegate your staked ETH to an EigenLayer operator. Restakers will receive rewards based on the AVS that the operator chooses to run. 

Here’s how you can delegate to an operator:

1. Visit the operator page on EigenLayer to view the available list of operators.

2. Choose one by typing in their name or through scrolling. 

3. Click Delegate to start the delegation process.

4. Confirm the transaction.

5. Once complete, the delegated funds will reflect on the dashboard.

Understanding Restaked Points On EigenLayer

Restaked Points (ELP) are a crucial concept within the EigenLayer ecosystem. They represent a user's contribution to the restaking pool. The more ETH or LSTs you restake, the higher your ELP score will be. The Restaked Points Calculate your your share of the rewards and are calculated as the total amount of ETH staked over time

The Pros and Cons of Restaking

Restaking with EigenLayer offers several advantages:

• Increased Yield: Earn additional rewards on top of your base staking returns.

• Enhanced Security for DeFi: Contributes to a more robust security.

• Capital Efficiency: Makes use of already staked assets, unlocking additional utility.

• Decentralization: Strengthens the overall decentralization of the Ethereum ecosystem.

However, there are also some potential drawbacks to consider:

• Increased Complexity: Compared to traditional staking, restaking introduces additional layers of complexity, especially for native restaking.

• Technical Risks: Smart contract vulnerabilities or technical issues with EigenLayer could potentially impact staked assets.

Conclusion: Evaluating the Worth of Restaking

Restaking presents a novel approach to maximizing returns on your staked ETH. It offers the potential for increased yield, extends cryptoeconomic security, and unlocks additional utility for your existing staked assets. However, it's crucial to carefully weigh the potential benefits against the inherent risks.