If you've been in the web3 space or anywhere close to the Byzantine Finance founders, then you will have heard more about restaking in recent months than you perhaps ever wanted to. I have terrible news for you. This article will see you spending even more of your precious lifetime on restaking. But trust me, you will come out the other side a more learned, complete human being.

Restaking asks the question:

What if staked assets could do more than just secure their own chain?

In short, restaking is a novel primitive introduced by a new infrastructure project called EigenLayer, which has the potential to be one of the most impactful projects to come out in recent years.

Restaking is not just an investment opportunity or a new financial primitive. Restaking is the path to open innovation on Ethereum - it is the solution for the cold-start problem encountered by new chains or other Actively Validated Services (AVSs) that require consensus. Moreover it allows chains to monetize their security layer. Restaking represents a sustainable, systemic innovation.

Right, that was a lot of pretty intense words. Let's take a step back:

A quick recap on staking

If you are here, you most likely know what staking is and this paragraph is not for you. However, if you are my dad who keeps asking me to explain staking to him, then this paragraph is for you.

A blockchain is a secure distributed database that relies on the nodes in its network to validate accurately, truthfully, and in a timely manner. In the case of Ethereum for example, we need to make sure that the transactions in a newly created block are possible, correctly signed, and were intiated by wallets with sufficient balances.

Should there ever be a disagreement, then "correctness" is determined by consensus - via a simple vote amongst the nodes in the system. Such is the security magic of distributed networks: To disrupt it, you would need a large portion of nodes to coordinatedly vote for an illicit proposal which is a highly unlikely scenario.

However, consider a comic book villain, twirling his mustache, laughing maniacally at the computing capacity of his server farm, which he will shortly use to create thousands of nodes and overwhelm the distributed network with a large number of villainously-voting nodes.

How do we prevent this? Well, we need to attach some kind of cost to node creation in order to make this kind of scenario unfeasible. And that's where staking comes in: To run an Ethereum node, one must lock up (stake) 32ETH in a smart contract. The quick-thinking among will have realised that in order to acquire 51% of voting power in this system, one would require 51% of staked assets - which in the case of Ethereum would be around $60bn. Dang.

To make this situation even safer, Ethereum and many other Proof-of-Stake protocols include a feature called slashing: Any node operators caught performing illegal or anti-consensus votes will have some of their stake revoked (or slashed).

In order to incentivise node operators to go through all this - validating the chain and lcoking some of their precious liquidity - the chain rewards stakers with an APY of between 3-4% on their staked assets. This is generally considered crypto's risk-free rate.

What problem does restaking solve?

Suppose you want to create a new chain or any other kind of consensus-based system (like zk rollups, oracles, or bridges, etc.). As we discussed above, you require operators to validate transactions and establish consensus across the network. It is essential that the work of these operators is trustworthy and correct – otherwise the AVS cannot be relied on. How can we ensure correct and trusted work? Well, we need a mechanism to:

• Prevent mass creation of malicious nodes, by associating a stake with node creation (for Ethereum, that's 32ETH)
• Reward good node operators in a token they consider valuable
• Punish bad operators by taking away some of their staked collateral

Without restaking, the stake, rewards, and collateral are paid and collected in the native currency of the new service. That means your chain or service must quickly attract users to give the token any value, otherwise operators can't be trusted. However, the users won't come in large numbers as long as your chain doesn't have a lot of operators, because only operators make the chain secure. Your service faces a chicken-and-egg problem of needing to attract a sufficient group of operators to validate the network and maintain consensus, and a sufficient group of users to give the token any value and thus incentivise operators to act honestly.

But what if you could collect staked assets, pay rewards, and slash stakes in an asset that already has stable and established value? Enter restaking: Now, operators can be held accountable and rewarded via ETH – meaning new projects benefit from Ethereum’s entire security layer, which is known for its robustness.

The maths holds up: 100 new projects with a $1m total stake each are easy and cheap to overwhelm (remember, overwhelming a network requires 51% of its staked capital, meaning security is directly correlated to size of total stake). However, that completely changes if they all pool and share their security – since that gives each of them a total stake of $100mn.

Moreover, restaking represents a new avenue of opportunities for all chains - it opens the way to monetize a chain’s security layer. We’ve seen this on Ethereum but multiple other chains are moving toward that direction - such as Solana, Celestia, Arbitrum - and new chains are getting created with restaking in mind. Security is one of the biggest chain assets - and up until now it was not leveraged as an asset for infrastructure to be built.

What are the benefits of restaking?

For services & AVSs

‍The burden of bootstrapping its own trust network is mitigated — as the new protocol could simply purchase pooled security via EigenLayer, rather than creating and maintaining its own trust network. As a result, building a new service becomes much cheaper.In addition, there are enormous security benefits: The cost of corruption in a pooled security framework is a lot higher - it is a lot more expensive to disrupt a pooled security network via 51% attack than one in a world of individual security pools.

For validators / operators / restakers

‍Restaking creates an important driver of value accrual as $ETH stakers receive additional yields on top of their $ETH staking rewards — with $ETH stakers expected to generate ~$11bn (or ~4.5x) of annual incremental revenue by 2028. Validators are also able to rehypothecate their $ETH across many different protocols, reducing the marginal cost of their validator operations.

For Ethereum

‍Restaking improves cryptoeconomic security for Ethereum, as fragmented pools of security move back to create a more unified pool — making Ethereum more secure and expensive to attack.

The Restaking Flywheel

‍Higher yields for $ETH via restaking > more demand for $ETH > lower supply of $ETH as existing holders hold onto their $ETH and new buyers purchase $ETH > $ETH price increases > higher yields for $ETH.

Is the restaking market built to last?

In short, yes.

Consider other major innovations like MEV (Maximum Extractable Value), for instance. While rearranged transactions certainly optimise profitability, they bring no systemic benefit. In contrast, restaking offers restakers a profitable avenue backed by technology genuinely beneficial for the Ethereum ecosystem. This fundamental utility ensures the enduring relevance of restaking.

EigenLayer, the first protocol enabling restaking on Ethereum, represents just the initial step towards fostering open innovation on the network. Many additional projects, both on Ethereum and other chains, are already following suit.

And that’s where Byzantine Finance comes in: By collaborating with a variety of restaking protocols on multiple chains, we build a solid foundation for the ecosystem with no single point of failure.

What is EigenLayer?

One of the central bottlenecks to innovation in today’s crypto ecosystem is the requirement for projects to bootstrap trust, or cryptoeconomic security. We started working on EigenLayer in the hopes of creating a new model in which developers can easily consume trust, instead of needing to build trust, and design powerful systems of assurances that make the crypto ecosystem safer and more useful.

— Sreeram Kannan, Founder & CEO, Eigenlayer

EigenLayer is a marketplace for decentralised trust built on Ethereum that allows ETH stakers to opt in to validating new projects built on top of the Ethereum ecosystem through restaking. It allows operators to validate Ethereum and several services at once with a single stake, while earning returns from all of them.

EigenLayer makes it possible for developers to build new blockchain networks and protocols that launch with high cryptoeconomic security from Ethereum, without the need to bootstrap a large amount of value into their own native token. It works as follows:

• It serves as a platform connecting stakers and infrastructure developers.
• Stakers can offer economic security using any token.
• Stakers have the option to restake their stake and thereby support the security of other infrastructures while earning native ETH rewards.
• Through restaking, EigenLayer pools security instead of fragmenting it.

EigenLayer was founded by Sreeram Kannan, Associate Professor at the University of Washington and Director of the University of Washington Blockchain Lab.

Their whitepaper provides an in-depth exploration of these questions.