Unlocking the Power of Ethereum Restaking: Navigating EigenLayer

Benjamin Thalman

Staff Protocol Analyst & ETH PM

Published

January 23, 2024

What is Ethereum Restaking?

Restaking is the ability to use staked Ether (ETH) to earn rewards on more protocols than just Ethereum. EigenLayer—a marketplace and protocol that connects restakers, operators and builders—makes this possible via a series of smart contracts. Users can either deposit liquid staking tokens (LSTs) or set their withdrawal credentials to an EigenPod (see "LSTs vs Native staking" below), which enables them to participate in restaking.

For restakers, there are two broad steps: enabling restaking through EigenLayer and then delegating to an operator. Operators run the hardware required by the aforementioned other protocols, or Actively Validated Services (AVSs) as they are called on EigenLayer.

Restaking is an exciting new chapter for the Ethereum ecosystem, but understanding the opportunity, along with any operator that a user might delegate to, is vital. A thorough understanding of the risks and rewards of each AVS that the operator is running is also important.

For those not as familiar with restaking or EigenLayer check out our First Look.

Accessing the Restaking opportunity

Liquid Staking Tokens (LSTs) vs Native staking

EigenLayer allows restakers to participate in one of two ways: by depositing an LST or by native staking—creating an EigenPod(1), depositing at least 32 ETH on Beacon Chain and using the EigenPod’s address as the withdrawal credentials for the validator created. In other words, the steps required to natively stake look identical to those for standard ETH staking, except that withdrawal credentials must point to an EigenPod, i.e., a smart contract, rather than an externally owned account (EOA).

Some other practical differences between depositing LSTs and native staking are:

• there is a cap on the amount of LSTs that can be deposited
• there is a somewhat longer delay for native staking to engage in restaking (the time required for EigenLayer protocol to confirm that 32 ETH has been deposited on the Consensus Layer of Ethereum)
• native staking accrues CL rewards, which can be withdrawn from EigenLayer without affecting a restakers ability to continue participating

In addition to the differences stated above, it is helpful to bear in mind these two different restaking avenues when choosing how to access restaking.

Here is a list of LSTs that can currently be deposited on EigenLayer:

( source)

Direct Restaking On Ethereum (‘DIY’)

This approach represents the most hands-on or crypto-native approach. In this case, the restaker can either deposit LSTs or create an EigenPod and point the withdrawal credentials of their validator to the EigenPod.

When the restaker is ready to delegate—i.e., ‘restake’—there are two options available:

• Delegating to an operator
  • This is the simplest option. The restaker chooses an operator, such as Figment, to delegate to.
  • The operator chooses the AVSs to operate—the restaker only has the ability to choose the operator, not the AVSs that they run.
  • Restakers must be careful to perform their due diligence on both the operator and the AVSs that the operator has chosen to operate.
• Self-delegating
  • The most active path is to self-delegate—here, the restaker also acts as an operator and delegates to themself.
  • In this case, as the restaker is also the operator, they can choose which AVSs to run.
  • When self-delegating, the restaker (and operator) must again conduct thorough due diligence and understand the risks and rewards of each AVS they choose to operate.
  • A restaker that chooses to self-delegate needs to be confident in their ability to run Web3 infrastructure—the demands vary greatly between networks, and there is no reason to believe that AVSs on EigenLayer will be any different.

To understand more about this, please visit our restaking guide

Liquid Restaking Tokens on Ethereum (LRTs)

Liquid Restaking Tokens (LRTs) are very similar to LSTs—a user deposits their ETH (or LSTs) into the LRT protocol and receives back LRTs that can be used for other activities, such as lending them out, depositing them into an automated market maker (AMM) pool, or borrowing against them.

This approach is similar to the offchain fund approach (see ‘Offchain Fund vehicles’ section below) in that it is straightforward to engage with; however, unlike the offchain fund approach, restaking using LRTs is for tokenholders and is likely the better option for those that want the benefits of liquidity but also the freedom to engage in other areas of Web3 with their tokens.

Offchain Fund vehicles

This is perhaps the easiest method of accessing restaking from the restaker’s perspective. Tokens or fiat are deposited with an offchain fund and the fund takes care of the rest, i.e., restaking this ETH (and, if fiat—rather than tokens—is deposited, converting the deposited funds to ETH to facilitate restaking). An analogy here would be a mutual fund in traditional finance (TradFi)—the investor ‘deposits’ their money with a mutual fund, which then invests that money on the investor’s behalf. The difference with a restaking fund is that tokens are not invested, but rather staked (and restaked).

This approach is a very convenient way to hold ETH and earn rewards while not actively engaging in other areas of decentralized finance (DeFi).

Figment and Restaking—Leveraging EigenLayer

Figment is a committed participant in the restaking ecosystem. Here’s how we’re involved:

• An early investor in EigenLayer via Figment Capital.
• A key participant in the initial operator working group, playing a crucial role in testing both EigenLayer and EigenDA.
• Currently onboarding customers on EigenLayer so that they can earn restaking points immediately and be ready to restake on day one.
• Currently enabling restaking via the Figment app.
• We’ll also run a public operator profile that anyone can delegate to—the only AVS that will initially be run is EigenDA, with no plans to add additional AVSs.
• We’re excited to operate AVSs on behalf of select partners such as Renzo and Rio, two LRT platforms(2).

When Can I Deposit on EigenLayer?

The ability to deposit on EigenLayer is live now, whether via depositing LSTs or creating an EigenPod.

The second step—delegating to an operator—will likely be enabled sometime this quarter. Additionally, there will likely be a few AVSs live for operators to run.

The ability to delegate and having a handful of AVSs to run are likely prerequisites for further restaking offerings, such as offchain fund vehicles, new LRT protocols and greater integration with custodians, wallets and other service providers.

EigenLayer has the potential to be one of the most important developments for stakers since the launch of Beacon Chain. Understanding EigenLayer and having a clear strategy is essential for anyone involved in staking. Get started by reaching out to us.

1. An EigenPod is a smart contract created and owned by the address that creates it. Both consensus layer (CL) rewards and stake flow through the EigenPod before being sent to the restaker’s account. This gives EigenLayer the ability to levy penalties for misbehavior. For more, see here.

2. The AVSs mentioned here are not selected by Figment, but by our partners.