As the competition on the re-pledge track escalates, can the "nesting doll" model revive Ethereum?

[TL；DR]:

· Innovative technologies in the restaking and DeFi space, such as Babylon Chain and Eigenlayer, are leading the way in the future.

· Re-staking projects for PoS chains such as Picasso and LiNEAR have emerged, unlocking more of the chain's liquid value and bringing new growth opportunities to investors.

· Re-staking is an important narrative in the Ethereum ecosystem, and Eigenlayer has shown broad prospects for development by improving the efficiency of asset operation and secure consensus.

Introduction

In this year's bull market in full swing, in addition to the high-profile AI, RWA, DePIN and Bitcoin ecosystems, the Restaking track also occupies a highly imaginative focus.

With its unique matryoshka gain narrative and the mode of staking points to distribute tokens, this track is expected to continue to play a role throughout the bull market and become one of the tracks that investors cannot ignore.

We will share with you the latest developments of this track, analyze its great role in the recovery of Ethereum, and look forward to future market participation opportunities.

Restaking track TVL continues to climb with endless projects

With the emergence of restaking, Ethereum's counterattack has essentially been quietly launched, marking the beginning of a new round of competition.

The founder of Eigenlayer pioneered the concept of restaking, which is a product of the continuous evolution of the staking track.

In September 2022, Ethereum successfully transitioned from Proof-of-Work (POW) to Proof-of-Stake (POS), which means that Ethereum holders can become network validators by staking ETH, thereby maintaining the secure and stable operation of the network. However, the high threshold for Ethereum staking (32 ETH) and the lock-up period have become a major pain point.

To solve these problems, liquid staking derivatives (LSDs) have emerged, which combine retail investors' staked ETH and allow stakers to obtain corresponding ERC-20 derivative tokens (such as stETH issued by Lido) at a 1:1 ratio, which are highly liquid and easy to trade and redeem.

Subsequently, the re-pledge product was also launched. As the name suggests, re-staking is a secondary staking of staked assets, and its appeal lies in the ability to earn staking rewards as well as potential project airdrops.

The reason why Eigenlayer proposed re-staking is because many real-world applications, such as oracles, decentralized finance (DeFi), and DA layers, require a high level of security. When the project is underfunded, it becomes difficult to set up its own validator node. Therefore, Eigenlayer meets this security need by introducing the concept of restaking.

From the general market experience, when the project adopts the security provided by restaking, the market generally expects that it will give airdrop rewards as an incentive, which expands the enthusiasm of investors to participate in restaking to a certain extent, and many LSTfi and related supporting facilities products have also come one after another.

As of the date of writing, TVL in the Restaking sector has climbed to $13.86B, according to DefiLlama.

Figure 1 Source: DeFiLlama

The rise of multi-chain liquidity restaking projects

According to our observations, the development of the restaking track is no longer limited to Eigenlayer, a pure Ethereum re-staking meta-protocol, and this concept of shared security has also begun to expand to other chains and even the whole chain, and many re-pledge-based basic and financial facilities have been derived, which will further improve the efficiency of the use of asset liquidity value in each chain and expand more enabling scenarios.

Bitcoin Restaking: Babylon Chain

Babylon Chain is a Bitcoin staking protocol that aims to leverage the security of Bitcoin's more than $1 trillion crypto economy to enhance the security of other PoS chains.

It creates a two-sided marketplace that allows Bitcoin holders to securely stake their BTC and choose the PoS chains and DApps they want to support and earn yield from. The key to Babylon's operation is to enforce the slashing mechanism and overcome the shortcomings of Bitcoin's smart contract functionality by combining advanced cryptography and optimizing the Bitcoin Script programming language.

Babylon leverages one of Bitcoin's key features, timestamping, to periodically record the checkpoints of other PoS networks on the Bitcoin blockchain, providing a layer of security for transactions. This means that any attacker who tries to disrupt the PoS network that exploits Babylon Chain will have to attack the Bitcoin blockchain itself, creating a Bitcoin-equivalent security for these chains.

Babylon's architecture consists of three parts: Bitcoin as a timestamp service, Babylon Chain as a Cosmos Zone for the middle layer and aggregator, and other Cosmos Zones as consumers for security.

This architecture enables Babylon to aggregate checkpoints from different zones and timestamp verification through the Bitcoin chain, ensuring the security of all transactions.

In addition, Babylon spends up the unbonding period by sending checkpoints to the Bitcoin chain, reducing withdrawals that could have taken days or even weeks to hours.

Solana Restaking: Picasso

Picasso, an infrastructure layer focused on DeFi interoperability, leverages Cosmos SDK technology to successfully connect multiple ecosystems by extending the IBC protocol.

Picasso launched an Ethereum-IBC testnet in October 2023 and plans to enable an IBC connection between Ethereum and Solana in Q2 2024. It uses the PICA token to secure the network.

On Solana's side, Picasso has built a re-staking layer, known as a "guest blockchain," that acts as a validation layer to make Solana IBC-compatible. This layer is subject to verification and security with staked assets, and both SOL and its derivatives can be used as collateral.

To channel liquidity, Picasso launched the Mantis Games event, which takes place in three phases, including an NFT auction, a team staking tournament, and an exchange tournament with a scoring system.

In addition, Picasso has designed the Active Verification Service (AVS) to facilitate Solana's interoperability with other chains. Of the bridging fees, 20% goes to PICA stakers and 40% goes to re-stakers.

Another highlight of the protocol is that Rome Protocol will be the second AVS to use the Picasso Solana re-staking layer, with more details expected to be announced in the near future.

Near Restaking: LiNEAR

LiNEAR is a project that enhances the security of the NEAR chain's abstract network through restaking. As NEAR's leading DeFi protocol, it strengthens the security and decentralization of the network through innovative liquidity staking and automated validator optimization algorithms.

LiNEAR is committed to simplifying the process of user participation in the decentralized network, especially as the NEAR ecosystem advances chain abstraction. Chain abstraction enables users to easily transact across multiple blockchains without having to understand the underlying technology. To this end, LiNEAR focuses on re-staking to lower the barrier to entry for the multi-chain ecosystem.

Its core strategy is full-chain liquidity re-staking, which ensures the security of the chain's abstraction infrastructure and avoids the pitfalls of centralized and permissioned solutions. By leveraging existing blockchain security mechanisms, improving capital efficiency, and facilitating the close integration of the base layer with the blockchain, re-staking effectively protects the chain abstraction infrastructure.

NEAR's chain abstraction features include social authentication, account aggregation, and chain signatures, providing users with a unified account and interface. To achieve this vision, LiNEAR is developing new decentralized infrastructures such as a chain-signed MPC network and a multi-chain gas repeater.

Full-chain restaking: StakeStone

StakeStone is a full-chain restaking liquidity protocol that demonstrates a high degree of scalability by supporting various staking pools and compatibility with upcoming restaking. StakeStone has also built a multi-chain liquidity marketplace based on its native LST, STONE, providing users with more use cases and yield opportunities.

Key highlights of StakeStone include:**

· Decentralized all-in-one staking protocol: It aims to build a cross-chain marketplace for LST liquidity, connect Ethereum and other blockchains, and solve the problem of liquidity and assets being separated between the mainnet and other networks.

· OPAP (Optimized Portfolio and Allocation Recommendations) mechanism: Provides a liquid staking decentralized solution that allows users to deposit ETH into the protocol in exchange for STONE tokens, and the value of STONE (exchange rate against ETH) will continue to rise as the protocol increases revenue.

· Cross-chain compatibility: Based on the LayerZero design, it supports the seamless transfer and alignment of assets and prices between multiple blockchains, and currently supports public chains including Ethereum, Manta, Base, BNB Chain, Mantle, Linea, etc.

· Automatic Yield Optimization: Automatically adjust the underlying asset allocation through the OPAP mechanism to ensure that STONE holders can obtain the best staking returns.

· Security: StakeStone is committed to providing users with the most secure yield management services.

Summary

It's a fast-growing emerging market, with not only pioneers like Eigenlayer, but also aggregators like StakeStone who are committed to expanding full-chain liquid staking, and they are focused on developing solutions that continue to expand new financial yield scenarios in the field of liquidity re-staking protocols. At present, the track is still at the junction of the blue ocean and the red sea, and it is expected that the market landscape will still have more changes to look forward to in the coming weeks to months.

Of course, there are many other risks associated with this matryoshka method of creating new assets by repeatedly staking native assets such as ETH.

For example, users may have reservations about using EigenLayer's native token, as they can directly stake ETH to earn rewards.

In addition, if a large amount of ETH is re-staked in other protocols, a security breach may affect the security of the Ethereum network. There is also the issue of token reward distribution, which can disrupt the token economy of the protocol if re-staking participants receive too many rewards.

Restaking also involves the risk of unstaking periods and ETH management issues.

Despite the risks, in a bull market, the issuance of these new assets can be seen as the process of creating bubbles, which is essential to broaden the value of assets and capture alpha.

At the same time, with the development of modularization, chain abstraction and other technologies, the Eigenlayer model provides the possibility for projects to deploy applications quickly, conveniently and at low cost.

And the current demand for EigenLayer and Liquid re-staking protocols suggests that we are on an interesting journey of discovery. Although the emergence of new technologies and companies comes with risks, these risks deserve to be assessed and controlled, not abandoned and combated.

As for which new protocols and product paradigms emerge in the future, and how they fit into and even enhance the Ethereum ecosystem, this will be a long-term topic, and we will continue to monitor developments in this space closely.

by Carl Y.

This article represents the views of the author only and does not constitute any trading advice.

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