How can crypto networks adopt restaking safely?

There's a saying that loosely translates to: a country that outsources its army is an enemy of itself.

It's fun to talk about efficiency, almost too compelling to look at how much one will save on independently building its own security layer, in effective fragmentation, by simply embracing a shared security solution, but do the cost of this "bought security" not outweigh the benefits?

Let's take a step back, what is restaking?

As always, I'll define these things for those with no knowledge of them.

Restaking is the process of taking already-staked cryptocurrency — mostly Ethereum (ETH) or Liquid Staking Tokens (LSTs) like stETH (the focus area of most recent developments) — and committing those same assets to secure additional decentralized protocols beyond the base layer.

EigenLayer, the dominant restaking protocol on Ethereum runs a marketplace where Restakers supply their staked ETH as collateral; Operators run infrastructure on their behalf; and Actively Validated Services (AVSs) — oracles, data availability layers, bridges, rollup sequencers — purchase security from this pooled resource.

The system is opt-in: validators choose which AVSs to support and what additional slashing conditions to accept, in exchange for additional yield.

Anything for the yield right?

Is it safe?

Honest answer? Hell no.

One should never wholly depend on another for security, collaboration is understandable, but complete reliance is suicide.

But here's the truly fun part. The topic of this article is framed to focus exclusively on the networks buying the security, but the risk to validators selling the security is also pretty high.

In standard Ethereum staking for instance, a validator faces slashing only from the Ethereum consensus rules. In restaking, the same stake is simultaneously bound by the slashing conditions of every AVS the operator opts into. A single operational mistake like an outdated key, a misconfigured client, a software bug, can trigger penalties across multiple systems simultaneously.

The restaking model creates deep interdependencies between protocols.

So, essentially, if you went to buy security, you must know that you're also buying compounded risks.

What can be worse than that?

Evidently, individual validator risks are also high, but this only increases the cost for the networks buying security. They have the largest risk exposure.

It's both a governance and economic stability threat, branded as a solution.

Safely adopting restaking?

I'm not sure that this is something that exists right now, even though we're dealing with an already $20 billion industry in TVL.

Like I mentioned when I discussed liquid staking tokens specifically in the recent past, the concept of locked capital having external active roles mostly makes sense for regular assets, not tokens with governance influence in networks.

Posted Using INLEO