Blockchain innovation or dangerous house of cards? – Cointelegraph Magazine

Ethereum restaking — proposed by middleware protocol EigenLayer — is a controversial innovation over the past year that has some of the brightest minds worried about the potential ramifications.

Restaking involves reusing staked or locked-up Ether tokens to earn fees and rewards. The restaked tokens can then help secure and validate other protocols. 

Proponents believe restaking can squeeze additional security and rewards from already staked ETH and grow the crypto ecosystem in a healthier way based on Ethereum’s existing trust mechanisms. Restaking could serve as a security primitive for exporting Ethereum’s trust generated by its validators to other projects.

Yet Ethereum co-founder Vitalik Buterin and a number of key devs worry that restaking is a house of cards that will inevitably tumble. Some of those Ethereum devs have even proposed a fork to head off restaking platform EigenLayer. 

Why the project’s founders promote “trust as a service” from Ethereum without the Ethereum founder and others’ willingness to participate is still to play out. Will the whole concept result in an Ethereum fork to protect the network from catastrophic failure? 

Staking and restaking

Staking is a crypto-native concept. On Ethereum, it means putting up a security bond in ETH so that the validator (validators of new transactions who maintain the security of the blockchain) will behave honestly in verifying transactions rather than lose their staked tokens. Stakers are then paid rewards for locking up this ETH. 

In essence, stakers lock up their tokens to commit to producing Ethereum blocks — an on-chain way of supporting development, regardless of fluctuations in highly volatile token prices. 

So what is restaking?

In short, restaking works in that already staked Ethereum tokens can be rehypothecated (when a lender re-uses collateral posted from one loan to take out a new loan) to secure a wider variety of applications and accrue additional rewards.

But restakers also get penalized or slashed for non-performance of their staking tasks. (More on that below).

So restaking is a crypto primitive for…