Ethereum VS Bitcoin: The "arms race for security" between the two giants is rewriting the rules of Decentralized Finance.

Original Title: Restaking from First Principles

Original author: Juan Pellicer

Original source:

Compiled by: Daisy, Mars Finance

Re-staking from the perspective of first principles

Traditional finance is constantly innovating to optimize capital utilization, while DeFi is also committed to strengthening its foundational layer — network security. In the traditional Proof of Stake (PoS) mechanism, users maintain the security of blockchains such as Ethereum by locking assets ("staking"), which constitutes a key foundation. The concept of re-staking further solidifies this security, fundamentally changing the way we leverage economic security in the interconnected blockchain ecosystem.

Re-staking has broken through the limitations of traditional staking—staked assets could originally only be used to maintain the security of their native blockchain. By allowing these assets to simultaneously provide security for other protocols or services, re-staking has redefined their function. This is not just a reuse of capital, but rather a transformation of static, single-purpose assets into dynamic mediums, providing security for a broader DeFi ecosystem.

Protocols such as EigenLayer (focusing on utilizing staked ETH within the Ethereum ecosystem) and Babylon (aimed at leveraging Bitcoin's massive economic weight to protect other PoS chains) are pioneering this field. Meanwhile, emerging protocols like Symbiotic are also making their mark by providing modular shared security solutions. Although these protocols all aim to achieve scalable security, there are significant differences in their implementation paths due to varying underlying layers of interaction and core design philosophies.

Source: IntoTheBlock Perspectives

Staking: The Cornerstone of Cybersecurity

To understand re-staking, it is first necessary to have a solid grasp of the traditional PoS mechanism. PoS is a consensus mechanism whose network security relies on economic collateral, rather than the computational power relied upon by proof-of-work (PoW) systems like Bitcoin.

PoS requires validators to lock up funds (i.e., their "stakes") to maintain network security, validate transactions, and propose new blocks – a process that is widely known for Ethereum's adoption in the "Merge" upgrade. Staking collateral acts as a financial incentive, or "stake binding," that ensures validators perform their duties diligently: running software, confirming blocks, and monitoring for malicious activity. Validators are rewarded for their contributions, but are at risk of being "slashed" – some or all of their stake will be forfeited if they double-sign or go offline for long periods of time. This slashing mechanism is a major economic deterrent against attacks, making fraud costly; Liquid staking protocols and their derivatives provide the possibility for wider participation.

Although crucial, the capital locked in traditional staking serves a single purpose: to maintain the security of its native chain. This results in a significant amount of economic value being underutilized, thus paving the way for the emergence of re-staking.

How to reuse economic security when re-staking

Re-staking is built directly on the PoS mechanism, aiming to unlock the potential value of staked assets.

The definition of re-staking

The core idea is to extend the underlying cryptographic economic security (i.e., the value facing the risk of confiscation) of assets that have been used to ensure the security of the base layer (such as ETH on Ethereum, or BTC staking that may be achieved through protocols like Babylon) to safeguard the security of other independent systems. This is not only a reuse of assets but also a reuse of the security guarantees they provide. Unlike re-hypothecation in traditional finance, in these re-staking agreements, the original asset owners typically retain control.

Security Consumer: AVS and BSN

Depending on the ecosystem, the protocol or service that consumes this extended security has different names: EigenLayer (Ethereum ecosystem) calls it Active Validation Service (AVS), and Babylon (Bitcoin ecosystem) calls it Bitcoin Assurance Network (BSN). Protocols such as Symbiotic employ more general terminology but have similar functionality – enabling services to take advantage of external security. These guaranteed services come in many forms: data availability layers, decentralized sequencers for rollups, oracle networks, cross-chain bridges, new virtual machines, consensus protocols, guardian networks, and even new PoS chains. Restaking allows them to inherit security from large, mature security pools without having to build an independent trusted network from scratch.

Pioneers and New Entrants

EigenLayer operates on Ethereum, allowing native ETH stakers and holders of liquid staking tokens (LST) to opt in and provide security for AVS. Since its mainnet launch in April 2024, its total value locked (TVL) has surpassed $7 billion. Babylon, with a TVL exceeding $2 billion, focuses on allowing native BTC (which itself uses a PoW non-staking mechanism) to be used to secure external PoS chains (BSN), achieving this without cross-chain transfers of BTC through Bitcoin script functionality. The first BSN network, Babylon Genesis chain, was officially launched on April 10. The emergence of protocols like Symbiotic further enriches the ecosystem, emphasizing modular design and broader collateral eligibility standards.

Why choose to re-stake? Breaking the efficiency and security dilemma of DeFi

Re-staking directly addresses two core challenges in the blockchain field:

Inefficient capital utilization issue: Traditional staking locks up assets worth tens of billions of dollars, which remain economically idle except for maintaining the security of the underlying layer. They cannot participate in other DeFi activities nor provide security for new networks, resulting in a significant opportunity cost for stakers and restricting the capital circulation efficiency of the entire ecosystem.

Security fragmentation challenge: In the past, every new decentralized service that needed to be verified (rollups, cross-chain bridges, oracles, etc.) had to build its own security system from the ground up. This process is costly, time-consuming, and involves attracting validators through native token incentives (often accompanied by inflation), resulting in small, isolated security pools. Emerging protocols often struggle to establish robust security systems, making them easy targets.

Re-staking solution: Shared security and trust launch

Re-staking provides a powerful solution by enabling secure resource pooling or sharing.

Reuse existing trust systems: The new protocol (AVS/BSN/secured services) can "rent" security from a large mature economic pool constituted by re-staking ETH, BTC (or other assets in more flexible models). This greatly lowers the entry threshold, allowing it to access billions of dollars in security guarantees from day one without the need to build its own validator network.

Building a Trust Transaction Market: Re-staking creates a supply and demand market. Asset holders voluntarily choose to become secure suppliers, while the guaranteed services act as demanders who pay fees to consume safety. This forms a symbiotic relationship: stakers gain additional capital income opportunities, and protocol parties acquire robust security guarantees at a high cost-performance ratio, driving bidirectional growth. This dynamic mechanism decouples security supply and consumption, promoting specialized division of labor.

Economic Sustainability: The core of this model lies in the fact that for emerging protocols, renting security through re-staking is more economically sustainable than relying on a self-built security system based on high token inflation. If the cost of attracting native staking exceeds the re-staking fees, then re-staking demonstrates significant advantages.

The large-scale adoption will further enhance the systemic importance of foundational assets such as ETH and BTC, as well as core protocols like EigenLayer and Babylon, while emerging protocols will gain broader development space.

In-depth Analysis: How Does the Re-staking Mechanism Work?

Although the specific implementation varies, the core mechanisms include voluntary participation, defining the role of the operator, managing the delegation relationship, and balancing rewards and risks.

Voluntary Participation: Granting Forfeiture Authority

Participation is completely voluntary. Stakers must explicitly authorize the re-staking agreements (such as the smart contracts of EigenLayer, the script rules of Babylon, and the collateral vaults of Symbiotic) to impose additional penalty conditions on the services they choose to secure. This extends the economic risks beyond the scope of the underlying layer's rules.

Native ETH Re-staking (EigenLayer): Validators point their withdrawal credentials to the EigenLayer smart contract (EigenPod).

Native BTC re-staking (Babylon): BTC holders use Bitcoin Script to create specific UTXOs that can be slashed directly on the Bitcoin chain through timelocks and cryptographic commitments (EOTS).

LST Re-Staking (EigenLayer): Holders of liquid staking tokens (such as stETH, rETH, etc.) deposit them into the EigenLayer contract.

Symbiotic scheme: allows the deposit of various ERC-20 tokens (including LST, LP tokens, etc.) into the collateral vault, providing more flexible options.

Liquidity Re-staked Tokens (LRT): Based on this, protocols such as ether.fi, Puffer Finance, and Kelp DAO issue LRTs (such as eETH, pufETH, rsETH). These tokens represent a claim on the underlying re-staked positions (usually the native ETH or LST deposited in EigenLayer). These protocols simplify the process for users, managing deposits and operator delegations for core re-staking protocols while providing users with liquidity tokens.

Operator Role

Operators refer to entities that register in the re-staking protocol, select the services to be validated, and run the necessary dedicated node software. They perform the validation tasks required for these services. In Babylon, such roles are commonly referred to as "Finality Providers", while Symbiotic also uses the term "Operators".

Delegation Mechanism

Most re-stakers will delegate their assets to professional operators to run the infrastructure. This introduces a trust element: the staked assets of the delegators will face forfeiture based on the performance and integrity of the operators. Choosing a reliable operator is crucial.

Shared benefits and compounded risks

Earnings: Re-stakers/delegators can receive additional rewards/fees from the secured services (typically as a supplement to the base layer rewards), which are paid by the service provider. Operators usually take a commission.

Seizure (Risk Accumulation): This is a key trade-off. The same batch of re-pledged funds will be constrained by the seizure rules of all guarantee services and the underlying layer rules simultaneously. Any violation of a service may trigger the seizure of the corresponding funds through the relevant operators. With each new service added, the risk correspondingly increases. For example, EigenLayer activated its mainnet seizure mechanism in April this year, causing its participants to start actually bearing this risk.

The yields and risks of re-staking

Re-staking brings significant advantages to stakers, capital allocators, and developers:

Maximization of capital efficiency: Stakers can obtain additional returns from secured services using the same funds, addressing the opportunity cost issue of traditional staking. For assets like BTC that do not have underlying yields, or in cases where protocols like Symbiotic support a broader range of assets, inherent yields can also be created.

Security cost optimization of the new protocol: significantly reduces the huge costs and complexity of launching new service security, allowing it to "lease" mature security guarantees and focus more on creating core value.

Promoting Innovation: The lowering of security barriers allows developers to focus on building new applications (AVS/BSN/secured services) rather than starting from scratch to establish a trust network. EigenLayer is a model, as its supported "permissionless innovation" has nurtured a rapidly growing AVS ecosystem, including the self-developed EigenDA data availability layer and integration support provided for projects like Mantle and ZKsync. The flexibility of emerging protocols may further accelerate this process.

Enhancing ecosystem security: The pooling of secure resources makes the cost of attacking a single protected service much higher than attacking isolated small networks. Babylon is particularly committed to leveraging the Bitcoin timestamp mechanism to mitigate vulnerabilities such as long-range attacks in PoS.

This could create a positive feedback loop: the increased demand for re-staking enhances the utility (and potential value) of the underlying assets, which in turn strengthens the scale effect of the shared security pool.

Risks and Challenges

Re-staking introduces several new types of risks that must be fully understood and carefully assessed:

Cumulative Penalty (Core Risk): If a certain guaranteed service experiences operational errors or is attacked, it may result in the funds guaranteeing multiple services through the same operator being subject to joint penalties. The penalty mechanism recently activated on the EigenLayer mainnet indicates that this risk has entered the operational stage across the entire ecosystem.

Smart Contract Risks: The multi-layer interactive contract system (base layer, re-staking protocols, guaranteed service contracts) expands the attack surface. Code vulnerabilities may lead to erroneous penalties or loss of funds. Complex interactions may trigger disputes that exceed the community's consensus resolution capabilities (Vitalik Buterin has issued warnings regarding this).

Centralization of operators: Economies of scale may give large operators an advantage, leading to risks of scrutiny, single points of failure, or collusion, ultimately undermining the goal of decentralization.

Systemic Risk (LRT vs. Leverage): Liquid Restaking Tokens (LRTs), which represent repledged positions, increase liquidity, but also add complexity. Using LRT as DeFi collateral can lead to over-leverage, which can lead to cascading liquidations in the event of a major forfeiture event. Liquidity management for these derivatives is crucial. The proliferation of different re-staking protocols is likely to further exacerbate system complexity.

Complexity of operations for users and operators: Users face challenges in risk assessment across protocols, services, and operators. Operators, on the other hand, need to manage a diverse software stack while simultaneously dealing with differences in forfeiture rules across multiple services and potential multiple re-staking platforms.

The evolution of a shared security framework

Re-staking marks a significant advancement, transforming staked assets into dynamic security resources. EigenLayer and Babylon demonstrate two powerful and unique paths to enhance capital efficiency and provide accessible security—the activation of the EigenLayer mainnet slashing mechanism and Babylon's recent mainnet launch signify that these pioneering protocols are maturing.

Core trade-offs always exist: higher potential returns inevitably come with increased risks. Especially now that cross-platform confiscation has become a reality, carefully selecting operators and thoroughly understanding service risks is an uncompromising prerequisite. This field is rapidly evolving: Liquidity Re-staking Tokens (LRT) have enhanced liquidity and expanded applications through DeFi, but they have also introduced new systemic risks related to leverage and liquidity management.

The competitive landscape is taking shape, with protocols like Symbiotic entering the scene one after another. These newcomers often emphasize differentiated design choices, such as stronger modularity, permissionless core components, and more flexible collateral type access. This competition will spur more innovation and potential specialized solutions, but it may also lead to market fragmentation and increase the complexity for users switching between different ecosystems and risk models.

For DeFi users, restaking requires in-depth study. It is by no means a simple "advanced version of staking", but rather a new paradigm involving complex interactions across multiple platforms and higher risks. Restaking has enormous potential in lowering innovation thresholds, optimizing capital efficiency, and building a more interconnected decentralized network, but its success depends on the balance between innovation and strict risk management. As ecosystems like EigenLayer, Babylon, and Symbiotic mature and their functions are fully realized, restaking will undoubtedly become a key force in shaping the future of blockchain.