RaaS and Eigenlayer: Exploring Emerging Restaking Services

Author: knower Source: substack Translation: Shan Ouba, Golden Finance

RaaS is a controversial topic, given the views on rollups (L2 and L3). You either support platforms like Caldera and Conduit that make rollups extremely easy, or think that we already have too much block space and these tools are meaningless. My views are somewhere in between, but there are strong arguments on both sides. I think rollup infrastructure is a net positive for the space (no matter how small it is), but I also understand why some people think that this technology cannot drive the adoption of cryptocurrency.

L2 Beat shows that there are about 55 rollups in operation - the top five of which (Arbitrum, Optimism, Base, Blast, and Mantle) account for 82.74% of the market share. I’m not sure if we should interpret this as a sign that we’re in the early days of crypto, a symptom of homogenization of rollup designs, or a lack of interest in the vast majority of rollups — maybe it’s a combination of all three.

Arbitrum and Optimism are clearly the most mature rollups and now feel more like “real” chains (rather than Ethereum-affiliated chains). Base has a very active community and is probably the most promising rollup right now despite its smaller TVL — a similar case could be made for Blast, but I don’t think their higher TVL is any more appealing than the community Base has built without the help of a gamified points program. Base even explicitly said there would be no token, but no one minded because it was the first rollup to see organic activity — even Arbitrum and Optimism were being heavily farmed before the airdrop announcement.

Mantle is a rollup I’m very unfamiliar with, but I took a brief look at their ecosystem and think they have a leg up over the likes of Mode, Manta, and even Scroll. Their growth is entirely dependent on TVL inflows and new application deployments, both of which are pending further notice.

Worse than the 55 live rollups are the 44 upcoming rollups listed by L2 Beat. These 44 use a variety of different designs (like Optimiums and Validiums), but ultimately they’re all vying for the same market. Few live rollups have made the leap from “modular execution layer/Ethereum sidechain” to “just happens to be the dominant chain on L2.”

L1 success comes from years of developer talent accumulating into a fundamentally stable base layer, giving communities the opportunity to form and create ecosystems around it (think Solana’s memecoin casino days, Ethereum’s DeFi summer frenzy, and even ordinarys on Bitcoin). The utility of a rollup comes from its shared security with the base layer — which is Ethereum 99% of the time, unless you’re talking about Solana L2 — and its relatively low transaction costs.

I don’t think technology alone will be enough for rollups to gain significant awareness or market share, as evidenced by the fact that some of the “strongest” tech like Scroll, Taiko, and Polygon zkEVM have failed to even shake up the TVL game. Perhaps these teams do see an increase in TVL in the long term, but based on current sentiment and lack of pursuit of that goal to date, I don’t see that happening. No, your eight users don’t want another Galxe event, and they certainly don’t want points that can be redeemed for non-transferable tokens.

If you put yourself in the shoes of a brand new, crypto-knowledgeless investor, how would rollups make you feel? I’m not sure you’d jump for joy at the 15th zero-knowledge rollup with the EVM equivalent of zkEVM, unless it had some meme coin you could make money with.

Most of the analysis from a quick glance at L2Beat seems pretty pessimistic, but as long as I’m not the one putting my liquidity dollars into L2 or L3, I’m fine with that. I also don’t think that more and more rollups are necessarily a bad thing for the space, but we should be more forthright about the utility this brings. Many applications have become specific appchains in the past few months (Lyra, Aevo, ApeX, Zora, Redstone), and I suspect this trend will continue until everyone from Uniswap to Eigenlayer is L2.

So while we can’t stop the number of new rollups being deployed, we can at least have an honest discussion about the impact it has on crypto. We have too much blockspace, and Ethereum mainnet doesn’t even need any additional blockspace - it can cost as little as $10 to make a transaction right now, and it’s been like this for weeks.

There is little difference between RaaS providers like Conduit and Caldera (don't attack me), I say this with confidence in the hope that someone will correct me. Here’s a quick overview of their respective rollup deployment processes:

• Conduit offers OP Stack and Arbitrum Orbit; Caldera offers Arbitrum Nitro, ZK Stack, and OP Stack

• Conduit offers Ethereum, Arbitrum One, and Base as settlement layers; Caldera doesn’t list a settlement layer, but I imagine it’s similar

• Conduit’s data availability (DA) options include Ethereum, Celestia, EigenDA, and Arbitrum’s AnyTrust DA; Caldera offers Celestia and Ethereum, with plans to integrate Near and EigenDA soon

• Conduit allows any ERC-20 as a native gas token; Caldera allows DAI, USDC, ETH, WBTC, and SHIB (???)

I’ve considered making my own rollup for fun, but I really can’t justify spending $3,000 a month on a virtual chain (unless a VC is willing to PM me, then we can talk).

To sum up, I love RaaS and hope everyone working on it keeps working on it. I really don’t see anything wrong with it, and thinking there are “too many rollups” is a silly position to take, especially given the current state of our industry.

Regarding the current state of our industry, it’s time to briefly discuss some of my gripes with restaking, LRT, AVS, and Eigenlayer. I’m still trying to write a larger report, so I’ll keep it brief here.

There is a lot of ETH deposited in Eigenlayer, about 5.14 million as of today. I had thought that most of the funds would disappear after the points program ended, but the world's most disappointing airdrop announcement did not cause TVL to flee to better places, but it actually increased. I think anyone who expected Eigenlayer's airdrop to easily multiply deposited funds by 20-25 times was probably fooling themselves, but I didn't expect them to block almost all major countries after this. Enough tweets have expressed dissatisfaction with Eigenlayer's double standards (including one of my own), but I really don't think it's worth discussing anymore.

The team also released a huge whitepaper explaining what EIGEN does and introducing a new concept called "Subjective Mutual Benefit". No one really understands what this means, and no one has written posts discussing it because EIGEN is initially non-transferable, which is a big problem for anyone hoping to build a community around their protocol. If you can't make people rich through the token or the ecosystem around the token, people will turn their attention to ways to make money (such as memecoins).

I have no problem with Eigenlayer or the team. I want to make this clear.

Sadly, I have a problem with restaking and the basket of AVS currently on the Eigenlayer whitelist. With over half a million staked ETH deposited on Eigenlayer, you’d think people would be getting a nice yield on that, right? I’m here to tell you that assumption is wrong. I’ll reference a specific dashboard multiple times, so here’s the link.

If you think about the utility of restaking, you default to bootstrapping economic security from the most economically secure blockchain validator cluster in the world. You throw all sorts of stETH into a restaking platform like Eigenlayer (or future Karak and Symbiotic) to get a higher yield than the already attractive stETH yield. My problem is that there is no inherent yield generation in restaking itself — the yield has to come from AVS in Eigenlayer. If you are a re-staker who deposits 10 stETH in Eigenlayer and delegates that re-staked ETH to an operator like ether.fi, you are trusting them to pick the right basket of AVS to generate yield for you.

But where exactly do those yields come from?

There are no new terms in the Ethereum protocol layer that promise ETH stakers more rewards if they risk using the re-staking protocol. Yields can only come from one place: tokens issued by the AVS (Active Validation Service) itself.

I’m no expert, and I know most of us don’t claim to be experts, but I struggle to understand why no one has raised this question on Twitter. Sure, bigger issues like bad airdrops and existential risks to Ethereum security take precedence, but no one has asked what happens once Eigenlayer launches and eventually enables slashing mechanisms?

What incentive do I have to continue to deposit my assets when a) the team hasn’t discussed any actual numbers on potential yield generation, and b) there’s no reason to hold over $10m in AVS but over $500m in re-staked ETH?  

This leaves us in a (let’s call it reality) scenario where the top 10 operators on Eigenlayer have an average of 5 AVS registered each, and have significant overlap with each other. Eigenlayer was smart enough to announce that the slashing mechanism won’t kick in for a year or so, to let everyone adjust to the new re-staking reality. This is a smart move considering no one has discussed re-staking risk other than Gauntlet and Mike Neuder. While both pieces of writing are high quality, they don’t offer any concrete examples because AVS has barely done anything with it.

As I said before, the benefits of Eigenlayer are pretty cool — there’s no denying that. But is it really necessary to provide nearly a billion dollars of user re-staked ETH to every emerging protocol and make them take on future risk? Slashing isn’t enabled yet, but will be in less than a year — do operators fully understand their re-staking risk and how that risk accumulates with each subsequent AVS sign-up?

I’m not sure.

Perhaps we’ll see several other re-staking platforms slowly eat away at Eigenlayer’s market share, ideally rewarding AVS with less re-staked ETH while gradually finding product-market fit, rather than the other way around.