Restaking was never going to work the way that Eigenlayer originally described and hyped people up on Here are the main problems I and others uncovered when we analyzed the project originally: - Hypothecation of the same restaked collateral across multiple different protocols introduces unacceptable and unquantifiable leverage risk (this defining capital efficiency feature was later removed for being too high risk) - Restaking another, unrelated project’s token in your protocol as collateral (initially just ETH) diminishes the utility and value capture of your protocol’s native token, notably at scale - Similarly, using the EIGEN token as your protocol’s governance token (“Universal Intersubjective Work Token”) diminishes the governance utility of your protocol’s native token, harming self-sovereignty - Restakers need to be paid yield, and since participating protocols are often pre-revenue, this must be paid for with inflation of the protocol’s native token (sell pressure), before transitioning to a long-term rev-share structure (value leakage) - ETH restakers have zero economic alignment with the underlying protocols or their native tokens; they end up dumping token rewards en-mass to accumulate more ETH (good for ETH value capture at the expense of other protocol tokens) - The combination of the above issues creates a systemic adverse selection problem, where: 1). high quality projects don’t join the system as they don’t need to incur the value leakage / sell pressure of restaking as they can use their own token to bootstrap crypto econ security and a validator set 2). low quality projects that cannot bootstrap their own crypto econ security join the system but are unlikely to generate sufficient long-term revenue needed to pay restakers (inflationary token rewards are not infinite) - The above problems also create a graduation problem, where if a low quality protocol that uses restaking becomes high quality (i.e., starts becoming revenue generating), they are likely to leave the system so as to stop leaking value to external tokens - And the biggest kicker; there was little-to-no demand from the end-users for restaked crypto econ security, especially as the conditions under which slashing can programmatically happen are so limited (and non-existent for a long time) Eigen has pivoted a lot of the years since TGE, with the latest being “Eigen Cloud”, which I’m not as knowledgeable on, so some of the above may not apply anymore to the current system But it explains why “Restaking” as originally envisioned and described by Eigen did not take off and EIGEN has suffered so much, the economics and incentives of the system were fundamentally broken Fin(Zach Rynes | CLG)