Eigenlayer: a contrarian view

Eigenlayer restaking protocol allows people to restake ETH to crypto networks, assuming the risk of slashing.

The question is whether Eigenlayer can be useful to Proof of Stake networks like SKALE, and to which extent.

As argued below, the answer may be yes, but in a resonably small way.
A Proof of Stake network must have its own token to be economically viable. Restaking needs to be see as complementing and not competing with native staking.

As argued bewlow restaking is a limited, but potentially useful option to attrack larger community.

Point One: a Proof of Stake network needs its own token.

When Satoshi Nakamoto introduced bitcoin, they introduced a viable economic model based inflation and transaction fees.

All succesful PoW and PoS networks that we know have economic models based on native tokens.

A PoS network solely based on restaking would die long term, since its token would fail to capture economic value. In other words, token ownership must lead to economic benefits.

There are a number of networks today that have voting-rights-only tokens. In my view, these networks are in search of economic model.
While the market may support this networks short term, long term they will have to evolve into being economically viable.

Point Two: Restaking may be a viable addition to attrack larger community.

Consider a PoS network that pays an overwhelming majority of its staking rewards to native token holders, but allocates a small portion of rewards (say one percent) to attrack larger ETH community.

In my view limited restaking support like this may be viable, as described in two scenarios below.

The key rule for the economic analysis of restakintg is that the rewards paid to restaking paricipants must be commensurate with economic value they add to the network,

The two scenarious described below assume that restaking rewards are small (say 1 percent of total rewards),

Scenario One: No-Slash-Restaking (NSR).

In NSR model Alice restakes ETH to ProjectX that will not slash Alice under any condition.

In this model restaking is a community endorsement. It simply says that Alice likes the project and is willing to pay the mental cost of the restaking transaction.

Since opensource community has altruistic roots, the above model is simple and viable, especially since Alice knows her funds are not under risk.

Note that in NSR model there is a ** small but nonzero risk for Aice to get her funds slashed**, since the smart contracts of ProjectX can be compromised to slash Alice.

Therefore, by restaking Alice does, to some extent, attest to the security of ProjectX.

Scenario Two: Tiny-Slash-Restaking (TSR).

In this model ProjectX guarantees to Alice that slashing is limited to a small portion of her funds in catasrophic events.

If we want to understand which catastrophic events TSR may protect against, we need to take a look at the history of bad things that happpened PoS networks. Then we find things like

A) Rug pulls
B) Nework wide compromises
C) Stable coin depegging
D) Crashes and failures to produce blocks for significant amount of time
E) Validator compromises

TSR may be triggered in scenarios A) and B) by defining a catasrophic drop of token price vs ETH, as measured by decentralized exchanges or Oracles. As an example if token price drops more than 10 times in a single day, TSR may be triggered.

In a similar way C) may be triggered by depegging of the stablecoin that ProjectX issues.

D) may be triggered by a timestamp difference between two consequitive blocks

E) Means that Alice believes a particular validator Bob is secure. Here TSR may then be trigered if Bob is slashed by the native PoS slashing of the network.

Note that in TSR vs NSR model model Alice needs to do deeper analysis of the network security, or at least review opinions of independent experts.

Conclusion

The NSR and TSR models described above provide** a realistic way for PoS communities to engage in restaking**.

Since restaking is a new thing, in any case we need to start small and see how it develops and how much useful it may be to PoS networks.