The Need for Restaking

Blockchain developers building new protocols that interact with Ethereum require a trustless way to validate all the data that originates off-chain. In other words, developers have the difficult task of bootstrapping their own decentralized network of computers to validate information and provide consensus, including determining how to incentivize other users to join their networks and run their node software on their machines.

The Ethereum network already has a massive decentralized network of validators with over 1 million active nodes. Ethereum uses a Proof-of-Stake (PoS) consensus mechanism, meaning node operators stake capital in the form of ETH to participate, earning rewards for securing the network and facing a loss of financial capital (i.e., slashing) if they misbehave. There's currently over 32M ETH, worth over USD 110B, staked to secure the Ethereum network.

Source: Eigenlayer

Restaking protocols such as EigenLayer and Symbiotic leverage the Ethereum network's existing, robust validator set to secure a broader range of decentralized applications (dApps), foster permissionless innovation, and make it easier for developers to build on chain.

It accomplishes this by introducing the concept of restaking — using currently staked ETH to secure additional protocols, earning participating restakers additional rewards atop their current ETH staking rewards.

Introducing Symbiotic

Certain blockchain protocols, including cross-chain bridges, sequencers, sidechains, data availability layers, and oracle networks, may face challenges when deploying on the Ethereum platform due to their dependency on external inputs that exceed the network's verification capabilities.

The above dApps and middleware must bootstrap their own PoS network to secure themselves independently. This would require incentivizing operators to run validators and a token to incentivize participation in the network (i.e., stake). Solving this complex problem is challenging.

Symbiotic aids projects like those facing the prospect of bootstrapping their own PoS networks. What if there was a way to build a protocol that can leverage another protocol’s validator set, which already provides billions of dollars in economic security?

What we have then is a marketplace of actors that all need/want something:

Stakers want to participate in networks for token rewards and many often do not want to run and maintain their own infrastructure. Operators want to maximize their existing operational resources to join in networks but need stakers to receive payment for their services (usually in the form of a commission). Protocol builders do not want to deal with the complexities of building a protocol at the infrastructure level but need economic security and operational support.

Source: Symbiotic

Symbiotic connects these three participants (restakers, operators, and protocol builders) via a network of smart contracts to become the coordination layer of this marketplace and ensure each participant’s needs are met. Symbiotic does this by leveraging Ethereum’s existing economic security (validator set and staked ETH) as the foundation of this layer, simplifying bootstrapping for PoS protocols. Symbiotic calls this restaking.

Requiring each new project to establish its own PoS network undermines the overall security of Ethereum's network, as each project draws away value in the form of staked tokens from the Ethereum beacon chain. Additionally, this structure makes each new project more vulnerable to potential attacks, as a smaller amount of stake secures them compared to the security provided by Symbiotic's pooled security approach.

Symbiotic seeks to do the opposite: It wants to pool security, creating a cost-effective way to secure multiple networks while maintaining high trust in each one

Symbiotic Protocol Explained

Symbiotic is a shared security protocol that serves as a lightweight coordination layer, empowering network builders to control and adapt their own restaking implementation in a permissionless manner.

The Symbiotic protocol introduces a new approach to restaking by focusing on modularity. Its elegant design comprises five core components that work together to create a flexible and efficient ecosystem for decentralized networks as described below:

Source: Symbiotic

Collateral: Utilizes various ERC-20 tokens to represent staked assets or liquidity positions from different blockchains, enhancing cross-chain capital efficiency.

Vaults: Key for managing delegation and restaking; they handle accounting, delegation strategies, and reward distribution, allowing end users to deposit collateral into customized products.

Operators: Providers like InfStones offer infrastructure for decentralized networks within the Symbiotic ecosystem, with a protocol that supports an operator registry and network integration, backed financially by vaults.

Resolvers: Act as contracts or entities managing slashing incidents from networks; they possess the authority to veto such incidents, thus bolstering security for all participants.

Networks: Known as Actively Validated Services (AVSs) within the Symbiotic ecosystem, these are protocols that depend on decentralized infrastructure to deliver services in the cryptocurrency economy. We can think of Networks as the protocol equivalent of Python libraries. These Networks are used in dApps built on top of Ethereum.

What Sets Symbiotic Apart from EigenLayer?

Symbiotic distinguishes itself through a permissionless and modular framework that offers increased flexibility and control relative to EigenLayer. The restaking platform allows direct deposits of any ERC-20 token, making it more versatile than EigenLayer, which focused primarily on ETH and its derivatives. EigenLayer, following Symbiotic’s lead, recently extended support for additional ERC-20 assets to be restaked just a few days ago.

Symbiotic's flexible model significantly benefits its stakeholders: Operators secure capital from diverse restakers without multiple infrastructures, and restakers delegate various assets to Vaults, including immutable options that secure agreement terms. Networks collaborate with accredited operators, enhancing security and reducing costs due to flexible collateral options.

Networks utilizing Symbiotic can customize their collateral assets, node operators, rewards, and slashing conditions, allowing them to tailor their security settings to specific needs. Additionally, Symbiotic's core contracts are non-upgradeable, reducing governance risks and potential points of failure. Furthermore, Symbiotic promotes a more decentralized and open ecosystem by enabling any decentralized application to integrate without prior approval.

Conversely, EigenLayer follows a more managed approach for now, concentrating on using the security provided by ETH stakers to support various decentralized applications (AVSs). EigenLayer, prioritizing security, primarily supports ETH and its derivatives which may limit flexibility compared to Symbiotic's broader, multi-asset support. EigenLayer also manages the delegation of staked ETH to node operators responsible for validating different AVSs. Moreover, EigenLayer provides a marketplace for decentralized trust, where developers can use pooled ETH security to launch new protocols and applications, with risks being distributed among pool depositors.

Symbiotic opened for deposits on June 11th and was met with considerable excitement and demand. Within a few hours of going live, over 40,000 staked wETH had already been deposited into the protocol, exceeding the initial cap. New assets and higher caps will be added as the protocol onboards additional networks and operators. There is currently over 270,000 ETH deposited into Symbiotic, demonstrating rapid community approval and commitment to the protocol's concept, evidenced by the substantial total value locked (TVL) achieved in a short period of time.

Source: Dune Analytics

The rising competition has also impacted EigenLayer, whose TVL has declined from its peak of 5.43 million ETH in mid-June by approximately 14% to 4.67 million ETH more recently, according to DeFiLlama. Many of these users likely transitioned their capital to the Symbiotic protocol to acquire the network’s governance token in a future airdrop.

Source: DeFiLlama

There are two ways to use the Symbiotic protocol:

1. Visiting the Symbiotic protocol website and depositing your Liquid Staking Tokens directly to the protocol.  
2. Through the Mellow Finance Protocol, users can deposit their ERC-20 assets and create Collateral in trusted Vaults.Mellow Finance is a novel restaking primitive, built on Symbiotic, that enables permissionless Liquid Restaking Token (LRT) creation based on individual risk profiles and curation models.

Our partnership with Mellow and the implications of custom LRTs for the crypto ecosystem will be discussed in the second part of this article:

Source: Mellow

Operator-specific Vaults then manage the allocation of assets and run the chosen Networks' infrastructure. For Vaults that are not operator-specific, Symbiotic provides a registry of operators and their credentials to assist with delegation strategies for restakers.

The following diagram helps visualize the flow of capital in the Symbiotic ecosystem.

Source: Symbiotic

While Vaults are responsible for determining acceptable collateral, Networks must also approve the chosen collateral, as it will secure their applications. Lastly, both Vaults and Networks must agree on the slashing penalties and reward distribution logic.

InfStones’ Plan

As the restaking ecosystem continues to mature, InfStones is positioning itself as a key player. As one of the world’s largest blockchain infrastructure service providers, we are actively working to support multiple Networks as an Operator on the Symbiotic protocol upon launch. To enhance user participation, we're developing our own vaults within Symbiotic with tailored delegation strategies.

Additionally, InfStones is collaborating with Mellow, a vault-based protocol enabling organizations to launch custom Liquid Restaking Tokens (LRTs) through Symbiotic. This multi-faceted approach – as an operator, vault curator, and hands-on collaborator – uniquely positions InfStones to contribute to the growth of shared security protocols and the wider restaking ecosystem. Our partnership with Mellow and the implications of custom LRTs for the crypto ecosystem will be discussed in the second part of this article. Stay tuned for updates by subscribing to the InfStones newsletter.

Article written by Rohit Sarkar, Business Operation Generalist at InfStones.