Under the attack of Restaking's "vampire", how should Lido solve the problem?

Original title: ReGOOSE: Updated goals for Lido in the light of MVI and restaking

Author : Lido strategic consultant Hasu

Compiled by: Odaily Planet Daily Azuma

Last weekend, Lido strategic consultant Hasu targeted the recent Due to the changes in the market environment in the past six months, Lido released its first updated opinion (reGOOSE #1) on the "strategic intention" (GOOSE) determined in October last year.

In the article, Hasu mentioned that there are two main challenges Lido is currently facing:

• First, researchers from the Ethereum Foundation have begun to discuss significantly reducing the number of Ethereum network resources. Staking incentives, which may fundamentally threaten the economic benefits of decentralized staking protocols such as Lido;
• Second, with the development of the re-staking (Restaking) narrative, the subsidy drive of projects such as EigenLayer and LRT has attracted Due to the inflow of tens of billions of dollars in capital, stETH has also been passively exposed to "vampire" attacks, and its market share has dropped from 32% to 29%.

Faced with the above two major challenges, Hasu gave his own suggestions based on his own understanding and community discussions, that is, how Lido should respond to the changing market trends, which aspects should take the initiative to change, and which aspects And we should stick to our original intentions.

The content of this article will mainly focus on the second challenge mentioned by Hasu, that is, how Lido solves the problem in the face of Restaking's "vampire" attack. As for the first challenge, since the Ethereum Foundation has not yet reached a general consensus on whether to change the mainnet staking incentives, the proposal is still in the research and discussion stage. Hasu also believes that this proposal will not be too big at least in the next 12 months. Progress, so this article will not go into details. Readers who are interested in this part can go directly to the forum to read the original article.

The following is Hasu’s original content (all from Hasu’s first-person perspective), compiled by Odaily Planet Daily.

Lido and Restaking

Restaking is a new economic model that allows the same collateral to be used in multiple verification services (in the context of Eigenlayer (called AVS), thereby improving capital utilization efficiency, but because there will also be new slash conditions, the risk will also increase accordingly. For example, the same ETH can be used both as a pledge asset for Ethereum PoS verification and to run a data availability node (such as EigenDA).

I discussed Restaking’s narrative last October when Lido was formulating GOOSE. My view at the time was that this was indeed an underlying technology with great promise, but it would probably take several years to fully mature. Restaking introduces new risks due to the existence of additional slashing conditions, but the revenue returns from the AVS service are negligible at the outset.

However, The above analysis ignores the possibility that EigenLayer can hype the narrative in the pre-release stage and use point subsidies to attract capital inflows in advance. At the time of writing, users have deposited a total of approximately 5 million ETH (worth approximately $15 billion) into EigenLayer, with most of these deposits coming in before the AVS service was even launched. In addition, since the Liquidity Re-hypothecation Protocol (LRT) surrounding EigenLayer and some other AVS partners also have their own subsidy programs, this has also contributed to the further growth of incentives for the Restaking narrative.

Although these subsidies are destined to be unsustainable in the long term, the current situation is: a large number of staking users have begun to choose the higher returns of Eigenlayer + LRT instead of the higher security of stETH and its network effects.

In response to this situation, I will make suggestions for updating GOOSE from the following three aspects.

stETH should continue to exist as LST and should not be converted into LRT

Despite the current popularity of the Restaking / LRT narrative, I still believe that stETH should not be converted into LRT for two reasons point.

First of all, as mentioned in the original version of GOOSE, it is expected that more institutional capital rather than retail capital will join Ethereum in the next three years. If Ethereum's staking layer is to remain sufficiently decentralized, it will be crucial for Lido or other decentralized staking protocols to win over institutions. In my personal experience, the higher risk and actively managed nature of LRT is not consistent with an institution's risk appetite. For stETH, the massive accumulation of funds will make it the safest and most liquid LST. Converting to LRT and adding additional risks will damage this foundation.

Secondly, although LRT can provide higher yields, its nature is closer to ETH-denominated mutual funds (mutual funds) or tokenized deposits in the lending market. The key attribute of liquidity staking is that it is a commoditized software product, but for LRT, most people in the market may have difficulty matching their risk and return preferences. Therefore, LRT is unlikely to achieve significant network effects and deep liquidity, which will further limit its adoption. Furthermore, the actively managed nature of LRTs may also result in them being more susceptible to being treated as regulated financial services.

However, Lido should remain open to the possibility of building additional products (such as LRT) on top of stETH, as long as the market demand for the product can match Lido’s vision remains consistent. However, stETH itself, as the cornerstone of Lido, should always remain LST.

Seek staking services that can strip away the risk of slashing, such as "pre-confirmation"

Leaving aside LRT, we can also conduct a deeper exploration of the use cases of stETH around the verifier service, which also has Two reasons.

First, because AVS can be roughly divided into AVS that requires a verifier and ASV that does not require a verifier, the latter can operate based on any type of collateral.
• The second is that not every validator service requires a slashing mechanism to operate. In other words, the slashing risk can be isolated to avoid affecting stETH holders.

I think Lido should continue to be at the forefront of defining "what is staking" and actively explore validator services that contribute to Ethereum's expansion or security vision, and thereby Get support from the Ethereum community.

In 2022, Lido became the first staking protocol to promise to use mev-boost (out-of-protocol PBS) in all nodes. Its comprehensive strategy is between MEV maximization, node selection, and censorship resistance. A good balance has been achieved, which has had a positive impact on staking services across the industry.

Now, running mev-boost has become a regular part of staking operations,

This shows that the definition of "what is staking" can be extended to more additional services.

In my opinion, "pre-confirmation" will be the next widely adopted validator service after mev-boost (although I predict that they will be mev-boost's evolve rather than replace).

"Pre-confirmation" allows validators to commit to including one additional transaction in addition to all transactions in the current block, so that Rollup or DEX transactions can be processed at a faster rate (vs. the next block time of 12 seconds) to achieve improvements in user experience, security, and interoperability.

Lido should become the front runner in “pre-confirmation” services and start looking for partners. It is also important to note that Lido should achieve this goal by, for example, using dedicated funds set up for each new service, rather than choosing options that would bring additional risks to stETH holders.

Promote stETH to become the number one collateral in the Restaking market

In addition to internally exploring validator services that are consistent with Ethereum's vision (such as "pre-confirmation"), Become a provider of various AVS Top collateral will also be an opportunity for stETH, these AVS either do not require validators or are too risky or incompatible with the vision of Ethereum to be built within the protocol.

This choice is in line with the basic principle of "maintaining stETH as the safest and most suitable LST for Ethereum". Instead of going into active risk management territory, Lido should find ways to allow staking users to choose a higher risk/reward model by, say, depositing stETH into the Restaking protocol or AVS.

This requires building a prosperous application and partner ecosystem around stETH, similar to what Lido has done by integrating into Ethereum DeFi and the broader CeFi field. It is an ecosystem construction category. This also requires Lido to have a deep understanding of the AVS and LRT ecosystem, build connections with key players in the system, and collaborate to coordinate incentives.

Given Lido’s past poor performance in strategic cooperation negotiations, I suggest creating a new ecosystem building team within Lido for this purpose.

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