Restaking: The AC Moment of Decentralized Trust?

Interpersonal trust is the main form of social capital. Trust fosters collaboration, primarily economic transactions, and is the cornerstone of human civilization.

With billions of people connected to the Internet and the physical constraints of collaboration removed, traditional interpersonal trust is still limited to family, long-standing reputations, and personal relationships that have been formed over time, and cannot scale at the scale of the Internet.

Trust has become a bottleneck in the development of civilization in the Internet era.

For many years, blockchain has been referred to as a trust machine. But we've never explored what kind of trust blockchain produces, and what raw materials are used to produce it. Some researchers have proposed that the product of the blockchain is the block space. This is a very intuitive way of thinking: the blockchain produces the block space, and the users of the on-chain application pay gas to consume the block space. Although the virtual machine makes the block space programmable, the block space is still bound to a specific virtual machine, and only the application of the chain can use the block space, and cannot be extended beyond the boundaries of the consensus protocol.

In my opinion, block space is the standardized packaging of a more general product, similar to the standardized packaging of bottled water to water. And this more general product can be called decentralized trust.

Compared with traditional interpersonal trust, decentralized trust is actually closer to "belief". Belief is metaphysical trust, which is the identification of an abstract concept, which, with reasonable guidance, can be transformed into trust between people who hold the same beliefs, thereby promoting collaboration. Maybe one day, we'll find a more precise term than decentralized trust.

Decentralized trust, much like electricity, is produced in the form of streams, which are versatile and difficult to store. The relationship between block space and decentralized trust is similar to the relationship between direct current and electric energy. Direct current is an easy-to-use form of electrical energy, and many consumer-grade appliances are powered by direct current.

Now that we're talking about the analogy between decentralized trust and electricity, let's go back to the early history of electricity. Just a few years after the invention of the electric light, the great Thomas. Edison built the first historic direct current power station on Pearl Street in the southeast corner of Manhattan. Due to the limited distance of direct current transmission, the power station can only supply power to customers within a radius of less than a mile. For users, the service they used was not electricity, but lighting, which was the only use of electricity at the time.

I believe that the latter thing is familiar to every technology practitioner. Tesla invented the alternator. Alternating current can be transmitted over long distances. In addition to lighting electric lights, alternating current also drives electric motors efficiently, opening up endless possibilities for the use of electrical energy. Due to these advantages, alternating current has become the main form of electrical energy, and has accelerated human society into the electric age. Nowadays, electricity has become ubiquitous in our lives.

The advent of restaking has brought decentralized trust to its alternating current moment. Restaking will accelerate human society into the era of decentralized trust, just as alternating current will promote the advent of the electric age.

If you don't already know about Restaking, you're at risk of missing out on the biggest innovation in the Web3 space. Learn about Restaking through articles and interviews with Sreeram Kannan, founder of the Eigenlayer project, before continuing with this article.

Why is restaking so important for decentralized trust? First, with Restaking, decentralized trust can easily cross the boundaries of consensus protocols. It should be pointed out that shared decentralized trust does not originate from the innovation of restaking, but the result of the exploration of shared security.

As you know, the core technology theme in the blockchain space in the past few years has been scaling. A very straightforward scaling idea is a multi-chain network, that is, to allocate applications to run on a dedicated blockchain, so as to mutate the capacity limit of a single chain, and at the same time connect multiple chains into a network through a cross-chain protocol, so that applications can exchange assets and data. However, if you simply split a single strand into multiple strands, the security will decrease linearly. Therefore, researchers of multi-chain networks have been exploring shared security: multiple chains share a decentralized source of trust.

The first multi-chain network to come up with shared security and put it into practice is Polkadot. With the Polkadot Relay Chain at its core, the network achieves shared security by sending a group of relay chain validators to an appchain (known as a parachain). In order to take advantage of shared security, parachains must use a unified virtual machine (Substrate Runtime). The parachain produces its own block, which is finalized by the relay chain. It can be seen that Polkadot has achieved blockchain sharing security under the unified consensus protocol.

Currently, Cosmos is launching the first replication-secure consumer chain, Neutron. Replication security is the first version of a shared security scheme that the Cosmos community has been exploring for a long time: all validators of the shared security provider chain become validators of the consumer chain and run the nodes of the consumer chain. Validator set changes are synchronized from the provider chain to the consumer chain via the cross-chain protocol IBC. Validators will receive incentives provided by the consumer chain. If a validator of a consumer chain has bad behavior (such as a double-signature block), the proof of their bad behavior will be submitted to the supplier chain through the cross-chain protocol IBC, and the forfeiture of their staked assets will be triggered on the supplier chain. One of the big improvements in Cosmos shared security is that it crosses the consensus protocol boundary, and the supplier chain and the consumer chain each implement independent consensus protocols.

Although Octopus Network is nowhere near as well-known as Polkadot and Cosmos, we are equally one of the multi-chain networks exploring shared security. At the heart of the Octopus Network is Octopus Relay. Octopus Relay is not a chain, but a set of smart contracts on the NEAR blockchain. All Appchain PoS operations occur at Octopus Relay, and then synchronized to the Appchain through the cross-chain protocol, and the rewards and penalties of the Appchain are passed to the Octopus Relay through the cross-chain protocol and executed on the NEAR Protocol blockchain. Since the mainnet went live in October 2021, Octopus has achieved shared security across consensus boundaries.

While blockchain shared security preceded restaking, restaking has greatly expanded the sources of shared security, turning PoS into huge pools of shared security, or decentralized trust generators. Ethereum, in particular, is capable of providing $35 billion worth of decentralized trust at the current staking rate and ETH price, as if the Niagara Falls hydroelectric power station was connected to the grid. Inspired by Eigenlayer, Octopus Network decided to use $NEAR Restaking instead of $OCT Staking as the security source for its appchain, thereby significantly expanding the supply of the shared security market.

What's more, Restaking can empower any system that requires decentralized trust, not just blockchains. For example, existing optimistic validation cross-chain bridges need to wait until the challenge period has elapsed before using the root of trust to validate cross-chain messages in order to avoid the high cost of validating the root of trust (typically the block header) on-chain. In order to prevent possible DDoS overlay block-blocking attacks, the challenge period is usually as long as a dozen hours or more, significantly increasing the latency of cross-chain transactions. If a set of restaking-based witnesses are used to provide a signed endorsement of the root of trust, the root of trust can be used when the cumulative economic value of the endorsement (the amount of restaking assets that can be slashed) exceeds the economic value of the cross-chain transaction. This witness mechanism can reduce the latency of cross-chain transactions from more than a dozen hours to a few seconds.

It can be seen that compared with the block space, restaking is a more general form of decentralized trust. As a result, the possibilities for the use of decentralized trust are endless. In the Web 2.0 era, companies run on platforms that are at the center of collaboration. In the era of Web 3.0, decentralized trust-driven crypto networks will replace the role of centralized platforms. There is no need to trust each other among the participants of the collaboration, nor does it need to trust the operator of the encrypted network. They just need to be confident that the crypto network is based on enough decentralized trust. When the collaboration is successfully completed, the crypto network captures a small portion of the economic value added generated by the collaboration and distributes it to its operators. Decentralized trust providers voluntarily and permissionlessly participate in the operation of the encrypted network and obtain operational benefits. They must behave in the way agreed upon by the crypto network or face severe financial penalties. In my opinion, the vast majority of Internet-based economic cooperation can be achieved in the above way, that is, breaking through the traditional trust bottleneck and avoiding the monopoly of centralized platforms. With restaking, decentralized trust will eventually become ubiquitous.

Now that we've discussed the output of a trust machine, let's look at the input of a trust machine. The input of the PoW blockchain is computing power, that is, chip + power. The PoW blockchain uses physical capital as raw material to produce social capital, that is, to transform chip + electrical energy into decentralized trust.

From the perspective of raw materials and products, the PoS blockchain is a magical existence. Staking assets are both inputs and outputs of the blockchain, and there must be some kind of self-referentiality. Taking Ethereum as an example, as Ethereum carries more and more transactions of higher and higher value and obtains growing protocol revenue, the intrinsic value of Ether continues to increase along with the embedded cash flow (discounted future cash flow valuation). The increase in the price of Ether has allowed Ethereum to produce more decentralized trust, as well as its ability to capture more of the protocol's revenue.

Although Ethereum's economic cycle is self-referential, each link of the chain is based on logic and rational expectations.

Essentially, blockchain, like the narratives of other human communities: religious, international, monetary, etc., is based on the shared imagination of Homo sapiens. Yuval. Harari, in his magnum opus, A Brief History of Mankind, argues that shared imagination is what sets Homo sapiens apart from evolutionary competition. As a rationalist, I would love to see the rational common imagination gradually replace the irrational common imagination and play an increasing role in the development of civilization.

PoS blockchains look like perpetual motion machines, producing social capital without consuming physical capital. But in the long run, if the PoS blockchain can't effectively capture protocol revenue (note: staking revenue is not protocol revenue, but protocol cost!). Then the common imagination will inevitably collapse. When the protocol revenue cannot support the valuation of the native asset, the asset price falls, and the security of the blockchain declines, which in turn weakens the value capture ability of the blockchain, forming a vicious circle.

Restaking will be a multiplier of Ethereum protocol revenue, helping Ether generate protocol revenue from hundreds or thousands of decentralized systems outside of the Ethereum blockchain. For other PoS blockchain communities, ignoring restaking is tantamount to ignoring the positive feedback economic cycle, thus ignoring the chances of survival.

Disclaimer: This article is for informational purposes only and should not be used as legal, tax, investment, financial or any other advice.