Encryption Talk: Some Thoughts on RaaS and Eigenlayer

Original author: KNOWER

Original text translation: Plain language blockchain

Today, this article will introduce some major RaaS (Rollups-as-a-Service) providers, and the author’s view on Restaking.

1. About Rollup

Considering the perspectives of Rollup (L2 and L3), RaaS (Rollup-as-a-Service) is a contentious topic. On one hand, supporters believe that platforms like Caldera and Conduit make building Rollup very easy, which is positive for the development of the entire ecosystem. On the other hand, some argue that we already have enough block space and these tools become irrelevant. My personal opinion falls somewhere in between, as both sides have strong arguments. I believe Rollup infrastructure is beneficial for the field, regardless of scale, but I also understand why people are skeptical about this technology driving adoption of cryptocurrencies.

L2 Beat listed about 55 active Rollups, with the top five (Arbitrum, Optimism, Base, Blast, and Mantle) occupying 82.74% of the market share at the time of writing. I am uncertain whether this phenomenon should be seen as a symptom of the cryptocurrency field being in its early stages with undifferentiated Rollup designs, or a general lack of interest in most Rollups — perhaps it’s a combination of the three.

Arbitrum and Optimism are likely to become the most mature Rollups, and they currently resemble more of a “true” chain (rather than Ethereum’s sidechain). Base has a very active community, which may be the best positioned Rollup at the moment, despite its smaller locked value. Similar situation applies to Blast, although I’m not sure if their higher locked value is more attractive than the community established by Base, since Base’s community was built without a gamified scoring system. Base even explicitly stated that they will not issue Tokens, but no one cares, because it is the first Rollup to emerge with spontaneous activity - even before the airdrop announcement, Arbitrum and Optimism were heavily mined.

Mantle is a Rollup that I am very unfamiliar with, but I simply looked at the ecosystem and think their positioning is better than Mode, Manta, and even Scroll. Their future development depends entirely on the inflow of locked value and the deployment of new applications, both of which are pending before further development.

There are 44 projects on the upcoming Rollup list of L2 Beat, which is a concern compared to the existing 55 active Rollups. These 44 Rollups adopt various designs, such as Optimiums and Validiums, but ultimately they are all competing in the same market. It is rare for active Rollups to “migrate from a modular execution layer / Ethereum sidechain to the dominant chain, coincidentally L2”, which is a worrisome situation.

When years of development talent converge on a fundamentally stable base layer, L1 succeeds, providing opportunities for community formation and ecosystem creation (think Solana’s Memecoin casino era, Ethereum’s DeFi summer frenzy, and even the ordinality on Bitcoin). The utility of Rollup comes from its shared security with the base layer, which is Ethereum 99% of the time, unless you’re talking about Solana’s L2 and its relatively lower transaction cost.

I believe that relying solely on technology is not enough for a Rollup to occupy a significant position in ideology or market share, as can be seen from the lack of breakthroughs in some ‘most powerful’ technologies (such as Scroll, Taiko, and Polygon zkEVM) in the game of locking value. Perhaps these teams will indeed see an increase in locked value in the long term, but based on the current sentiment and pursuit of inadequacy, I have not seen this sign. No, your eight users don’t want to participate in another Galxe event, and they definitely don’t want points that can be exchanged for non-transferable Tokens.

If you could place yourself in the role of a brand new, blissfully ignorant cryptocurrency investor, how would you feel about Rollup? Unless it involves some Memecoin that you can profit from, I’m not sure you’d be ecstatic about seeing the 15th zero-knowledge Rollup and something like a zkEVM equivalent.

This brief analysis (just a quick look at L2 Beat) looks quite pessimistic, but as long as I haven’t invested in L2 or L3, I’m satisfied with it. I don’t think more and more Rollups are necessarily a bad thing for the field, but we should speak more honestly about the utility it brings. In the past few months, many applications have become application-specific chains (such as Lyra, Aevo, ApeX, Zora, Redstone), and I doubt this trend will continue until everyone from Uniswap to Eigenlayer becomes L2.

Therefore, while we cannot prevent the deployment of new Rollups, we can at least try to be honest about their impact on cryptocurrency. We have too many block spaces, and the Ethereum mainnet does not even need any additional block space - it may now cost up to $10 to complete a transaction, and this situation has been going on for weeks.

It is quite difficult to distinguish RaaS providers like Conduit and Caldera, and I am confident in saying this because I hope someone can correct me if I am wrong. Here is a brief overview of their respective Rollup deployment processes:

• Conduit provides OP Stack and Arbitrum Orbit; Caldera provides Arbitrum Nitro, ZK Stack and OP Stack.
• Conduit provides Ethereum, Arbitrum One, and Base as the settlement layer; Caldera does not list the settlement layer, but I think it may be very similar.
• Conduit’s DA provides AnyTrust DA for Ethereum, Celestia, EigenDA, and Arbitrum; Caldera provides Celestia and Ethereum, but plans to integrate Near and EigenDA soon.
• Conduit allows you to use any ERC-20 as the native gas Token; Caldera allows you to use DAI, USDC, ETH, WBTC, and SHIB.

Overall, these two platforms are very similar. I think the only difference may come from the actual consulting experience of the teams. I haven’t spoken to either of these teams, so if either seems hasty or uninformed, I apologize, but I think they would appreciate an honest observation of RaaS and the current industry situation.

I once considered creating my own Rollup just for fun, but I couldn’t justify spending $3000 a month to maintain a virtual chain (unless some venture capitalists want to DM me and we can discuss).

Overall, I support Rollup as a Service (RaaS) and hope that everyone dedicated to this field continues to work hard. I really don’t see any problem with it and think that the controversy over ‘too many Rollups’ is meaningless in the current state of our industry.

2. About Restaking

When it comes to discussing the current state of our industry, it’s time to briefly talk about my dissatisfaction with Restaking, LRT, AVS, and Eigenlayer.

As of today, a huge amount of Ethereum has been deposited in Eigenlayer, about 5.14 million. At first, I thought that after the points program ended, most of the funds would be lost, but disappointingly, the recent airdrop announcement did not result in funds flowing to more valuable places, in fact, it increased. For those who expected Eigenlayer’s airdrops to easily increase capital by 20-25 times, I think they may be deceiving themselves, but I did not anticipate that they would subsequently impose geographical blocks on almost all major countries. Many tweets have expressed dissatisfaction with Eigenlayer’s double standards (including a tweet I posted myself), but I really don’t think there is any point in discussing this issue further.

The team also released a massive White Paper explaining the workings of EIGEN and introducing a new concept called intersubjective utility. In fact, no one really knows what it means, and no one is discussing it because EIGEN will initially be non-transferable, which is a huge taboo for those who want to build a community around its protocol. If people can’t get rich through tokens or an ecosystem built around tokens, they’ll turn to areas with money-making potential, such as memecoins.

I have no opinions on Eigenlayer or the team itself, I want to make that clear first. However, I do have concerns about Restaking and the AVSs basket currently allowlisted on Eigenlayer. With over five million ETH already staked on Eigenlayer, you might think people can earn high returns, right? Let me tell you, this assumption is wrong.

When considering the utility of Restaking, you default to extracting economic security from the most economically stable collection of blockchain validators in the world. You deposit various types of stETH into Restaking platforms like Eigenlayer (or Karak, ultimately Symbiotic) in exchange for higher yields on already attractive stETH returns. My question is, Restaking itself does not generate intrinsic revenue, and the revenue must come from AVSs provided within Eigenlayer. If you are a Restaker and deposit 10 stETH into Eigenlayer and delegate the ETH from these Restakings to operators like ether.fi, then you need to trust them to choose the correct AVSs basket to generate revenue for you.

But where do these profits come from?

Indeed, Ethereum has not promised at the protocol level that ETH stakers can earn more rewards by staking their risks in the re-staking protocol. The earnings can only come from one source: the tokens issued by AVS itself.

I am not an expert, but I also find it difficult to understand why no one has raised this issue on Twitter. Of course, more important issues such as bad airdrops and the risks of Ethereum security are receiving more attention. But why hasn’t anyone asked a simple question: what could happen after Eigenlayer is launched and the penalty mechanism is eventually enabled?

When the team neither discusses the actual numbers of potential yield generation nor carries over 10 million US dollars in assets, but holds over 5 billion US dollars or more of re-staked ETH, where is the incentive for me to keep my assets deposited?

We are in an interesting situation, on Eigenlayer, the top ten operators on average have registered 5 AVS each, and there is a significant overlap between them. Eigenlayer wisely announced that it will not enable penalty mechanisms for about a year to allow everyone to adapt to the new Restaking reality. Considering that apart from Gauntlet and Mike Neuder, no one discussed the risks of Restaking, this is a wise decision. Although both articles are very good, they actually do not provide any specific examples because the current AVSs have little effect.

As I said before, the advantages of Eigenlayer are obvious. But is it necessary to provide nearly a billion dollars in user Restaking ETH for every new protocol and expose them to future risks? Although the penalty mechanism has not been activated, it will be activated in less than a year - do operators fully realize the risks of their Restaking and the increasing risks with each subsequent AVS registration?

I’m not sure about this. Maybe we will see some other re-staking platforms gradually eroding Eigenlayer’s market share. Ideally, they will gradually gain product-market fit and provide a smaller amount of Restaking ETH to AVS instead of the other way around.