Title: Transitioning from Staking to Restaking
Author: Arjun Balaji, Dave White, Georgios Konstantopoulos, Paradigm
Translation: Ismay, BlockBeats
Editor’s Note: On June 11th, Symbiotic officially launched and announced the completion of a $5.8 million seed round financing, led by Paradigm and Cyber Fund. This morning, the re-staking protocol Symbiotic announced that it had reached the staking limit of 41,290 wstETH within 5 hours. Symbiotic, which garnered market attention from birth, is truly shining. Last month, reports surfaced that the co-founders of Lido and Paradigm were secretly funding a new company, Symbiotic, which would compete in the re-staking arena. Symbiotic allows users to re-stake Lido’s stETH with assets that are incompatible with EigenLayer natively, making Symbiotic a direct competitor to EigenLayer.
This article introduces the core concepts and applications of Symbiotic’s shared security system. Symbiotic, as a flexible, permissionless protocol, allows network developers full control over staking implementation and operator selection, while providing a wide range of security services. In the short term, Symbiotic will primarily be used for launching new consensus instances, such as the election of new L1 operators and decentralized sorting. Looking ahead, Symbiotic will also support use cases such as block production and multiparty computation. Additionally, Paradigm has developed Reth Execution Extensions (ExEx) to further enhance shared security services based on Symbiotic.
The following is the full introduction to Symbiotic written by Paradigm:
Decentralized networks require coordination mechanisms to incentivize and supervise their node operators. This mechanism began with Proof of Work, then evolved into Proof of Stake, a significant development that allows networks to obtain validator security through economic collateral. The next frontier is shared security, which expands the services PoS node operators can provide while utilizing the same economic collateral. Symbiotic is a universal, permissionless protocol that provides shared security through re-staking. We invested in Symbiotic in partnership with Lido and other protocols with Cyber Fund.
We believe that Symbiotic’s flexible and permissionless approach will be well-suited for many of the most useful shared security consumers, and over time, it may become the default choice for launching decentralized networks.
Background
Lido is Ethereum’s largest liquid staking token, founded on the insight of separating staked capital from validator infrastructure (labor) without modifying Ethereum’s consensus mechanism, using smart contracts in a decentralized manner to allocate users’ stakes to operators. This separation, known as “delegation,” is a natural inherent trend in PoS systems. By matching staked Ether with the highest quality infrastructure operators, Lido enables PoS to scale on Ethereum without compromising decentralization.
Since 2021, Paradigm has been collaborating with contributors to the Lido protocol. Since then, Lido has grown from around $800 million to over $36 billion in staked ETH deposits, nurturing the most robust node operator ecosystem: reputable, geographically diverse, diverse, and consistent. Paradigm has also long supported the Cosmos ecosystem, leading the initial A round financing of Tendermint Inc., and later investing in Osmosis and dYdX. Through Cosmos, we observed the challenges developers face in recruiting validators and capital from scratch every time they want to launch a new chain, greatly limiting the pace of innovation.
The natural “second stage” of Ethereum staking is to repurpose staking and validator infrastructure and expertise to transcend L1 consensus to protect multiple protocols simultaneously. This makes it easier to establish new protocols. Cosmos pioneered the idea of “shared security,” while EigenLayer’s “re-staking” recognized that Ethereum-centric approaches can successfully launch this validator ecosystem. This original mechanism is novel and powerful, but given the risks of overwhelming the Ethereum consensus, it needs to be carefully designed to enable useful applications to be launched safely.
When considering the market, we realized that Konstantin was also interested in this. Through him, we met Misha and Algys, the founders of Statemind, a top auditing firm with close relationships with Lido (i.e., their V2 audit), Curve, InstaDapp, and others. We share very similar views on their respective markets and seized the opportunity to collaborate.
Introduction to Symbiotic
Symbiotic is a new shared security system designed as an extremely flexible, permissionless, and reliable lightweight coordination layer. Symbiotic allows network developers full control over their (re)staking implementation and operator settings. Overall, the long-term goal of this protocol is to provide basic components to help networks navigate the path to decentralization while prioritizing security and capital efficiency.
Flexibility
Protocols built on Symbiotic can control their staked assets, rewards, and penalty criteria. Symbiotic will initially focus on staking ETH, as it is the largest staked capital pool. However, the protocol is universal and can accept any ERC-20 asset as collateral. Over time, we expect Symbiotic to serve a variety of assets and their associated operator infrastructure groups.
Network developers on Symbiotic will also have complete control over their operator selection mechanisms. Over time, it will be possible to maximize participant numbers, geographic distribution, overlap with other protocols, reputation, and other selection criteria.
Permissionless
The core contracts of Symbiotic are immutable, eliminating external governance risks. Symbiotic will never have a central multisig, penalizing committee, or other licensing mechanisms for shared security services. Services built on Symbiotic will be able to support a variety of penalty resolution mechanisms, which we believe is crucial for innovation.
Reliability
Building operator infrastructure networks is challenging, as we learned from our collaboration with Lido. Symbiotic will ensure scalability by introducing reputable and geographically diverse infrastructure partners and supporting smaller operators.
What should be built on Symbiotic?
At Paradigm, we believe that the core of a re-staking protocol is a delegation staking system. Stakers are incentivized to vote in support of operators they believe will be honest validators. In a sense, this is how Ethereum staking (via stETH and other liquid staking tokens) operates today.
In the short term, we believe the most clear and secure use case for sharing delegated PoS security is to launch new consensus instances:
Electing new L1 operators (e.g., Cosmos application chains, sidechains, etc.)
Decentralized sorting
Distributed auctions (e.g., leaderless auctions)
Multiparty computation (MPC) and threshold decryption networks
Looking ahead, we are also interested in L1 block production use cases, such as new types of MEV auctions, pre-confirmation, and base sorting. However, we believe that block production use cases may take longer to flourish: they typically benefit from more L1 proposer adoption and may pose more direct security risks to Ethereum L1.
To achieve this vision, we have also created Reth Execution Extensions (ExEx). ExEx allows for quick extraction and processing of data from nodes, enabling networks/services to interact with other ExEx peers to reach the final state that should be injected into Ethereum. We aim to make ExEx the best tool for building shared security services using Symbiotic.
Of course, Symbiotic is a universal system, and developers can build any protocol on it without requiring permission or using our codebase. These are just our intuitions about the types of use cases most likely to succeed.
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