Author: Paul Timofeev, Sitesh Kumar Sahoo, and Gabe Tramble
Source: Shoal Research Translation: Shan Ouba, Golden Finance
The rapid development of the Web3 space stems from its open source and decentralized nature. This characteristic has led to super-fast growth and scalability, which many people call crypto composability. This composability allows the creation of modular technology stacks where components can be seamlessly inserted or removed, driving unprecedented innovation. At the core of this innovation is the fundamental process of blockchain transactions, whose core value depends on the ability of distributed networks to coordinate and reach consensus on the state of the system.
When a transaction is sent on the blockchain, a distributed network of nodes must first verify the transaction content and then vote on the order of transactions to form the next block to be added to the chain. When these nodes reach an agreement, a state called "consensus" is reached. Blockchains originally used Proof-of-Work (PoW) to achieve consensus, which involves specialized nodes called miners competing to solve cryptographic puzzles in order to add new transactions and blocks to the chain.
While Bitcoin and many blockchains still use PoW consensus, most blockchains today have moved to Proof-of-Stake (PoS), which provides security through economic incentives rather than computing power. The concept was first proposed in the 2012 Peercoin whitepaper, which proposed a deterministic algorithm that selects nodes based on the number of local network tokens staked by the node operator, favoring nodes with more capital.
Then, Jae Kwon wrote the Tendermint BFT whitepaper in 2014, which introduced a new consensus mechanism that can reach consensus as long as less than one-third of the nodes are faulty, and was put into use in 2019 with the launch of the Cosmos Hub mainnet. In addition to consuming significantly less energy than PoW, a key advantage of PoS is that, similar to PoW, stakes cannot be easily forged. In addition, PoS incentivizes honest behavior through a process called slashing, where validators suffer financial losses if they behave maliciously.
With the widespread adoption of PoS blockchains, participation in staking has given rise to new ideas for maximizing the utility of staked capital, such as making staked capital more liquid to provide security for new products and ecosystems.
Staking is a mechanism where token holders deposit tokens into a staking contract to participate in the security maintenance of the underlying protocol and receive rewards for their contributions. In this article, this mechanism may be referred to as “raw staking” because its core utility is limited to remaining idle in a smart contract, while other forms of staking provide additional utility, which will be further expanded below. The size of a validator’s stake determines its likelihood of being selected to produce a block, with the greater the staked capital, the greater the likelihood of being selected. Technically, anyone can participate as an independent staker, but blockchains typically impose certain financial and hardware requirements on stakers that may not be easy for ordinary users or token holders to achieve. For example, participating in Ethereum validators requires depositing 32 ETH and being equipped with at least 16GB RAM, a multi-core CPU, and a 1TB SSD, while Solana requires paying 1.1 SOL per day to vote and being equipped with at least 256GB RAM, a fast multi-core CPU, and high-speed SSD storage.
Therefore, in order to lower the barrier to participation, a delegation mechanism was formed that allows token holders to participate in staking with less capital and without any hardware, while allowing node operators running validators to expand their staking allocations, thereby increasing their block rewards. Staking can be delegated directly to validators or through staking pools, which are smart contracts that delegate funds to multiple validators. Staking pools can be hosted by a third party (such as a centralized exchange CEX that provides staking services) or can be operated non-custodially through decentralized on-chain protocols such as Rocket Pool on Ethereum or Jito on Solana.
Staking also exists at the application level, where token holders of an application can lock up their tokens to secure the protocol (for example, to provide liquidity in the event of a shortfall in a lending protocol), and this type of staking usually provides rewards to stakers, as well as additional utility such as governance rights or revenue sharing. This has even spawned bribe markets in DeFi (such as Curve Wars), where protocols compete to accumulate more governance tokens and thus receive a higher proportion of reward returns.
Nevertheless, raw staking has a key limitation due to its simplicity of design: the capital locked up in the smart contract by staking is illiquid, reducing the liquidity of the token and its ecosystem. The lack of utility in base staking has hampered the adoption of staking services, as rewards distributed to token holders need to compensate for the price exposure risk of locking up tokens. A large amount of network activity may generate enough fees to provide a natural return to stakers, but this is generally difficult to sustain and has not historically been the case in most PoS chains. Distributing rewards through native token issuance is a common alternative, but this is also difficult to sustain in the longer term. This problem has led to the development of liquidity staking protocols.
The emergence of liquidity staking stems from the need to develop a new mechanism that allows stakers to keep their staked assets liquid without affecting the security of the underlying protocol. The process is largely similar to base staking, where stakers deposit assets into a smart contract and receive base returns for their contributions to the underlying system. However, liquidity staking goes a step further and distributes a voucher token called Liquid Staking Token (LST) to stakers, which is equivalent in value to the original deposit. This innovation demonstrates the importance of composability in the DeFi space, as LST can be used in a variety of applications (e.g., liquidity provision, lending), ultimately enabling stakers to earn higher returns on top of their staked assets while increasing the overall liquidity of the underlying network ecosystem.
Since the emergence of the first liquidity staking protocols at the end of 2020, liquidity staking has become the fastest growing sector in DeFi. As of the time of writing, the sector has over $42.3 billion in assets, of which approximately 60% belongs to Lido Finance’s stETH contract. Currently, Ethereum accounts for nearly 85% of the liquidity staking assets in the DeFi space, while Solana is relatively small, with less than $4 billion locked in liquidity staking protocols, 45% of which comes from Jito.
Overall, liquidity staking brings great flexibility and capital efficiency to stakers, which in turn benefits the underlying blockchains they support and the ecosystems built on top of them. However, as blockchains have evolved, so have the uses of staked assets. The rise of modular infrastructure and services has given rise to a large number of new application-specific blockchains, which often face difficulties in building their own validator networks due to a lack of activity and economic incentives. Therefore, new mechanisms have been designed to expand the use of staked assets to help new blockchains achieve security and launch. This mechanism is "restaking".
Restaking refers to expanding the stake and validator network of one blockchain to provide security for any number of other blockchains. More formally, restaking can be defined as a variant of shared security in the context of proof-of-stake (PoS) blockchains, where security-providing chains provide services to security-consuming chains, usually through an intermediary called a restaking protocol.
This mechanism enables new blockchains, whether application-specific or general-purpose, to leverage the economic and computational resources of large base layers such as Ethereum or Solana to launch their security. Stakers can also increase capital efficiency by securing multiple blockchains instead of a single one, thereby increasing returns on staked assets. However, it is important to note that securing multiple blockchains increases the risk of slashing of staked assets - a concept that will be explored further below.
As with running a validator node directly on a proof-of-stake blockchain or depositing funds into a staking pool, anyone can participate in restaking. Users can choose between native restaking, which involves running a validator node that commits to participating in the restaking module, or liquid restaking, which involves staking through a protocol or service provider, which then restakes on the user's behalf. Furthermore, restaking can be limited to native layer 1 (L1) assets, or it can be expanded to support nearly any asset, an approach known as "universal restaking" or "universal restaking."
Early Implementations
While restaking is often associated with Eigenlayer today, the concept has been tested and implemented in application-specific blockchains where launch security is often one of the biggest challenges. Multiple different ecosystems and networks have implemented some form of shared security at different times, and while the specifics may vary, the core concept is often the same - enabling smaller protocols to tap into existing pools of economic and computational resources to fuel their early growth while increasing capital efficiency and returns for stakers.
• In the Polkadot ecosystem, validators participate in the security of the Relay Chain by staking DOTs, which in turn provides security for approved Parachains.
• In the Avalanche network, validators protecting the C chain (the main center of economic activity) can participate in subnets, which are a dynamic set of validators that work together to protect multiple chains or reach consensus on their state. A subnet can protect multiple chains, but each chain can only be validated by one subnet.
• Cosmos takes a different approach, where the top 95% of the staking weight and validator set of its ecosystem center, the Cosmos Hub, is actually replicated on all consumer chains, a mechanism called "Replicated Security". Cosmos Hub validators must run nodes on all consumer chains, although they can use different software and/or hardware. If a validator performs poorly on a consumer chain (such as downtime or double signing), the Cosmos Hub validator will be punished.
In March 2023, Replication Security officially went live via the Prop 187 V9 Lambda upgrade. However, the trend is gradually providing more flexibility to stakers and validators. ICS v2 introduced "opt-in security", allowing validators to choose whether to protect a specific consumer chain. In addition, a proposal was proposed in early May 2024 that, if passed, would allow Cosmos Hub validators to receive BTC stakes through the Babylon staking protocol, enabling any asset to be used for economic security on Cosmos.
Mesh Security will eventually allow chains to both provide and use security, rather than using the validator set of a provider chain to protect a consumer chain. Operators can choose whether to run a Cosmos chain, and stakers can choose to re-stake their staked assets to protect another Cosmos chain. Finally, a proposal was released in early May 2024 that, if passed, would allow Cosmos Hub validators to receive BTC stakes through the Babylon staking protocol, paving the way for economic security with any asset on Cosmos.
In June 2023, restaking functionality was introduced to Ethereum via the Eigenlayer protocol, a set of middleware smart contracts on Ethereum that enables restaking of ETH on the consensus layer to provide security to consumer chains called Active Validation Services (AVS). Eigenlayer ultimately acts as an open marketplace designed to connect AVS seeking to rent security (validator sets and/or staked assets) with stakers and node operators providing said security. ETH and supported ETH LST can be staked via a set of smart contracts that represent AVS extensions or restaking economic security.
By leasing security assets to AVS, operators and stakers can expand the utility of their assets, thereby increasing returns. However, this also comes with risks, as their stake is now subject to any slashing conditions that AVS may impose, in addition to slashing on the underlying chain Ethereum. Eigenlayer is an extra-protocol solution on Ethereum, which means that Beacon Chain validators can choose to participate as Eigenlayer node operators.
Currently, there are no enforced slashing conditions or re-staking rewards on Eigenlayer, but this will change after EIGEN tokens become transferable in late September 2024. Additionally, Eigenlayer recently announced permissionless token support to enable any ERC-20 token to be used as a re-stakeable asset.
Universal Restaking, or "generalized restaking", takes an asset- and chain-agnostic approach to allocating security resources from a set of providers to a set of consumers. This approach allows for the pooling of a variety of staking assets across multiple chains, increasing accessibility for participants and reducing reliance on a single base layer. Similar to Eigenlayer, the Universal Restaking Protocol acts as an intermediary between the security provider chain and the consumer chain (AVS).
Liquidity Restaking enables the representation of restaking assets in the form of Liquid Restaking Tokens (LRT). Liquidity staking and liquidity restaking protocols have similar ultimate goals: to provide restakers and stakers with a liquid representation of their underlying positions. Therefore, LRT can be formally defined as a derivative asset of re-staking positions. LRT providers are ultimately responsible for portfolio management on behalf of re-staking holders, managing the allocation of stakes across various yield positions to maximize returns and minimize risk to depositors. For a more detailed analysis of LRT, please refer to Shoal Research's previous report.
As of this writing, the total amount of active re-staking assets has reached $28.14 billion. Of this, Eigenlayer accounts for 60% of the total, and Ethereum as a whole accounts for 80% of the total TVL (total value locked) in re-staking. So far, only four re-staking protocols, Eigenlayer, Babylon, Symbiotic, and Karak, have TVLs exceeding $1 billion.
At the same time, the liquidity re-pledge protocol has also grown rapidly with the development of re-pledge, with its total TVL reaching approximately $15.62 billion, accounting for approximately 57% of the total TVL of re-pledge.
Compared with re-pledge, the competition for liquidity re-pledge is more intense, and different protocols have taken turns to take the lead in the market since June 2023. As of the time of writing, EtherFi accounts for approximately 50% of all liquidity re-collateralization deposits, and the majority of liquidity re-collateralization TVL is concentrated in Ethereum, in line with the overall re-collateralization trend. On Solana, restaking has been slower to develop: Picasso Network first launched a restaking vault on Solana in late January 2024, and has attracted deposits of 3,507 SOL (about $729,000) to date. As of now, the total TVL of restaking on Solana is about $371 million, most of which has been added in the past few months with the launch of Solayer.
Currently, re-staking on Solana is starting to heat up as Jito enters the market with its Jito (Re)staking protocol.
Solana was built from the ground up with a unique architecture that optimizes for fast execution speeds and low-cost transactions at high volumes. Solana aims to maximize the developer and user experience by fully leveraging hardware performance capabilities, ultimately making hardware the only long-term limiting factor in network performance. As the second largest chain by TVL (Total Value Locked), the restaking ecosystem on Solana has the potential for growth and transformation in the medium to long term. Jito is one of the teams looking to introduce restaking to the Solana ecosystem and leverage its history of successful product development.
Jito Labs was founded in 2021 by Lucas Bruder and Zano Sherwani and is a US-based Solana infrastructure company that provides a suite of MEV (maximum extractable value) products and services. Jito Labs is the core development team focused on product development and deployment, while the Jito Foundation is responsible for JTO token governance and strategic oversight of Jito network products and services such as the JitoSOL liquidity staking token and the Jito (Re)staking restaking protocol.
In July 2022, Jito Labs debuted the MEV dashboard to help reveal the then-unexplored MEV ecosystem on Solana. A few months later, the team open-sourced Jito-Solana, the first validator client on Solana designed to capture MEV profits and redistribute them to validators and stakers. Jito-Solana was ultimately forked from the Solana Labs client, adding about 1,000 lines of code to enable validators to earn MEV rebates. Its broader goal is to combat network spam and optimize Solana's performance.
In conjunction with the client, the Jito Block Engine supports off-chain block space auctions, where searchers submit lists of transactions (i.e., transaction packages) that are executed in a sequential and atomic manner. After simulating each transaction combination in the submission package, the engine forwards the highest-paying transaction package to the leader for inclusion in the block. Jito Relayer acts as a transaction processing unit (TPU) proxy, filtering and verifying transactions off-chain, and submitting verified transactions to the block engine and validators.
It should be noted that in March 2024, Jito Labs announced the suspension of the memory pool function of Jito Block Engine because the Solana ecosystem expressed concerns about some users running MEV robots using the memory pool to conduct sandwich attacks. Currently, Block Engine is still running, continuing to process and forward transactions, while performing transaction package simulation, but the memory pool component has been removed.
This mechanism ultimately imposes costs on network spam transactions and performance obstacles. Validators running Jito-Solana capture the MEV profits generated in transaction packages during their leadership period. The launch of the JitoSOL liquidity staking token enables stakers to delegate their stake to validators running the Jito-Solana client, thereby increasing the validator's stake and enabling stakers to earn MEV rewards while receiving base staking returns. In December 2023, the Jito Foundation also launched StakeNet, a network of on-chain guardians and managers that provides two core functions: 1. Validator History Program: Stores up to 3 years of history for each validator in the entire network; 2. Guardian Program: Calculates scores based on validator performance and manages staking allocation to ensure that staking is delegated to the best performing validators.
Building on its experience in MEV and liquidity staking infrastructure services, Jito is introducing a new framework that enables applications and networks to leverage any SPL token on Solana for security.
On July 25, 2024, the Jito Foundation released the code for Jito (Re)staking, a hybrid multi-asset staking protocol on Solana that allows any new network or application to bootstrap its economic security. The protocol consists of two main components:
• Vault Program: used to create and manage staked assets;
• (Re)staking Program: coordinates activities and incentives between network participants.
Together, these two core programs provide developers with a modular, extensible framework for simplifying the staking mechanism of any SPL asset, making it the first of its kind on Solana.
Before we dive in, here is a brief explanation of some important terms:
• Node: refers to software that runs according to the specifications of its associated network.
• Node Consensus Network (NCN): A group of distributed nodes that work together to achieve consensus and provide services for a specific protocol or network, including L1 public chains, application chains, cross-chain bridges, coprocessor networks, DeFi applications, solver networks, and oracle networks.
• Operator: An entity that manages one or more nodes in the Node Consensus Network.
• Vault Receipt Token (VRT): A derivative token that represents the underlying re-staking position, similar to LRT (Liquidity Re-staking Token).
In short, Jito (Re)staking provides economic security and improves liquidity and composability for NCN by tokenizing staked SPL assets into VRT. NCN is able to configure staking parameters, penalty conditions, and other economic incentives according to its needs.
The Vault Program manages the creation and operation of the Vault Receipt Token (VRT). Its core logic is: stake a token and obtain a derivative token representing the staked liquidity position, which can be used to protect the underlying NCN. Jito (Re)staking allows any SPL asset or a combination of multiple SPL assets as the underlying asset, enabling stakers to more effectively diversify their VRT holdings, create a more balanced risk-return portfolio, and use a wider range of assets in the Solana ecosystem. The Vault Program allows NCNs to manage the operations of VRT (minting, burning, delegation) and enforce their own penalty conditions and deposit/withdrawal limits. This is particularly important because not all SPL assets have the same security, and the security requirements and conditions of different NCNs may vary greatly due to differences in underlying functionality. In addition, the Vault Program allows NCNs to implement custom VRT delegation strategies between multiple operators, DAOs, multi-signatures, or on-chain automated protocols such as the StakeNet Guardian Program.
While the Vault Program is responsible for managing VRT, the Restaking Program is responsible for managing NCN and its corresponding operators. This includes implementing various opt-in mechanisms, as well as managing the allocation and execution of slashing conditions.
Together, the Vault Program and the Restaking Program create a modular framework for launching economic security with any SPL asset. Jito (Re)staking further simplifies the process for developers and NCNs, providing a simple and customizable interface to manage VRT and operators.
Jito (Re)staking aims to alleviate the cold start problem prevalent in the current on-chain economy by providing NCN with a modular, asset-agnostic framework to reach consensus and gain economic security.
First, Jito (Re)staking allows anyone to create VRT using any SPL asset, simplifying the design process of token economics and token utility; any token can become a liquid staked or re-staking asset while maintaining governance compatibility and enforcing necessary security parameters. In addition, Jito (Re)staking allows multi-asset staking, which means that NCN can also leverage existing assets with deeper liquidity and wider token distribution, as well as its native token, to achieve broader market accessibility.
Another core advantage is that Jito (Re)staking allows NCNs to configure and fine-tune risk parameters. NCNs built on Jito (Re)staking can implement more complex risk management and security models to meet their specific needs, such as multi-layer slashing penalties or multi-asset slashing to achieve deeper economic security.
At the same time, vaults, operators, and NCNs can choose who they integrate with based on their risk tolerance; vaults can choose operators and NCNs to entrust, while operators and NCNs can choose vaults and assets they want to support. Vaults can also choose to join specific slashing conditions determined by NCNs to better manage the amount of assets at risk at a specific time. To ensure the safety of users and assets, all program funds are securely stored in the Vault program and can only be withdrawn through user actions or slashing events.
Since the launch of Jito (Re)staking, multiple teams and protocols have announced partnerships and integration plans:
• Switchboard - Switchboard, a decentralized oracle network on Solana, plans to enhance its economic security with multi-layer slashing and customizable staking parameters, thereby improving the quality and performance of its data feeds. This will make Switchboard the first Node Consensus Network (NCN) to integrate Jito (Re)staking.
• Squads - Squads Protocol, a decentralized treasury management protocol on Solana, is integrating Jito (Re)staking into its upcoming Squads Policy Network (SPN) to coordinate and incentivize activity among network participants and improve reliability and performance. SPN will provide more advanced digital asset management security and flexibility by enabling granular and versatile trading strategies for Smart Accounts.
• Renzo - Renzo, the leading liquid restaking protocol strategy manager on Ethereum, will leverage Jito (Re)staking to launch its ezSOL as VRT. Anyone can mint ezSOL by staking JitoSOL and earn yield from a combination of staking rewards, restaking rewards, and MEV tip income.
• Sonic - Sonic, the first gaming SVM on Solana, will integrate Jito (Re)staking in its upcoming HyperGrid shared state network and HyperGrid bridge. Jito (Re)staking’s NCN model will add an economic security layer for validators to safely prevent state conflicts in HSSN, and enhance the core bridging infrastructure with multi-layered slashing and customizable staking parameters to enable atomic SVM ↔ Solana swaps.
• Fragmetric - Fragmetric has launched FragSOL, the first liquid restaking token natively on Solana, as the VRT for Jito (Re)staking. FragSOL will leverage Solana’s token scaling capabilities to precisely distribute NCN rewards and introduce a standardized token program to efficiently manage multi-asset staking and slashing.
• Ping Network (formerly Twilight) - Twilight, the upcoming privacy DePIN project on Solana, will leverage Jito (Re)staking to enhance the decentralization and economic security of its validator network. Twilight will utilize multi-tiered slashing and customizable staking parameters, ensuring strong protections for its privacy infrastructure.
• Kyros - kySOL combines staking, MEV, and restaking rewards into a single token to optimize returns. Users can mint kySOL using either JitoSOL or SOL. Kyros is also partnering with Jito, Kamino, and Raydium to launch incentivized liquidity pools, which will enhance kySOL’s liquidity and open up more opportunities for the DeFi ecosystem.
Before laying out the case for restaking on Solana and evaluating Jito’s positioning, it is worth reviewing the key risks involved. Both restaking and liquidity restaking introduce a range of interrelated risks that impact different participants in the ecosystem.
Core Risks of Staking Blockchains
At its core, Proof-of-Stake (PoS) blockchains provide security through slashing. Slashing penalizes validators who violate protocol rules (e.g., censoring blocks) or perform poorly over a period of time (e.g., excessive downtime) by forfeiting a portion of their staked assets. When this mechanism is applied to re-staking protocols, the risk is further amplified as operators bear the additional slashing risk of any applications or Node Consensus Networks (NCNs) they protect.
While this risk is compensated by providing higher returns to stakers and operators, its economic impact cannot be ignored at a larger scale of joint security adoption. Slashing not only punishes validators, but also affects stakers who have entrusted capital to them, resulting in reduced rewards due to reduced stakes. The more concentrated the distribution of stake in a re-staking protocol (i.e., most of the stake is held by a small number of operators), the greater the overall risk of slashing.
This situation may affect the security of the underlying chain used to protect the NCN, especially if a large amount of the network's stake is re-staking and slashed, which may reduce the cost of controlling the majority of the network's stake. The price volatility of the underlying asset also plays an important role. The greater the price volatility, the higher the risk to the underlying protocol or NCN.
The lack of current slashing mechanisms
It is worth noting that most, if not all, re-staking protocols do not currently have slashing mechanisms in place. Therefore, the lack of deterrence against malicious behavior or poor performance by operators poses greater risks to stakers and NCNs, especially those with less capital resources and greater impact of financial losses.
For example, some re-staking protocols (such as Eigenlayer) have developed frameworks to address subjective failures - problems that cannot be easily verified on-chain. Objective failures apply to violations that can be mathematically and cryptographically proven on-chain (such as double signing or extended downtime), while subjective failures must be resolved off-chain through some kind of social consensus among network participants.
Transparency and Trust Issues
This raises questions about the transparency and trust assumptions of these systems, and off-chain resolution can be a complex and time-consuming process that could even lead to a base layer fork if there is enough controversy and disagreement around the correct state of the NCN. Eigenlayer plans to mitigate this risk by using the EIGEN token, enabling validators to implement slashing penalties for subjective failures, with slashing being performed through forked tokens rather than the base layer.
The Impact of Market-Driven Incentives
The impact of market-driven incentives on operators and stakers needs to be considered. To enhance the economic security of the NCN, staked capital must be sticky, i.e., stable over the long term. However, without some sort of long-term commitment enforced through mechanisms such as lock-up periods (which in turn poses risks to both operators and stakers), operators may move their stakes around at any time in pursuit of the highest possible returns.
Incentivizing NCNs to compete for operators by offering higher returns (typically inflationary token issuance) does not benefit the broader ecosystem in the long run, and may instead repeat past mistakes in the design of crypto protocol incentive mechanisms (such as the imbalance between protocol revenue and expenditure in liquidity mining).
Key Considerations for Liquidity Re-Pledge
Shoal Research has explored some of the key risks in liquidity re-pledge in previous reports, including:
• Backed Deposit Asset Risk - Vault Receipt Tokens (VRT) are subject to the risks of their underlying assets. Native re-pledge tokens are subject to different risks than Liquidity Staking Tokens (LST).
• Liquidity Access Risk - Some re-staking protocols have an escrow period when unstaking assets (such as 7 days for Eigenlayer). This mechanism raises concerns about maturity risk and potential liquidity issues. If there is insufficient liquidity in the secondary market, investors may find it difficult to sell VRT at a fair market price. Jito (Re)staking has a cool-down period of about 4-5 days (two epochs) for unstaking. Asset redemption time and the liquidity of VRT providers play a key role in this risk.
• Smart Contract Risk - Risks in the VRT protocol architecture need to be assessed, including reward distribution mechanisms, fee structures, and multi-signature permissions. These factors may affect asset transfers and withdrawals.
• Oracle Risk - Reliable price data is critical to maintaining VRT pricing. Inaccurate oracle data may lead to VRT mispricing, which in turn creates systemic risks during redemption or liquidation.
• Governance Risk - The mechanism chosen to protect NCN is critical in ensuring its long-term stability. A trade-off must be made between granting power to a large number of stakeholders (time consuming) and granting it to a small number of actors (such as 5/3 multi-signature).
• Cross-chain Bridging Security Risk - For cross-chain VRT, the risks introduced by the underlying bridging mechanism need to be considered. Both native bridges and third-party bridges present different trade-offs and risks.
• Looping Risk - In the lending market, recursive lending (looping) using VRT may lead to cascading liquidations during periods of high volatility, similar to the stETH depegging event in 2022. However, this risk is primarily targeted at the lending market and does not pose a significant risk without large-scale adoption.
Since Eigenlayer launched on Ethereum, R&D efforts in the restaking space have accelerated significantly. Eigenlayer currently ranks third in total value locked (TVL) on the Ethereum network. At the same time, Solana has re-established its leading position as a base layer for application development, second only to Ethereum's TVL. While much of the momentum in Q4 2023 (driven primarily by a surge in memecoin trading activity) has tapered off, many new products and services are being developed on Solana, including several key infrastructure projects. Additionally, the new SVM API launched by Anza enables developers to build SVM-based projects on the Solana mainnet beta, paving the way for a new era of SVM L2s and appchains. These L2s and appchains could become a significant source of demand for Jito (Re)staking.
Comparison of Ethereum and Solana Restaking
1. Liquidity Gap
Ethereum has far more liquidity than Solana (TVL is ~9-10x that of Solana), making it a stronger base layer with greater economic security.
2. Room for Growth
Solana currently has greater potential and room for growth, and the restaking incentive mechanism can play an important role in increasing the network TVL.
3. Capital Efficiency
Managing a liquidity restaking strategy requires constant reallocation of capital and ongoing gas fees. The cost of managing restaking on Solana is significantly lower than Ethereum, making it more capital efficient.
4. Eco-demand differences
More teams in the Solana ecosystem focus on application development rather than infrastructure building. This raises questions about the source of demand for re-staking protocols, as the demand structure of applications may be different from that of NCN. For example, an AMM like Raydium does not need to launch its own validator set in its current state.
Nevertheless, the rise of SVM-L2 and application chains has brought about a new stream of economic security demand, providing a significant opportunity for re-staking solutions to meet this demand.
As of now, about 93% of Solana validators are running the Jito-Solana client, distributing a total of 2.5k SOL tips across 6.5 million transaction packages. JitoSOL’s deposits have grown to 14.5 million SOL (about $3.14 billion) and have generated $644 million in fees to date. JitoSOL has steadily risen in the Solana liquidity staking space and currently accounts for about 45% of the total TVL.
The demand for borrowing JitoSOL on Kamino Finance continues to grow, with the utilization rate approaching 100%.
Despite the widespread presence of Jito in Solana, there are still a number of key catalysts and protocols that pose credible challenges to the adoption of Jito (Re)staking. First, there is already another re-staking protocol on Solana, Solayer, which was launched in June 2024 and has accumulated a whopping $168 million in deposits. Solayer, with its re-staking architecture and shared validator network, is designed to provide Solana applications with enhanced capabilities to protect block space and prioritize transaction inclusion.
Secondly, Solana also faces competition from other native teams, especially liquidity staking protocols, which may be well-positioned and motivated to build their own re-staking products. For example, Sanctum positions itself as the unified liquidity layer for Solana LST, enabling all LSTs (big and small) to share a deep liquidity pool and operate with minimal liquidity restrictions. To date, Sanctum's Reserve, Infinity, and Validator LSTs have attracted over $1 billion in TVL. Helius, a core RPC provider on Solana, launched their hSOL LST with Sanctum, which currently has over 13 million SOL staked. Binance's BNSOL is currently in the lead with 6.77 million SOL staked on the platform. Another notable Solana native competitor is Marinade Finance. Marinade launched its liquidity staking protocol back in 2021 and currently sits at just over $1.8 billion in TVL with $181 million in lifetime fees. While neither team has mentioned restaking at this time, it’s not far-fetched to imagine these teams developing their own competing restaking products. The launch of Karak appears to have opened the floodgates for restaking competitors on Ethereum, and a similar effect could very well play out on Solana.
Finally, general purpose restaking protocols such as Symbiotic and Karak will face competition if they choose to adopt a chain-neutral approach supporting SOL and SPL/Token2022 assets. Even Eigenlayer has begun to change tack by launching permissionless token support, which would allow any ERC-20 asset to be used for restaking. However, thinking beyond Ethereum, Eigenlayer ultimately positions itself as an “innovation orchestration engine.” If application development and value accumulation on Solana one day surpass Ethereum, there is no reason why Eigenlayer could not comply with demand and open shop on Solana in this case. However, this is a long-term hypothetical scenario, and there is no guarantee that Eigenlayer will always be the leading re-staking protocol, so it is not clear how much of a threat it will pose to Jito (re)staking.
In this context, Jito needs to rely on its successful track record in the Solana ecosystem and ensure that the Jito Foundation continues to optimize the re-staking protocol and respond to the needs and feedback of NCN, operators and other protocol participants in a timely manner.
Re-staking protocols benefit from the increase in middleware solutions that require coordination mechanisms to meet business needs. NCN's development is still in its early stages and may cover multiple areas. The following are potential application scenarios for Jito (Re)staking:
• Decentralized Solver Networks:
DEXs and liquidity platforms that adopt the solver architecture can launch their own decentralized solver networks, distribute revenue and impose slashing penalties on solvers, incentivizing them to execute trades at the best price.
• SVM L2:
As Solana applications increase demand for faster block confirmation times and customized economic incentives, SVM L2 is gradually emerging, driving the demand for economic security, which Jito (Re)staking can meet.
• Order Flow Auctions and MEV Redistribution Protocols:
Solana DEX can implement order flow auctions and distribute the value obtained through MEV to traders or token holders, similar to CoWSwap on Ethereum.
While there is still a significant gap in the process of moving from concept to reality in the field of re-staking, it is generally believed that re-staking will be a key development direction to promote the flourishing of on-chain applications, helping to enhance their economic security and capital efficiency. This can be compared to the impact of Amazon Web Services (AWS): AWS has promoted the rapid rise of web application development by providing a cloud computing platform for renting computing resources on demand.
By outsourcing computing resources and infrastructure construction, web developers can devote more time and resources to creating valuable products and services and better understand user needs. Similarly, restaking protocols enable blockchain-native applications and networks to outsource economic security concerns, allowing them to focus on developing valuable products and services while inheriting the key features and benefits of blockchain.
Restaking on Solana is gaining momentum, and Jito (Re)staking is well-positioned to become the protocol of choice to power the launch of new innovative products and services.
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