⚠️EigenLayer Risks

1. Slashing

Restaking terms may incorporate additional slash conditions to incentivize increased rewards. Depending on the protocol’s terms, slashing poses the risk of significant asset loss for validators.

So, stakers opting to commit to adhering to the contract rules face slash penalties for malicious behavior. Essentially, users engaged in restaking are susceptible to slashing penalties from both ETH and Actively Validated Services (AVS).

2. Yield Risks

EigenLayer aims to facilitate protocols' leveraging of Ethereum for security. However, restakers are primarily incentivized by the reward systems of the protocols where they stake assets.

Restakers might prioritize protocols with higher yields to maximize returns. Concerns arise that investors could perceive restaking as a quick and easily leveraged financial product, potentially impacting the Layer 1 network.

3. Centralization And Collusion Risk

Using a centralized actor (CA) to coordinate and issue LSTs introduces a form of centralization within the Ethereum validator set, placing it under a different entity’s control. Even if this entity is a DAO or a non-profit institution, it constitutes a distinct group with likely different goals and governance procedures compared to the foundational Ethereum chain.

The centralization risk becomes pronounced if a single validator controls approximately 33% of the network, as they can disrupt chain finality by going offline. Beyond 50%, they gain control over the entire chain’s future, and surpassing 66% allows them to potentially reverse the chain’s history.

These attack thresholds are well-documented in Ethereum documentation, emphasizing the need for a social layer (fork) to intervene and safeguard the chain should these critical thresholds be breached. Moreover, there is a potential risk of collusion, where multiple operators might simultaneously attack a set of AVS, compromising the network’s security.

4. Additional Risks

• ETH (or LSTs) must undergo staking, rendering it non-liquid during the staking period.

• The lack of immediate liquidity.

• EigenLayer smart contract risk.

• Single Point of Failure: Withdraw credentials received from ETH credentials create systemic risks for the mainnet.

• Risks related to the availability and stability of liquidity.

• Potential risks associated with the concentration of assets within the Restaking protocol.

• Some protocols may not have commenced the withdrawal process, introducing uncertainties.