What Stakers Need to Consider Before Restaking on EigenLayer
The Shanghai/Capella (Shapella) upgrade brings significant changes to the Ethereum ecosystem, including enabling validator withdrawals. As EigenLayer is set to launch on mainnet soon, stakers should carefully assess their withdrawal strategy in order to maximize future opportunities for restaking and minimize risks. This article discusses withdrawal credentials and their implications for participating in EigenLayer, and provides guidance for stakers considering restaking when EigenLayer launches.
Understanding the Shapella Upgrade and Withdrawal Credentials
Shanghai and Capella refer to the recent Ethereum hard fork, affecting the execution and consensus layers, respectively.
To participate in Ethereum's beacon chain and contribute to the network's consensus mechanism, validators must deposit 32 Ether per validator. The recent Shapella upgrade now allows validators to withdraw their deposited Ether, effectively stopping their participation in the network and unlocking their 32 Ether. In addition, validators now receive their earned rewards in excess of 32 Ether automatically, known as partial withdrawals. Access to withdrawals is managed by a set of withdrawal credentials, which begin with either 0x00 or 0x01 prefix.
Check your prefix using ethdo.
If you're planning to restake on EigenLayer, it's important to note that the two sets of credentials (0x00 and 0x01) have different paths for accessing native restaking on the platform when it launches. If you have 0x00-prefixed credentials, you can only migrate once to a 0x01-prefixed credential. So, if you update your credentials before considering restaking on EigenLayer, you'll have to go through the withdrawal queue to restake later.
This article aims to help stakers avoid pitfalls and make informed decisions when planning to restake their ETH.
Stakers Preparing for EigenLayer
EigenLayer enables ETH validators to restake their ETH via a smart contract called an EigenPod (see docs for more details), and permissionlessly opt into new staking opportunities for projects to be launched on EigenLayer and contribute towards accelerating open innovation.
EigenLayer recently launched its Stage 1 Testnet and plans to enable restaking on mainnet in the near future. Specific launch dates will be announced as they become available. For Ethereum stakers who wish to participate in EigenLayer soon after its mainnet launch:
- ETH stakers with 0x00 credentials who want to restake in EigenLayer may simply wait for EigenLayer's launch and update their credentials to EigenLayer at that time, instead of migrating to a 0x01 address now. Note that validators with 0x00 credentials forgo the ability to withdraw accrued staking rewards until they switch to a 0x01 address (which includes setting to an EigenPod). The option for 0x00 addresses to switch withdrawal credentials has no end date and can be done at any time in the future.
- ETH stakers planning to create new validators can use 0x00 prefixed withdrawal credentials for an easier transition to EigenLayer later. While these validators will forgo the ability to withdraw rewards accrued until they later change their withdrawal credentials to an EigenPod, the amount of rewards accrued before EigenLayer mainnet launch is expected to be small. In order to use the 0x00 prefix, do not set --execution_address or --eth1_withdrawal_address flags when setting up new validators.
- If you want to collect your staking rewards accrued to date and plan to restake on EigenLayer, it's recommended to set up new validators with the 0x00 prefix. This will allow for a quicker transition to EigenLayer when it launches.
- If you have validators with 0x01 prefixes that are not pointed to an EigenPod, you will have to go through the withdrawal queue and may potentially miss out on some staking rewards. In this case, you'll need to withdraw your ETH, create a new Ethereum validator with the withdrawn ETH, and set the withdrawal credentials to an EigenPod to restake on EigenLayer.
When setting withdrawal credentials to an EigenPod on EigenLayer, it's important to note that validators can initiate a withdrawal of stake at any time and collect partial withdrawals. However, EigenLayer plans to implement a 7-day withdrawal delay in its own contracts after the stake has been withdrawn from Ethereum's withdrawal queue. This is a security measure during the early stages of the EigenLayer mainnet, to optimize for the safety of assets. It's possible that this mechanic may evolve or be deprecated in the future, so the additional delay on withdrawals may be less of a consideration.
EigenLayer offers restakers various benefits, such as securing innovative projects, fostering rapid innovation across the blockchain stack, and contributing to Ethereum's ecosystem growth. By restaking ETH on EigenLayer, stakers will be instrumental in supporting groundbreaking projects built in the Ethereum ecosystem, and access staking opportunities not previously available to them.
The Shanghai/Capella upgrade and the forthcoming EigenLayer protocol launch provide both opportunities and challenges for Ethereum stakers. By understanding the possible changes in withdrawal credentials and their implications for participation in EigenLayer, stakers can make informed decisions about their restaking strategies.
As the Ethereum ecosystem keeps evolving, staying up-to-date with developments and evaluating their impacts on staking operations are essential for maximizing opportunities and mitigating risks.
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