The Token is the Product

Apr 3, 2024


At Ethos, our mission is to power Sovereign L1s with the pooled security of restaked ETH. While existing solutions that derive Ethereum’s security, like rollups, inherit Ethereum's censorship resistance and consensus/ordering properties in addition to the cryptoeconomic security, Ethos charts a distinct path. Our approach, through restaking, fine-tunes the focus to export solely the cryptoeconomic security of staked ETH and make it available to other L1 chains. In essence, the ETH token (and the economic security it provides) is the product that Ethos, via EigenLayer, offers to these L1s.

But why did we choose to build with ETH? What properties make a token suitable for restaking?

To understand the answers to these questions, it's important to dissect the multifaceted nature of ETH’s appeal, ranging from its market dynamics to the technological properties of its base layer, to truly grasp the potential it holds for platforms like Ethos.

No Two Tokens Are the Same

Not all crypto assets are equally suited for providing restaked security at scale. The strength of a PoS chain's security is fundamentally tied to the robustness of the token that underlies it. As such, evaluating the suitability of a token for securing other chains is a complex task that requires careful consideration of several key factors.

Both the economic characteristics of the token and the technological characteristics of its underlying chain determine the token’s viability as an effective product for restaked security:

Economic characteristics

  1. Large Market Capitalization: A token's circulating market cap directly correlates to the maximum economic security it can theoretically offer to other chains. A large circulating market cap allows more room for chains inheriting its security to grow without needing to switch/supplement the security layer.
  2. Low Volatility: The token's volatility influences the capital risk that its holders take on. High volatility exposes stakers to greater capital risk, leading them to demand higher yields to compensate for potential losses. We discuss this concept in detail in our Price of Sovereignty article.
    For L1s, a highly volatile token can lead to unstable and unpredictable security, requiring frequent adjustments to the amount of staked tokens. In contrast, a token with low volatility provides a stable foundation for restaking, reducing risk premiums and lowering costs for L1s to bootstrap security.
  3. Decentralized Distribution: A decentralized distribution of tokens prevents any single entity from having disproportionate control over the network.
  4. High Liquidity and Accessibility: High liquidity ensures the token can be easily traded, making the network more resilient to market manipulation. Tokens must be easily accessible for staking to expand the security pool as demand grows. If an asset has a large valuation but doesn’t have a sufficiently decentralized holder base and isn’t easily accessible, then any economic security provided by it may be somewhat superfluous. For example, if one entity holds the majority of the token supply, it can adversely influence the chains secured by it.

Technological properties of base layer

Beyond the economic properties of the asset, we also have to consider the technological properties of the asset's native blockchain on which the restaking platform is built. Limited capabilities of a blockchain ecosystem can make its native token a poor candidate for restaking even if the token’s economic properties are stellar.

  1. Programmability: Smart contract capabilities enable essential functions like slashing for misexecution or double-signing.
  2. Cross-Chain Communication: Efficient messaging layers are crucial for synchronizing stake updates across all linked chains.
  3. Computational Resources: The underlying blockchain must have sufficient capacity to execute security-critical operations without prohibitive overhead.

ETH: The Optimal Candidate

When evaluated against these criteria, ETH stands out as the clear frontrunner for providing restaked security. Its massive market cap, deep liquidity, and decentralized distribution give it unparalleled economic resilience. Additionally, Ethereum’s smart contract capabilities enable the creation of both programmatic slashing and generalized messaging passing protocols on top of it. These characteristics establish ETH as a technically superior asset, making it the ideal asset for restaking purposes.

However, until now, ETH's security has only been directly leveraged by chains built on Ethereum itself, such as rollups that fully inherit Ethereum's consensus and ordering properties, limiting their flexibility and autonomy.

Unlocking ETH Security with Restaking

Ethos allows chains to derive the economic security of staked ETH without sacrificing their sovereignty. By combining a restaking protocol like EigenLayer with a coordination platform, Ethos enables chains to benefit from ETH's robustness while retaining control over their consensus and execution. It opens up the vast pool of staked ETH to provide cryptoeconomic security to a wide range of chains and ecosystems, beyond just those built directly on Ethereum.

As the demand for reliable, decentralized security grows, ETH's unique combination of economic and technical strengths positions it as the backbone of this emerging shared security paradigm.