Cryptocurrency HODLers today no longer need to let their balances sit idle while waiting for prices to appreciate. If they hold a token—like Ether (ETH)—minted on a Proof-of-Stake (PoS) blockchain, they can stake it to generate a yield and help secure the network. The PoS consensus mechanism is an alternative to Proof-of-Work (PoW), which requires large amounts of computing efforts in the 'hashing' process to verify a transaction. There's a newer concept called Proof-of-Honesty (PoH), brought about by AI in blockchain—something we'll cover in greater detail later.
More importantly, let's put the focus on restaking, a recent development that added another layer of rewards for HODLers.
What's Restaking (or Staking, for the Matter)?
Staking a cryptocurrency created on a PoS blockchain nets you Web3 rewards for helping to validate transactions and add blocks. Your locked-up tokens ensure the blockchain is safe and runs efficiently. Rewards rates are expressed as a yearly percentage, just like a bond’s interest rate. (i.e., Annual Percentage Yield or per annum)
Restaking, as the name suggests, enables you to stake one set of tokens to help secure its native blockchain and other protocols. You enjoy multiple yields too.
How’s this possible when your tokens are locked up? Via restaking protocols like EigenLayer. The very first restaking protocol supports ETH and all other ERC-20 tokens, hence its popularity in the Web3 crypto community.
EigenLayer restaking might sound complex, but all you need to do is:
- Connect your Web3 wallet to the EigenLayer platform
- Restake your staked ETH or ERC-20 token
- Decide whether you’re delegating your assets to an operator or running a validator for Actively Validated Services (AVSs) on EigenLayer. The latter is also dubbed native restaking by EigenLayer.
- Unstake and withdraw your restaked assets whenever you’re ready
If this looks familiar, recall how regular staking works. The steps for both processes are nearly identical.
Although restaking is a fairly new concept, its strategies are already being refined by another technology improving at a rapid pace: AI. One way AI helps restakers is by informing them which restaking protocol is best for a particular asset, saving them precious time and effort.
We’ll dive deeper into how AI turbocharges restaking later on.
Let’s first take a look at the challenges of restaking.
The Challenges of Restaking
For Web3 crypto traders looking to extract maximum value from their cryptocurrency, restaking is highly beneficial as it doubles your passive income streams. On the other hand, it’s not perfect as it is still in its nascent stages of development.
Here are several challenges restaking is currently facing:
- Slashing Risks
For staking, network validators are punished should they misbehave (i.e. validating transactions incorrectly, being inactive beyond a certain amount of time, or signing one block twice). This punishment entails a 1 ETH deduction from your stake and other charges when you’re in the exit queue. Essentially, you lose a portion of the rewards you’ve earned.
Restaking uses one set of digital assets to secure multiple protocols, so the risk of slashing inherently rises. What’s more, all slashing events so far occurred as a result of operational errors from network validators rather than them misbehaving. This puts the onus on you to monitor the additional parameters and conditions that an AVS you’re securing sets.
- Security Concerns
EigenLayer and AVSs use smart contracts to manage restaked assets. On top of that, the EigenLayer protocol itself consists of a series of smart contracts. Furthermore, as of the time of writing, all these smart contracts are 'traditional' ones instead of AI-optimised programs. This introduces multiple potential flaws for the protocols and restakers.
Should hackers locate a loophole or vulnerability in any smart contract, they can exploit it to syphon assets off or gain control of a protocol. Needless to say, with the number of smart contracts involved, it is a challenge the entire staking and restaking community needs to tackle swiftly.
- Optimising Yields
ETH is the natural choice for restakers because of its position as the second-largest cryptocurrency. EigenLayer and a range of third-party protocols support it too. However, any ERC-20 token is game now due to EigenLayer’s mainnet upgrade in late-August 2024. Unfortunately, this is a double-edged sword for restakers looking to optimise their yields.
Searching for the best restaking yields can be an immensely time-consuming process. With EigenLayer rapidly gaining popularity, along with the development of liquid restaking and liquid staking, selecting the best protocol isn’t easy at all.
Additionally, you’ll need to factor in how cryptocurrency market trends affect the price of the token you’re earning.
How AI Can Assist in Restaking
AI lends restakers a helping hand in four ways:
Validator Selection and Monitoring
By training and utilising a machine learning algorithm in Web3 and AI integration, it’s much easier for you to tease out the best node operators and AVSs. This is crucial as the list of node operators and AVSs grows. Then, there’s the amount of data needed to be analysed, especially for a node operator. This includes their performance, reliability, and commissions on blockchains with AI.
Predictive Analytics
With the power of AI, it can alert you to new restaking opportunities the moment they appear, whether it’s a promising third-party protocol or node operator. This allows you to always stay one step ahead of the pack. Additionally, AI has the power to detect potential security breaches and system anomalies, enabling you to act swiftly.
Slashing Incident Prevention
Recall how all slashing incidents so far have been the result of operational errors rather than any intentional misbehaviour. If you’re running a network validator, AI can assist in ensuring minimal downtime. It has the ability to optimise your code to prevent unintentional double voting or multiple transaction signings for different blocks in one slot.
(Almost) Foolproof Smart Contracts
AI smart contracts can identify and plug gaps in badly written code to strengthen them and remove vulnerabilities. As mentioned above, EigenLayer and AVSs rely heavily on smart contracts. They have greater security, but aren’t immune to hacks. AI smart contracts, on the other hand, can monitor transactions in real time and cross-reference data between sources.
The Smartness of aelf's Contracts and Audits
Broadly speaking, AI-powered smart contracts are a lot more intelligent and intuitive in the manner they make decisions, analyse big data, and mitigate risks. In practice, they make Web3 and blockchain more accessible to the hoi polloi.
For example, at aelf (a layer 1 AI blockchain), the integration of AI technologies makes a nice springboard for anyone looking to start a Web3 or blockchain project. The creation of smart contracts and dApps is made that much easier for non-technical users, thanks to Natural Language Processing (NLP). They only need to enter prompts on a natural language level — no intimate understanding of coding languages and environments needed.
When it is all said and done, AI adds another layer of assurance by auditing smart contracts autonomously. It can quickly scan and identify vulnerabilities and inefficiencies in codes, and provide suggestions for rectifications. This saves immense time, effort, and potential financial losses for blockchain and Web3 operators.
Benefits of AI in Restaking
Now that you know how AI can assist restakers, discover the benefits:
- Increased staking rewards: Optimised restaking strategies and the ability to swiftly identify new restaking opportunities lead to greater yields
- Enhanced security: Predictive analytics combined with AI smart contracts can not only forecast possible security incidents, but nip issues in the bud by fixing bad code too
- Streamlined processes: From automatically detecting which assets in your Web3 wallet can be restaked to discovering the top restaking protocols in an instant, the hours you save are invaluable
- Improved accessibility: Remember, restaking is a fairly new concept, even for seasoned Web3 enthusiasts. With AI streamlining processes and providing the information you need at a moment’s notice, it makes restaking accessible to everyone.
Real-World Prospects of AI Restaking
As of September 2024, there aren’t any restaking platforms fully powered by AI yet. As stated above, there are only AI tools to assist restakers with various processes and help network validators maintain and improve their code. With that said, one tool beginners and even seasoned restakers would appreciate is community-owned AI platform SocialScan.
Its 'Restaking Agent' advises you about anything and everything restaking. For instance, it can:
- Scan your Web3 wallet to determine which assets in it can be restaked and perhaps more importantly, where they can be restaked
- Provide you more information about a specific restaking protocol, including its potential reward payouts, total value locked (TVL) amount, and number of unique active wallets
- Lend greater insight into restaking, such as listing down the protocols with the highest TVL or which ones support the most assets
When you’re able to gather the information you need with such efficiency, you’re also able to maximise your earnings from the restakable assets you own.
Challenges of Implementing AI in Restaking
Because of how new restaking and AI are, along with developments constantly streaming in for both technologies, your guiding hand and watchful eyes are always needed. Even if you’re not a restaking expert, you’ll need to cross-reference the information and recommendations from an AI tool with reputable sources in the blockchain world.
Furthermore, AI has yet to completely eliminate bias from its decision-making processes. Fortunately, this is rectified by the fact that AI programs have to learn and be evaluated by humans to ensure that they’re operating in tip-top shape. AI can help you make faster and better decisions to boost your restaking yields, but always do your own research as well.
In Closing
It’s no surprise that restaking captured the attention of everyone in the Web3 crypto world. To have a single set of digital assets securing multiple ecosystems greatly improves efficiency and minimises fragmentation. For cryptocurrency HODLers and existing stakers, it’s an opportunity to create new passive income streams. Win-win.
Incorporating AI into the restaking mix is a boon for everyone involved, whether you’re operating a node, running an AVS that needs security, or want better yields. AI makes it quicker for you to identify vulnerabilities in your platform or node quicker, enjoy higher rewards rates, and lower the risk you take on.
There might not be a restaking protocol that has fully integrated AI yet, but the AI tools available right now are a sign of what’s to come in the (hopefully) near future.
*Disclaimer: The information provided on this blog does not constitute investment advice, financial advice, trading advice, or any other form of professional advice. aelf makes no guarantees or warranties about the accuracy, completeness, or timeliness of the information on this blog. You should not make any investment decisions based solely on the information provided on this blog. You should always consult with a qualified financial or legal advisor before making any investment decisions.
About aelf
aelf, an AI-enhanced Layer 1 blockchain network, leverages the robust C# programming language for efficiency and scalability across its sophisticated multi-layered architecture. Founded in 2017 with its global hub in Singapore, aelf is a pioneer in the industry, leading Asia in evolving blockchain with state-of-the-art AI integration to ensure an efficient, low-cost, and highly secure platform that is both developer and end-user friendly. Aligned with its progressive vision, aelf is committed to fostering innovation within its ecosystem and advancing Web3 and AI technology adoption.
For more information about aelf, please refer to our Whitepaper V2.0.
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