rsETH
by Kelp DAO|Table of Contents

1.

Executive summary

2.

Introduction to restaking

a. EigenLayer’s offering

3.

Understanding the restaking ecosystem

a. Benefits of staking
b. Potential challenges for users
c. Market opportunity

4.

Introducing Liquid Restaked Token: rsETH

a. How does rsETH work?

5.

Technical architecturea. Deep-dive into the flowb. Security measures

6.

Key risks & mitigation

7.

Conclusion

8.

Appendixa. Risk committeeb. Glossaryc. Technical diagram

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1.

Executive

summaryRestaking on Ethereum is a concept introduced by EigenLayer that allows
users to reuse their already staked Ethereum or Liquid Staking Tokens. By
restaking, users contribute additional security measures to various new
decentralized services (referred to as Actively Validated Service or AVS) on
Ethereum, while also earning extra rewards for themselves. 

EigenLayer enables this by allowing stakers to reallocate their staked assets
to secure additional decentralized services on the Ethereum network. This
process optimizes the staked capital base and enhances cryptoeconomic
security across various applications.

This creates a host of opportunities for users. For Stakers and Operators, thisprovides ways to earn additional rewards while for Services, there is a way totap into the security of Ethereum without having to bootstrap the initial
security layer.
While restaking offers many benefits, it also brings along several challenges
that restakers need to navigate
Discovering services to provide security might be a challenging task forstakerClaiming and swapping multiple tokens earned as rewards might becumbersome and will require a high amount of gas fee
Liquidity on restaked assets would be lost due to the unstaking period
To solve such challenges, Kelp introduces rsETH, a Liquid Restaked Token(LRT), designed to offer liquidity to illiquid assets deposited into restaking
platforms, such as EigenLayer. Here is how rsETH helps
Simplifying restaking decision: Kelp DAO whitelists high-quality services
and operators thereby reducing the effort for the Restaker
Liquidity: As rsETH is a liquid token, it can be utilized in other DeFi
application
Automated background process: Kelp DAO will manage all the processes
to ensure that users can directly claim all the rewards into their wallets
With rsETH, Kelp aims to further the adoption of the restaking ecosystem andbenefit the Ethereum community.
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2.

Introduction

to restaking

Restaking allows users to stake their ETH on both Ethereum and otherprotocols that integrate with EigenLayer, securing multiple networks, andapplications simultaneously and earning higher rewards. Restaking also
lowers the cost barriers for protocols to launch and innovate, as they canleverage Ethereum's robust security layer without needing to bootstrap theirvalidator set. 

Restaking can enable various use cases, such as data availability layers,
decentralized sequencers, fast-mode bridges, oracles, MEV management,
low-latency settlement chains, single-slot finality and more.

Restaking utilizes existing trust networks and is associated with increased
slashing risk, which is why restakers are compensated with higher staking
rewards for undertaking more risk. Restaking ensures efficient, secure, andaggregated rewards for restakers in the staking ecosystem.
Restaking of ETH can create opportunities forProtocols that want to utilize Ethereum’s trust network for security,
innovation, and keeping capital allocation efficien
Users who want higher rewards by staking the same ETH on both
Ethereum and other protocols simultaneously

EigenLayer’s offering
EigenLayer is a protocol built on the Ethereum network designed tocommoditize decentralized trust. It allows other protocols that integrate withit to leverage Ethereum’s highly secure trust network without needing toestablish their own validator set, effectively reducing cost barriers for these
protocols and increasing their security. 

For users, EigenLayer enables increased capital efficiency by allowing themto restake their ETH, which in turn leads to more staking rewards​.

Additionally, building on EigenLayer, protocols can retain sovereignty tocustomize their architecture, including the type of consensus mechanismand slashing conditions​. Read more about EigenLayer here.

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3.

Understanding

the restaking

ecosystem

Restaking can be an important catalyst for self-sovereignty and economic
freedom. It offers a host of benefits for the participants of the ecosystem.
However, it also brings a few challenges for the users.

Let's dive deeper into understanding the benefits & challenges of restaking,and the potential opportunities that exist within the space.

Benefits of restaking
Restaking brings a plethora of advantages for the users. Here are some ofthem.
Increased protocol security
Protocols can tap into Ethereum’s security layer by incentivizing
ETH stakers to stake in their protocol, gaining access to a larger
set of validators, & improving their initial security​.
High degree of flexibility
Protocols building on platforms like EigenLayer can retain
sovereignty and have the freedom to customize theirarchitecture, including the type of consensus mechanism andslashing conditions​.
Increased capital efficiency
Restaking allows stakers to earn rewards from multiple protocols
with the same capital, improving capital efficiency.
Restaking governance token
The dual advantage of securing other services and earning
additional rewards/governance tokens could make thisapproach increasingly popular among users/ stakers.

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Potential challenges for users
While restaking offers many benefits, it also brings along several challenges
that restakers need to navigate.
Complex discovery process
The sheer number of services adopting restaking could makethe discovery for restakers a complex task. Assessing the kinds ofrewards being generated, risks associated with each service,
and dealing with different slashing mechanisms, among otheraspects, could become a challenge for restakers.

Since each service could potentially have its own set of rules andrisk factors, a staker will have to thoroughly evaluate thoseelements before re-staking their LSTs. This process would requireconsiderable research and understanding of the landscape,which can be overwhelming, especially for novice users.
Complex user interface/user experience (UI/UX)
Another potential problem is the complexity of the user interface
and user experience. As stakers earn different governancetokens, they must manage multiple assets across several
platforms. 

Additionally, claiming these tokens typically requires theexecution of multiple transactions, which can be very
cumbersome and expensive.
High gas fees
Claiming & swapping multiple tokens acquired throughrestaking leads to prohibitively high gas fees. Gas fees cansignificantly cut into the final rewards from staking and restaking for users.
Liquidity issues
Restaked assets lose liquidity due to unstaking constraints
imposed by EigenLayer. Lack of liquidity creates challenges forusers who want to trade during volatile market conditions.

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Market opportunity
Liquid Restaked Token (LRT) can solve the above challenges elegantly tofurther the adoption of restaking.

For restakers

Provide liquidity to the restaked ETH/LST
Save the effort in identifying the right services andvalidators
Help manage rewards that come in with Restaking

For AVSs

Save effort to identify and partner with Operators
Save effort to bootstrap security
Help reduce emissions on rewards

For operators

Save the effort in identifying the right services
Reduce the effort to get restakers and restaked
assetsHelp manage rewards that come in with Restaking

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4.

Introducing

Liquid Restaked

Token: rsETH

At its core, an LRT is a liquid token designed to offer liquidity to illiquid assets
deposited into restaking platforms, such as EigenLayer.

rsETH, an LRT, is issued by Kelp DAO aims to address the risks and challenges
posed by the current offering of restaking.

How does rsETH work?
1

Restakers stake their LST to mint rsETH tokens indicating fractional
ownership of the underlying assets

2 rsETH contracts distribute the deposited tokens into different NodeOperators that operate with the Kelp DAO
3 Rewards accrue from the various services to the rsETH contracts. The
price of rsETH token assumes the underlying price of the various
rewards and staked tokens
4 Restakers can swap their rsETH tokens for other tokens on AMMs for
instant liquidity or choose to redeem underlying assets through rsETH
contracts
5 Restakers can further leverage their rsETH tokens

in DeFi

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5.

TechnicalarchitecturersETH smart contracts are designed to isolate deposits, delegations, andwithdrawals. These contracts provide a separation of concerns, reducing
the surface area of risk.

Let’s understand the most important modules of rsETH in detail.

Restaker Deposits LST and Mints LRTRestakers

LSTs

LRT Deposit PoolrsETH

Provide liquidity to the restaked ETH/LS

Save the effort in identifying the right services and validator

Help manage rewards that come in with Restaking

Moving Assets to Node Delegator Contracts (NDCs)

Node Delegator Contract i

LRT Deposit

Node Delegator Contract j

PoolNode Delegator Contract kMove assets from the LRT deposit pool to Node Delegator Contracts
based on tokenomics or NOs weights or equal distribution

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Moving Assets to Strategies

Strategy(Underlying Token)

Node Delegator Contract i

Node Delegator Contract j

StrategyManager

Node Delegator Contract kStrategy(Underlying Token)

Deposit funds into StrategyManager.depositIntoStrategy once per asset
per NDC per run (daily). This call pulls ERC-20s into the right strategy. So
approval is necessary before executio
StrategyManager is an EigenLayer contract, so the deposit goes toEigenLayer in this stage
Delegation to Operator and Undelegation from Operator is also done
through EigenLayer smart contracts. Details are available here.
Withdrawing Assets
On successful undelegation, the assets come to NDCs which are thenpassed on to the Withdrawal Manager smart contrac
The withdrawal manager will decide the amount of asset to be given to
the restaker basis the latest exchange rat
Once the funds are successfully withdrawn, rsETH is burned.

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There are various other modules that support the main flows. They are as
followsRegistry: All operators, services, and assets part of the rsETH ecosystem will
be registered on the Registry Module. This module also stores metadata
associated with these entities and some key central properties of rsETH
Oracle: This module will be used to push real-time prices of supported
assets to the rsETH contracts. The exchange rate thus formulated with thehelp of these real-time prices will be useful in minting and burning the rightamount of rsETH for deposits and redemptions respectively.
Governance: Set of contracts that translate successful proposals into
executable code to change smart contract behavior.
Reward Market: This module will be capable of availing non-ETH rewards
into different extra-yield strategies. With AVS’ explosion, this module will
become the foundational layer to optimize and assess risk for different
governance and utility tokens obtained as rewards.

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Security Measures
An important part of Kelp’s development process is to keep the depositedassets safe and secure. And we take great measures to ensure the same.

AuditsKelp’s smart contract is undergoing multiple rounds of Audits
from renowned auditors to make sure that there are no gapsthat can be exploited by bad actors

Risk committee
It is a Committee of individuals and entities, whitelisted by DAO,
with deep expertise in restaking, and economic security
requirements of services. 

The risk committee makes recommendations on collaterals,
rewards, services, and operators that could be part of the rsETH
ecosystem. Detailed responsibilities of the Risk Committee areavailable here.

This will help ensure that everything that gets added to the rsETH
ecosystem, be it AVSs or Operators, is thoroughly evaluated by
the Risk Committee.

Kelp DAO
Based on the recommendations of the Risk Committee, allchanges within the ecosystem will be put to vote through the
Kelp DAO. This will ensure there is no centralization risk in thedecision-making process.

As restaking and LRTs provide numerous opportunities for users to benefit,
they also pose risks and challenges for several ecosystem participants. Kelp
DAO will evaluate these thoroughly and address/ mitigate these risks/challenges. Let’s dive into these in the next section.

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6.

Key risks andmitigation

Several Ethereum OGs and community members have highlighted multiple
risks posed by Restaking to Ethereum.
Slashing related

Centralization

ImpactingSocial Consensus

Slashing related
Risk to Ethereum’s security in case of slashing by EigenLayer/Services 
If restaked ETH gets slashed by a Service, the ETH on the Consensus layer
also reduces. If this happens on a large scale, it could pose a risk to the
Ethereum Consensus layer.
Ransom attacks on stakers by Service 
A situation where services could do a ransom attack on stakers bythreatening to slash their restaked ETH if a certain payment is not madeCentralization risk
Erosion of solo staking With restaking, there would be more avenues to earn rewards on top ETH
yield. However, that will be a function of the kind of Services an operator
is working with. Theoretically, sophisticated operators with moreresources and deeper pockets would better understand the risks andrewards of specific restaking services. And so, delegators would startpivoting towards trusted and sophisticated operators rather than solo
operators.

Impacting social consensus
Increasing surface area of attack 
As there are multiple services and contracts entering the ecosystem, thesurface area for attack increases drastically, which poses a risk forstakers and delegators, and in turn to the Ethereum network
Overloading social consensus (due to high-risk use cases of restaking) 
If there is a protocol where, even if everything completely breaks, thelosses are kept contained to the validators and users who opted in toparticipating in and using the protocol, this is low-risk.  
If, on the other hand, there is an intent to rope in the broader Ethereum
ecosystem’s social consensus to fork or reorg to solve problems of the
protocol, this is a high-risk use case (Examples are available here)

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How does rsETH tackle these risks?
Slashing related
rsETH will initially work with LSTs instead of native ETH restaking. So even if
there is a slashing due to bad behavior by a service, the underlying ETH
staked on Ethereum will not be impacted directly. Further modules that
introduce native Ethereum restaking will be designed to minimize any
impact on Ethereum.
rsETH will be operated by Kelp DAO which will act on therecommendations of the Risk Committee. This setup will ensure that only
those Services are selected that have slashing criteria that are clearly
defined and don’t pose a significant risk to the user’s funds.

Centralization Risk
As the selection of Services will be done by the DAO, operators do notneed to put in the effort and resources to understand the underlying risks
posed by services. Kelp DAO will thereby serve as a benchmark for solo
restakers while staking their Ethereum. Subsequent versions of rsETH will
have a module to onboard permissionless operators that will further help
in decentralization.

Impacting social consensus
Kelp DAO and the Risk Committee will consider key risks posed by AVSes
during the whitelist process. Services posing high risk to users’ funds andEthereum would be carefully evaluated and excluded from whitelisting.

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7.

Conclusion
With rsETH as a Liquid Restaked Token, Kelp aims to solve
the challenges with restaking to benefit different
stakeholders. We believe this will help with the adoption ofrestaking and further the decentralization of Ethereum.

The approach towards operations that involves a Risk
Committee and Kelp DAO is also to ensure that theecosystem is benefitted and the decision-making isdecentralized.

We would love to hear thoughts, comments, and opinionsfrom the community.

Dive into the discussion and tell us what you think

8.

AppendixRisk Committee
Kelp DAO selects the members of the Risk Committee who provide
recommendations regarding
Selection of Operator
Guidelines and whitelisting of AVSe
Other areas related to the security of the rsETH protocol
Specific roles and responsibilities of the Risk Committee and selection
criteria will be published soon.

Glossary
Restaker: A restaker is an actor who supplies any eligible collateral that
could be deposited through rsETH contracts into EigenLayer. A restakercould be an EOA or a contract and is looking to tokenize their restaking
position.

Approved Asset: Any asset rsETH contracts support and can be deposited
into EigenLayer strategies to be utilized as economic security.

Deposit Pool: A rsETH contract that coordinates deposits of any supported
assets. The deposit pool can mint rsETH tokens at the current exchange rate
supplied by Oracle contracts. Supported assets are added to the rsETH
contracts by the risk committee.

Approved Service: An AVS leveraging EigenLayer that passes the risk
assessment from the rsETH Risk Committee. Several parameters aroundslashing conditions, reward emission schedule, physical infrastructure
requirements, diversity of collaterals, and economic security size are all
going to be considered for making a service eligible to avail economic
security through the rsETH ecosystem.

rs

ETH Token: A receipt ERC-20 token that is minted by restakers by providing

any approved asset. rsETH minted varies by the amount of approved asset
provided and the recent exchange rate of rsETH with respect to ETH value.

LitepaperOracle: Module capable of pushing real-time prices of supported assets to
the rsETH contracts. The exchange rate thus formulated with the help of
these real-time prices is useful in minting and burning the right amount of
rsETH for deposits and redemptions respectively.

Operator: An EigenLayer entity representing a party intending to run nodes
to provide economic security for AVSes. Operator owners must register with
EigenLayer and prove competence to the rsETH risk committee to beconsidered a rsETH Node Operator. An initial set of 10-20 operators will beenabled to bootstrap the rsETH ecosystem.

Physical Infrastructure: Every operator registered with rsETH contracts is
expected to provide node execution services to each AVS enabled by the
Risk Committee to be part of the rsETH ecosystem. This expectation will be
coupled with objective node operator performance metrics over time with
enforceable penalties for sub-optimal service.

Node Delegator: Contracts designed to delegate all their assets to an
operator. In doing so, each node delegator contract will be eligible for all
rewards accrued to the operator due to their node services to AVSes. A
single operator could have multiple node delegators delegating to them.
Node Delegators provide flexibility to balance delegations between different
operators.

Withdrawal Manager: Contract designed to handle redemptions of rsETH
tokens. A portion of underlying assets from one or more node delegators
along with rewards are withdrawn to the withdrawal manager from which
restakers can claim assets back.

Registry: All operators, services, and assets part of the rsETH ecosystem will
be registered on the Registry Module. This module also stores metadata
associated with these entities and some key central properties of rsETH.

Risk Committee: A committee made of individuals and entities with deep
expertise on restaking, and economic security requirements of services. The
risk committee makes recommendations on collaterals, rewards, services,and operators that could be part of the rsETH ecosystem. The Risk
Committee also sets guidelines for operating nodes, and fee commissions,monitors the health of the rsETH ecosystem and its different stakeholders.
These recommendations are eventually implemented through thegovernance system subject to the DAO approval.

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Reward Market: Module capable of availing non-ETH rewards into different
extra-yield strategies. With AVS’ explosion, this module will become thefoundational layer to optimize and assess risk for different governance andutility tokens obtained as rewards.

Governance: Set of contracts that translate successful proposals into
executable code to change smart contract behavior.

A detailed user flow of the entire rsETH offering

The tech behind rsETH

Physical Infrastructure by

Operators

rsETH contracts

Approved Service 1

Actor/third-party entity

Eigenlayer entity

OracleApproved Service 2...

Restakers

Approved assets
rsETH tokens

Approved Service N

Deposit Pool
Approved Assets

Withdrawals

Withdrawal

Manager

Risk

Committee

Undelegated

AssetsOperators &Services

Node

Node

Node

Delegator
Delegator
Delegator

Governance

Delegation,

Rewards,

Undelegation

Node

Node

Operators
Delegator
Delegator

RewardMarketRegistry

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Join the liquid

restaking wave!

rsETH
by Kelp DAO