Restaking is an emerging trend that emphasizes using capital more effectively. It allows users to stake the same tokens on the main blockchain and other platforms, helping to secure several networks simultaneously. By restaking, users can earn extra rewards for protecting more protocols, but they also take on higher risks of slashing.
Blockchain security can be divided into two main types: Proof of Work (PoW) and Proof of Stake (PoS). In PoS networks, users secure the network by staking their assets. This means they lock their assets with a validator node. The security of the network relies on how many validators are active, the amount of total tokens that are staked, and how these tokens are distributed among the validators.
To make staked tokens more useful, which often sit unused, new restaking protocols have been created. A well-known example is EigenLayer, allowing protocols to use Ethereum’s trust network without having to create their own validators.
Learn more about Restaking
Restaking refers to the process of staking an asset again after it has already been staked. This allows the staked asset to be used in another staking program or platform, enhancing its usefulness and providing the holder with extra rewards, though it also comes with some slashing risks.
Consider Ethereum as an example. The Ethereum network is very secure because it has many validators and a wide distribution of staked assets among them. However, the staked ETH remains inactive on the network. This situation has led to the creation of liquid staking derivatives, which convert staked ETH into tokens that can be used in decentralized finance (DeFi). Additionally, liquid staking derivatives do not have a minimum staking amount, unlike native staking that requires 32 ETH, allowing smaller investors to earn staking rewards.
Restaking goes a step beyond regular staking. It allows other decentralized protocols to use staked assets on Ethereum to enhance their security. Validators and assets involved in this process receive rewards based on the terms set by the renting protocol or platform. Both the validator and the nominator stakers can earn rewards from the main Ethereum network as well as from the network or protocol they are restaked to. Here’s how it operates,
How It Works?
Restaking allows users to stake the same coins on the main network and other protocols, protecting all these networks simultaneously. There are various restaking options to choose from.
Native restaking on EigenLayer is available only to those who run an Ethereum validator node. It operates through smart contracts that manage the assets staked with a validator and the security provided by restaking protocols. Validators wanting to join a restaking program must download and install extra software for the restaking module. By doing this, they accept the restaking terms of EigenLayer, which includes an extra slash condition.
Liquid restaking is another type of restaking that uses liquid staking tokens (LST). In this process, a staker puts their assets with a validator and gets a token that shows their stake. The staker can then use the LST to stake on the restaking protocol. As of now, liquid restaking deposits on EigenLayer are paused.
After users deposit their tokens into the restaking protocol, they can look for available dApps to re-stake their tokens. On EigenLayer, these dApps are called Actively Validated Services (AVSs), which can gain security through restaking.
Validators and nominator stakers in their nodes receive additional rewards based on the number of extra protocols they validate. EigenLayer mentions that systems that can utilize these services include data availability layers, new virtual machines, keeper networks, oracle networks, bridges, threshold cryptography schemes, and trusted execution environments. However, as of now, these services are not yet available for restaking.
Conclusion
The aim of restaking is clear: to create more value for stakers and other protocols, including the resource provider. Before technologies like this, staked assets were tied to one purpose in one protocol. Restaking changes that by offering a more efficient way to manage resources. Stakers can provide additional services with their single stake and earn greater rewards, as restaking allows staked assets to be used flexibly in other profitable projects. For assets staked in Proof of Stake (PoS), restaking enhances security across various protocols by turning the PoS security layer into a shared resource. This means other networks can utilize this feature to strengthen their own security. As this concept evolves, we may discover even more innovative uses for staked assets through restaking protocols.
It’s also crucial to grasp how any restaking protocol works and how these fundamentals impact you as a staker. Stakers should recognize that this idea is still developing and the overall narrative is evolving. Additionally, this article is not financial advice. Always conduct your own research and understand the risks before investing in any protocol.