Restaking is a game changer in the world of Web3 and decentralized finance (DeFi) allowing for re staking already staked assets over and over again which opens up the possibility of added yields. Unlike classic staking, which requires tokens to be locked to secure blockchain networks and validate transactions, restaking increases utility by enabling asset holders to earn even more without letting the currency sit idle. This not only increases earnings rates, liquidity, and efficiency but across the blockchain space.

So, here we consider what is restaking, staking vs restaking, how it works, the benefits and drawbacks of this technology, as well as the use cases.

Key Takeaways

• Restaking provides users the ability to reuse their already staked tokens on different blockchains, securing others as they go, based on potential rewards.
• By engaging in restaking, users can get rewards not only from the original staking protocol but also from other networks.
• There are two ways to restake: native restaking (e.g., EigenLayer in Ethereum) or restaking through liquid staking tokens (LSTs).
• Projects like EigenLayer can secure their networks and tap into the liquidity of the wider DeFi ecosystem using a multitude of assets in addition to their native tokens. This logic can add to the revenues of both agents and the protocol.

What Is Restaking?

Crypto restaking is an up-and-coming solution to achieve higher capital efficiency from tokens. With this approach people can stake the same tokens on the primary blockchain as well as among a variety of other protocols, effectively securing several networks at once. This results in more rewards for those who aid in securing these supplementary protocols, even if they come with increased risk of slashing penalties.

In other terms, restaking is a calculative method of resource allocation for decentralized staking. Some protocols include so-called liquid staking, issuing tokens that represent staked assets to extract more value from the assets. This is good not only for stakers themselves, but the networks and protocols that also win from it.

Why Restaking Matters

Restaking is a novel idea in the blockchain world that is meant to improve the overall security, capital efficiency, and innovation of decentralized networks. It enables stakers, who locked their tokens to help secure a blockchain to “restake” the assets to secure other protocols or services. Restaking provides:

1. Enhanced capital efficiency. With traditional staking of tokens, you can only secure one system at a time. Restaking solves this problem by enabling a single staked asset to service multiple networks at once. 
2. Shared security across ecosystems. Restaking allows new protocols to “leverage” security of an existing blockchain such as Ethereum. 
3. Incentivized innovation. Restaking introduces an additional layer of rewards for stakers. This can pull in more users and capital to experimental or high demand decentralized applications.
4. Improved network effects. The more other protocols are built on restaking models, the stronger the dominance of the underlying base layer (e.g. Ethereum). 
5. Customizable security models. With restaking, protocols have the ability to define their own slashing logic, providing more flexibility in architects of security. 
6. Decentralization & resilience. Restaking increases the level of resilience and censorship resistance overall.

Restaking is the next step in the evolution towards composable security. As projects such as EigenLayer and Karak (among others) mature, restaking is set to be a crucial layer in the modular blockchain stack.

How Restaking Works

Here’s a step-by-step sequence showing how restaking works:

1. A user (validator or delegator) stakes tokens (e.g. ETH) to help secure the network and receive staking rewards. These bonded tokens are subject to Ethereum’s consensus rules and slashing conditions.
2. Enrolling in restaking through middleware (such as EigenLayer). Restaking layers like EigenLayer or Karak are coordination layers. Stakers have the option to join and restake the assets they are already staking (eg stETH, cbETH and native ETH), to help secure other protocols.
3. Securing new protocols and services. Restaked assets can be put to work securing Actively Validated Services (AVSs) like: oracles, bridges, rollups, and middleware. Slashing conditions and performance requirements are defined by each AVS.
4. Slashing risks & custom enforcement. In cases of malfeasance or dereliction of duty by the restaker or operator for an AVS, their participation can be “slashed”, or in other words, part of the security deposit they have at stake must be forfeited. This is risky, but it also mitigates the incentives of other networks to act in bad faith.
5. Earn additional rewards. Locking up more than the Ethereum network. While restakers and re-validators get extra rewards ­for helping secure more than only the AVSs. This is a new layer of yield on top of Ethereum staking, and it boosts up the capital efficiency.

And now let’s consider the benefits and drawbacks of this technology.

Benefits of Restaking

The key restaking benefits are:

• Enhanced capital efficiency with both staking and utility at once.
• Driven by added liquidity in the ecosystem.
• Multiple sources of income for stronger long-term performance.
• More players entering the DeFi arena.
• Improved liquidity leading to more stable prices.

Restaking has another major advantage: it allows users to diversify their lending and borrow income streams, reducing reliance on any single source of yield. This is an especially useful strategy in the cryptocurrency market, which is so vulnerable to cyclical price swings, through which even making modest money can add up by enough to matter, and diversification can help curb losses during down swings.

Challenges and Risks of Restaking

Here are the common restaking risks:

• Difficulty in handling multiple staking positions reserved.
• Smart contract vulnerability risks.
• Users have to fend for themselves without any assistance from the central authority.
• Yields are not fixed but depend on market conditions.

Dealing with numerous staking positions can be cumbersome and users have to be wary of smart contract exploits. And since the security for these systems is decentralized, the owner of the funds carries the weight, a daunting realization for those not familiar with the industry.

Furthermore, yields from restaking are not fixed and can vary depending on the market and the specific protocols employed. In depth study and knowledge must be acquired before getting into restaking.

Is Restaking Crypto Safe?

Restaking is not risk-free and comes with its own set of threats, but in general we can say it is rather safe. You’re still staking on a secure, base-layer chain (like Ethereum) which has been through a battle-testing process. Robust restaking protocols (e.g., EigenLayer) contain slashing mechanisms, monitoring as well as incentivizing to ensure that validators are not cheating.

Use Cases & Protocols

Restaking has a modular security layer that can be easily applied to multiple types of decentralized services. It allows protocols to leverage Ethereum’s validator set to ensure the quality and security in their operation without having to start their network from the beginning. Here are some of the use cases and protocols that are developing around restaking:

1. Oracles. Restaked ETH can protect decentralized oracles with the threat of slashing if a malicious or invalid submission is made.
2. Bridges. Restaked assets can be employed by cross-chain bridges to incentivize drains misbehaviour from validators that copy assets or data across chains.
3. Rollups & L2 Sequencers. Restaking can be used to protect L2 rollups’ sequencers and validators by slashing them if they act improperly (e.g., censor or reorder transactions).
4. Middleware Services. Restaking allows for decentralized securing of services such as:

• Decentralized relayers;
• Messaging layers (e.g., inter-chain communication);
• Indexers and data availability layers.

5. MEV Protection & Fair Ordering. Fair ordering and MEV suppression can stake ETH to enforce that validators play by the rules or get slashed.

EigenLayer (Ethereum)

EigenLayer is a protocol layer written on the Ethereum (ETH) blockchain that is creating a “restaking collective”. This is how ETH stakers can support other applications in the Ethereum ecosystem.

The EigenLayer advertises this dynamic decentralized trust market. Developers can build on top of the collective restaking security of the stakers, and stakers can back and reap the rewards of promising projects.

There are two different methods to join restaking on EgenLayer:

1. Solo Staking. Users can operate their own node and have direct verification of the transaction for other modules. This method is best for somewhat advanced people with a little knowledge of the technical stuff.
2. Delegated Staking. Participants can assign execution of nodes to other participants. For those who prefer to not have to deal with setting this up themselves, this is the way to go.

Liquid Restaking Tokens

Liquid Restaking Tokens are a new kind of DeFi asset backed by restaked ETH and available for holding in your wallet. When the best of both worlds meet beyond yielding the return from restaking, the composability of liquid staking is combined, thus users not only get access to the rewards, and stay in DeFi.

LRTs are tokenized claims to restaked ETH (or other base assets). So, when a user unstakes ETH through a liquid restaking protocol, they are given an LRT in exchange. It represents the base collateral that is staked (either natively in ETH or by using a service like Lido's stETH or Coinbase's cbETH), the additional yield that is earned by securing Actively Validated Services (like stETH or Ethereum 2.0), or the slashing risk tied to those services.

Future of Restaking

Restaking is a significant advancement in blockchain technology, particularly in proof-of-stake (PoS) chains such as Ethereum. It enables validators to redeploy their staked tokens to multiple PoS services, effectively solving many issues associated with the traditional staking model. Besides, it provides not only more rewards for validators in the long term, but also more secure by passing the power available to a validator through a myriad of platforms.

Conclusion

Re-staking promises to be more capital efficient and provides the potential time of extra rewards for those who are willing to take the risks. Projects such as EigenLayer allow users to restake tokens, giving them the freedom to release their capabilities on a variety of networks and pursue yield opportunities in the DeFi space.

There are several benefits for restaking: higher ROI, better security for the network, low chance for the assets to be dumped and, also, bringing more decentralization to the native network.