Bittime - Restaking is a new concept that is gaining popularity in the crypto world. This concept offers capital efficiency for users.
With restaking, users can use the same token for staking on the main blockchain and other protocols. This simultaneously secures several networks at once.
In return, restaking users are entitled to additional rewards, but also face a higher risk of slashing.
Getting to Know Blockchain Security
To understand restaking, you first need to know about the blockchain security system. There are two categories of blockchain security: Proof of Work (PoW) and Proof of Stake (PoS).
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In a PoS network, assets are locked to secure the network through a staking process. Stakers lock their assets in validator nodes on the network.
Network security depends on the number of active validators, the total percentage of tokens staked, and how those tokens are distributed among active validators.
Greater Utility for Staking Tokens
The restaking protocol was born to increase the utility of staking tokens that are usually dormant. A well-known example is EigenLayer, which allows other protocols to leverage Ethereum's trust network without needing to create their own set of validators.
Also read: Getting to know Ethereum restaking, what it is and the 3 best restaking projects
What is Restaking?
Restaking, as the name suggests, means staking again an asset that was previously staked. Restaking allows staking assets to be used for other staking programs or platforms.
This increases the utility of staking assets and offers additional rewards to their owners (with additional slashing risk).
Example of Restaking on Ethereum
The Ethereum network is one of the safest PoS networks. Because this network has many validators and a wide distribution of staking assets. However, staked ETH becomes inactive on the Ethereum network.
This gives rise to liquid staking derivative products. Where, staked ETH is converted into liquid staking derivative tokens that can be used in DeFi.
Additionally, liquid staking derivatives have no minimum staking requirements, unlike native staking which requires 32 ETH. So, this allows small investors to benefit from staking rewards.
Restaking takes this concept even further. The restaking protocol allows other decentralized protocols to use staking assets on Ethereum to increase their own security.
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Validators and assets rented for this purpose will be rewarded according to the validator incentive terms of the renting protocol or platform.
Validators and nominating stakers can earn several rewards at once: from the Ethereum host network and from the network or protocol where they are staked.
How Restaking Works
Restaking allows users to stake the same coins on the main network and other protocols, securing all of these networks simultaneously. There are several types of restaking options available:
Native Restaking
Native restaking on EigenLayer is only open to users running Ethereum validator nodes. Native restaking works through a series of smart contracts that govern the management of staked assets under validator nodes and the crypto-economic security offered by the restaking protocol.
Validators who wish to use the restaking service must download and run additional node software required for the restaking module. Once completed, validators agree to EigenLayer's restaking conditions, including additional slashing conditions.
Also read: EigenLayer: Can it Meet Market Expectations?
Liquid Restaking
Another form of restaking is liquid restaking , which uses liquid staking tokens (LST). Stakers will stake their assets with validators.
Next, they will receive tokens representing their stake with that validator. Stakers then proceed to stake LST on the restaking protocol.
Once tokens are deposited in the restaking protocol, users can then search for available dApps to restake their tokens.
These dApps are known in EigenLayer as Actively Validated Services (AVSs), and can obtain security infrastructure through restaking.
Validators and nominee stakers on their nodes get additional rewards. This depends on how many additional protocols are being validated.
According to EigenLayer, systems that can use the service include data availability layers, new virtual machines, keeper networks, oracle networks, bridges, threshold cryptographic schemes, and trusted execution environments. However, at the time of writing this article, this service is not yet available for restaking.
Retaking Benefits
Restaking turns a pool of resources into a “flexible asset” that can be rented at will by various systems. This offers several advantages, such as:
Increased Rewards for Stakers
Ethereum currently offers a yield of 3.6% for a single staking asset, while LST offers a range of 3.08% to 4.06%.
Cold Start Security for New Protocols and Networks
New AVS such as data layers and Layer 2 networks face tough challenges in developing adequate security systems, especially in the initial stages.
Restaking allows these protocols to strengthen their security, as they gain access to a larger pool of validators.
Potential Risks of Retaking
Restaking is a new concept with complex underlying technology. Although it offers several benefits as discussed previously, it also poses some risks for the host network, tenant networks, and stakers.
Here are some potential risks:
Slashing
Restaking terms include additional slashing conditions in exchange for higher rewards. Depending on the conditions set by the protocol, slashing can result in the loss of a large portion of the validator's staked assets.
Stakers who choose to participate must follow the contract rules and will be subject to slashing penalties if they behave maliciously.
Outcome Risk
While the idea of EigenLayer is to allow protocols to leverage Ethereum for security, restakers are motivated by the reward system of the protocol they are staking their assets on.
This means restakers might choose the protocol with the highest yield to maximize their profits.
There are also concerns that investors will view restaking as a quick and easy to leverage financial product, potentially impacting Layer 1 networks.
Retaking Protocols to Note
Retaking is a growing concept, and asset holders are looking for restaking opportunities to maximize their returns. Here are some protocols in the restaking space:
EigenLayer
Restaking on Ethereum EigenLayer enables crypto-economic security on the Ethereum blockchain by designing middleware that turns staked ETH into a commodity that can be leased by other protocols to secure it.
Stakers can stake their native Ethereum tokens or Liquid Staking Tokens (LST) to EigenLayer to offer additional security services to AVS on the Ethereum blockchain and earn additional rewards from the protocol where their assets are staked.
Validators who opt into the restaking program agree to Eigenlayer's terms, including additional slashing conditions for failed validators. According to data from Eigenlayer, over 600,000 native and LST ETH were staked on the Eigenlayer restaking protocol at the time of writing.
Currently, there are no services built into the EigenLayer for restakers to secure, so restakers currently earn restaked points.
Pendle Finance
Pendle Finance has explored the most effective ways to manage yield. Pendle Finance's yield tokenization concept separates yield-earning tokens (PT) and the yield they earn (YT), allowing yield farmers to have more control over the interest they earn.
In line with its goals, Pendle Finance is expanding into the restaking sector. From the available information, they will adopt EigenLayer and Eigenlayer liquid restaking concept to offer more yield to users.
Renzo Protocol
Renzo is a strategy manager for Eigenlayer, where the protocol helps users manage their restaking strategies on EigenLayer.
Since each AVS offers a different reward pool and slashing risk, it becomes increasingly difficult for users to manage their restaking strategies as more AVS join the network.
ezETH Renzo is a liquid restaking token that represents a user's restaking position. Next, users can deposit liquid staking tokens (stETH, rETH, cbETH) in exchange for ezETH.
By depositing their liquid staking tokens into Renzo, users can avoid liquid restaking limits on EigenLayer and earn EigenLayer restaking points.
Picasso
Picasso claims to be bringing restaking to the Solana blockchain. The restaking protocol is currently only available on the Ethereum blockchain thanks to EigenLayer. However, Picasso aspires to implement a similar solution on the Solana network.
This restaking protocol will support Trustless IBC connections by utilizing the crypto-economic security of validators on the interoperability protocol.
According to the project, they will use a similar approach to what EigenLayer has done so far with liquid staking.
Picasso mentioned that their restaking contract will accept LST tokens. Examples include Marinade Staked Solana (mSOL) and jitoSOL, in addition to native Solana and LP tokens from decentralized exchanges on the network such as ORCA.
Stakers can submit their assets to the protocol through the portal provided by Trustless and receive additional yield according to the reward specifications determined by the IBC interoperability protocol.
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Conclusion
The goal of restaking is simple: provide more value to stakers and other protocols, including the restaking resource providers themselves. Before this technology existed, staking assets were locked and used for a single purpose within a single protocol.
Restaking changes this and is essentially a capital efficient resource management technique. Stakers provide more services with a single stake and earn more rewards for this role.
This is because the restaking protocol converts staking assets into flexible assets that can be used for other profitable activities. For PoS staking assets, restaking aims to increase security in some protocols by making the PoS security layer a “commodity”.
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Also read:
What is EigenLayer? Ethereum Restaking Protocol
Restaking: The Future of Ethereum Staking or a New Threat?
Retaking: A Complete Guide to Understanding the Role of Jito Labs
Note the Potential Free Airdrop of the EigenLayer Restaking Project
DISCLAIMER: This article is informational in nature and is not an offer or invitation to sell or buy any crypto assets. Trading crypto assets is a high-risk activity. Crypto asset prices are volatile, where prices can change significantly from time to time and Bittime is not responsible for changes in fluctuations in crypto asset exchange rates.
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