What Is Restaking In Crypto? The New Trend Explained

Written by

Joanna K


Published Mar 15, 2024 at 5:40 PM
Last updated Mar 18, 2024 at 10:27 AM

In the ever-changing world of crypto, restaking has emerged in the past few months as another innovative approach to maximizing the benefits of digital asset holdings. 

Here we take a look at the rising trend of restaking and its even newer offshoot – liquid restaking.

What is restaking in crypto?

Ultimately, restaking means that a digital asset is staked again after the initial staking. It refers to the process of reinvesting staking rewards to build earnings and bolster your contribution to a blockchain network's security and efficiency. 

Understanding restaking 

Staking in crypto involves holding funds in a digital wallet to support the operations of a blockchain network. Participants are rewarded for their efforts, usually in the happy form of additional crypto. This process is central to the Proof-of-Stake (PoS) mechanism, which props the operations of many coins and tokens, most notably Ethereum.

The evolution of staking to the new restaking format is naturally driven by the aim to enhance crypto rewards as well as network involvement.

Restaking allows users who have already staked their ETH to earn extra rewards by staking it again on different Ethereum applications.

It amplifies the initial benefits of staking by reinvesting rewards, thereby fostering greater network security and participant earnings.

EigenLayer, a protocol on the Ethereum blockchain, is currently the market's leading pioneer fostering the new restaking trend. 

How restaking works

Restaking allows a user to stake the same tokens on both the main network as well as other protocols, thereby simultaneously securing all networks at the same time. There are various restaking options currently in operation.

  • Native restaking on EigenLayer is solely available to users who run an Ethereum validator node and operates through smart contracts that oversee the assets staked under a validator’s node and the blockchain security that restaking protocols allow.
  • Liquid restaking takes things a step further and is a new variant of restaking that uses liquid staking tokens (LST). You deposit your LSTs into a liquid restaking platform such as EigenLayer. EigenLayer then validates not just the main PoS mechanism but also the other connected systems. In return, you receive a liquid restaking token (LRT). LRTs are also transferable and tradable like LSTs, allowing you to participate in DeFi pursuits. Users can also navigate dApps known on EigenLayer as Actively Validated Services (AVSs) to restake their tokens. 

According to recent liquid staking tokenized finance (LSTfi) report by RedStone, liquid staking is the largest DeFi category in terms of total value locked (TVL), worth $59billion at the time of writing as per DefiLlama, with more than 92% Ethereum related.RedStone report liquid staking and restaking

Advantages of restaking

With improved rewards for stakers, the primary allure of restaking lies in its ability to significantly increase potential earnings. Moreover, it plays a crucial role in enhancing the blockchain network's security and overall health by ensuring a steady commitment of resources.

Disadvantages of restaking

Despite its advantages, restaking is not without its challenges. Restaking brings the risk of slashing, or increased slash conditions in exchange for rewards, which can lead to a significant drop in the percentage of assets staked by a validator. 

In addition, the volatility of cryptocurrency markets, the presence of lock-in periods, and the need for diligent platform selection all require careful consideration.

What's more, Ethereum founder Vitalik Buterin is noted as not being a fan of restaking due to fears that it can possibly overcomplicate Eth's consensus mechanism beyond its main function and bring vast unnecessary risks.

In his blog, Buterin posted last year that "we should instead preserve the chain’s minimalism and support uses of re-staking that do not seem like slippery slopes towards extending the role of Ethereum consensus."

Restaking v traditional staking

With traditional staking, ETH is locked up and cannot be used for other purposes. While both restaking and traditional staking serve to support blockchain networks, restaking stands apart by offering a path to potentially higher returns through the power of compounding. The choice between the two will largely depend on individual goals and preferences. 

Future of restaking in crypto

The potential impact of restaking on the wider crypto ecosystem could be to massively influence both blockchain tech and crypto investing. By supporting long-term investment and participation, it can contribute to the stability and growth of the greater cryptosphere.

The future of restaking appears bright, with ongoing innovations and an increasing number of platforms including Pendle Finance, Picasso and Renzo Protocol supporting the practice. It is poised to become a staple strategy for savvy investors looking to further maximize their digital asset portfolios.

How to get started with restaking

To begin restaking, select a reputable platform and follow the straightforward set-up process. Key factors to consider include the platform's security features, fees, and supported coins and tokens.

Tips for effective restaking

As with everything in crypto, effective restaking depends on thorough research and a strategic approach. Diversifying your staking portfolio and staying on top of the evolving digital currency landscape are both critical for success.

Common mistakes to avoid in restaking

Restaking newcomers to should avoid overlooking a platform's security or neglecting fee structures. Do not underestimate the importance of keeping on top of the latest crypto trends and blockchain technology.

In conclusion, restaking is another opportunity for crypto investors looking to amplify profits and participation in the digital asset space.

By understanding its mechanics, benefits, and potential pitfalls, investors can make informed decisions that align with their financial goals and risk tolerance.

Frequently Asked Questions

What is restaking?

Ultimately, restaking means that a digital asset is staked again after the initial staking. It allows participants to earn extra rewards while also increasing security on the staking network through the Proof of Stake consensus.

What is EigenLayer?

EigenLayer is a protocol on the Ethereum blockchain that is currently pioneering the restaking trend.