Key Takeaways:
- Restaking allows users to restake their already staked tokens on other chains, securing multiple networks and potentially earning additional rewards.
- Users who restake can potentially increase their rewards, receiving them from both the original and the restaking network.
- There are different restaking options, including native restaking on EigenLayer for Ethereum and restaking with liquid staking tokens.
- Restaking networks like EigenLayer accept various assets beyond their native token, enhancing network security and tapping into decentralised finance (DeFi) market liquidity, which can generate revenue for the users and the protocol.
- Users opting for restaking should be aware of associated risks, including slashing and yield risks.
What Is Restaking?
There are two avenues to staking. One is to restake liquid staking tokens to be staked with validators in other networks, which allows users to earn more rewards while helping to improve security on the staking network through the Proof of Stake (PoS) consensus mechanism.
The other avenue is native restaking, the focus of this article.
Restaking was devised to improve the utility of staked tokens, which are usually locked on PoS blockchains. Now, restaking protocols allow users to leverage their locked tokens for a secondary use with earning potentials. One of the best-known examples is EigenLayer, which lets protocols leverage Ethereum’s trust network without needing to establish their own validator sets.
New to staking and liquid staking? Learn the basics here.
How Restaking Works
Restaking, as the name suggests, involves staking an asset once again after the initial staking period. This process allows the staked asset to be used in another staking programme or platform, enhancing its utility and providing the holder with an additional set of rewards, although with increased slashing risks.
Let’s look at an example from the Ethereum ecosystem.
The Ethereum network is known for its high-security PoS consensus, thanks to numerous validators and widespread distribution. However, staked ETH lays dormant on Ethereum, which sparked the development of liquid staking derivatives. Liquid staking transforms staked ETH into liquid tokens, which can be used in decentralised finance (DeFi).
Since liquid staking eliminates the 32 ETH minimum staking requirement, it allows small-stake holders to pool their assets with other users, potentially enabling them to benefit from staking rewards. Restaking protocols like EigenLayer take this concept one step further.
These protocols allow other decentralised protocols to use assets staked on Ethereum for their own security. Both validator and nominator stakers can earn multiple rewards: once from the main Ethereum network, and additionally from the protocol they are restaked to.
Restaking Rewards
So how exactly do staking rewards work and what are they? Below is a detailed breakdown:
Ethereum Staking Rewards
As mentioned above, with restaking through EigenLayer, users get a double benefit. The staking benefits from staking on the Ethereum chain, which come in the form of interest paid in ETH.
Additional Yield Through Restaking
Aside from the base yield from staking ETH, users receive additional yield through EigenLayer.
Restaked Points
In addition, users who restake with EigenLayer receive ‘restaked points’. According to EigenLayer, “restaked points are a measure of your contribution to the shared security of the EigenLayer ecosystem. They are a measure of staking participation equal to the time-integrated amount staked in units of ETH hours.”
Restaked points collected by users will accrue towards EIGEN token airdrops.
EigenLayer Airdrops
Restaked Points are users’ contributions to the EigenLayer ecosystem, which qualifies them for potential airdrop allocations. EigenLayer will determine and announce this at a later date. As always, be careful of fake airdrops that can be scams. It is best to follow EigenLayer’s verified X account to keep up to date on official airdrop announcements.
How to Restake With Crypto.com
Users can restake directly with EigenLayer in the Crypto.com App. Alternatively, they can liquid stake their tokens. Here’s how:
EigenLayer Native Restaking With Crypto.com
Crypto.com offers a simple and easy way for users to participate in EigenLayer’s ETH Native Restaking.
1. Users must first be eligible for EigenLayer ETH Restaking and have available ETH in their Wallet.
2. Choose ‘EigenLayer ETH Restaking’ from the Staking page, input the amount of ETH to commit, and agree to the relevant risks, as well as terms and conditions.
3. After confirmation, Crypto.com will act on the user’s instructions to facilitate the staking of their ETH to an operator in the EigenLayer ecosystem, which performs validation tasks.
Crypto.com provides a pass-through service (with the user’s native ETH passed to Kiln as the Operator) to participate in EigenLayer ETH Restaking. In addition, successful validations and Eigen Points from EigenLayer may result in regular ETH staking reward payouts — like when staking directly with EigenLayer, which is currently only available to Ethereum validators.
Learn more about the restaking process with Crypto.com here.
Liquid Staking
An alternative to EigenLayer restaking is liquid staking, which involves the use of liquid staking tokens. In this process, a staker initially stakes their assets with a validator, then receives a token representing their stake with that validator. At that point, the staker can stake the liquid staking token on the restaking protocol.
Here’s how to liquid stake with Crypto.com.
Once tokens are deposited into the restaking protocol, users have the flexibility to explore available decentralised applications (dapps) to restake their tokens. These dapps, referred to as Actively Validated Services (AVS) on EigenLayer, use liquid staking to enhance their security infrastructure through the process of restaking.
Benefits of Restaking
- Improved Rewards: Stakers can potentially increase their earnings by staking assets on two networks.
- Increased Security: The more assets staked, the higher a network’s value, enhancing its resilience against attacks. This increased security makes it a reliable hub for dapps, protocols, and platforms.
- Reduced Dumping: Restaking makes the original token more versatile, which discourages dumping. The increased utility helps avoid value loss for the project and its investors, fostering a more stable and sustainable ecosystem.
Cons of Restaking
- Slashing: Restaking introduces additional slash conditions in exchange for heightened rewards. Depending on the protocol’s terms, slashing poses the risk of significant asset loss for validators who may breach the rules. Stakers opting in are bound by the contract rules and face slash penalties for malicious behaviour.
- Yield Risks: While EigenLayer aims to let protocols leverage Ethereum’s decentralised trust network for security, restakers are primarily motivated by the reward system. This might lead restakers to choose protocols with the highest yield, potentially impacting the Layer-1 network. There’s also concern that users may perceive restaking as a quick, highly leveraged financial product.
- Impact on Layer-1 Blockchains: As highlighted by Ethereum co-founder Vitalik Buterin, restaking poses a risk to Layer-1 blockchains. Protocols relying on Ethereum’s social consensus for a fork or reorganisation (in the case of major losses) may lead to conflicts over the canonical version of Layer-1. EigenLayer’s founder, Sreeram Kannan, suggests that applications reusing Ethereum’s validator set should not be rescued by Layer-1’s social consensus.
Conclusion: Is Restaking Worth It?
Restaking promises enhanced capital efficiency and potential double profits for users willing to take the associated risks. EigenLayer and other projects offer the chance to restake and unlock the potential of staked tokens across multiple networks and tap into the DeFi market. The possible benefits of restaking range from improved rewards and increased network security to mitigating the risk of asset dumping and bolstering the native network’s decentralisation.
However, these potential gains are not without their caveats. The risks include smart contract vulnerabilities, fraudulent behaviour by validators, and increased exposure to slashing — all of which demand careful consideration by prospective restakers.
Moreover, the impact of restaking on Layer-1 blockchains, highlighted by Ethereum’s co-founder, Vitalik Buterin, underscores the need for a cautious approach. The reliance on social consensus and potential conflicts in the event of significant losses raises questions about the long-term effects of staking on the broader blockchain ecosystem.
Due Diligence and Do Your Own Research
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