What is Restaking: A Complete Brief Guide on Restaking

Restaking is the process of using an already staked asset for additional staking in a different program or platform, thereby enhancing its utility and offering the holder more rewards, while also introducing increased slashing risks.

Restaking allows staked Ethereum to be reused on another platform, generating additional rewards and increasing utility. Ethereum's secure PoS network benefits from diverse validators and staked assets. Liquid staking derivatives transform staked ETH into tokens usable in DeFi, bypassing the 32ETH minimum required for native staking, thus enabling smaller holders to earn staking rewards.

The Rise of Restaking

The restaking market has significantly grown in 2024, with Ethereum restaking, led by EigenLayer, at the forefront and holding the majority of the total value locked (TVL), which has surged to over $13.3 billion. 

EigenLayer, advanced in its restaking roadmap, has pioneered this sector, focusing mainly on Ethereum. However, other projects are diversifying restaking across various chains, including Picasso for Solana and Babylon for Bitcoin. Additionally, the Cosmos ecosystem is exploring integration with EigenLayer, and AltLayer has expanded its service to encompass restaked rollups. 

Restaking TVL / Souce: DefiLlama

Following the rise of liquid staking tokens (LSTs) in 2023, this year marks the emergence of liquid restaking tokens (LRTs). This report delves into the development of EigenLayer, restaking across different blockchains, liquid restaking protocols, and LRTs, concluding with prospects for the restaking sector.

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Restaking Mechanism

Restaking allows users to stake assets on multiple networks simultaneously. There are two main types of restaking: 

1. Native restaking, for Ethereum validators to stake directly through EigenLayer with additional terms and possible extra slash conditions; 
2. Liquid restaking, where stakers receive a liquid staking token (LST) to stake on restaking protocols. 

Currently, liquid restaking on EigenLayer is paused. Users can explore dApps, known as Actively Validated Services (AVSs) on EigenLayer, to restake their tokens for extra rewards and secure various protocols, although these services are not yet available for restaking.

Why Restaking is Important

Restaking addresses the issue of fragmented blockchain security by enabling the pooling of security resources from a large chain, like Ethereum, for use by other applications. This process reduces the need for individual projects to issue their tokens and build separate security infrastructures, which can be capital-intensive, time-consuming, and often less secure than established networks. Restaking allows projects to leverage the existing security of Ethereum, offering a more efficient and scalable approach to ensuring decentralized network security.

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EigenLayer: The Key Project in Restaking

EigenLayer is a pioneering platform in restaking, positioning itself as a marketplace for decentralized trust and providing "security-as-a-service" for Ethereum. It features a three-pronged marketplace:

• Restakers: Users who secure network applications by staking their liquid staking tokens (LSTs) or directly staking $ETH, earning extra yield but facing additional slashing risks.
• Node Operators (Validators): Those running EigenLayer software, can earn fees from Ethereum's Proof of Stake (PoS) and additional yield from securing selected protocols. Misbehavior can lead to slashing.
• Actively Validated Services (AVSs): Services built on EigenLayer seeking security from restakers, which can range from new blockchains to data availability layers and bridges.

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EigenLayer introduces two innovative concepts:

• Pooled Security via Restaking: New modules gain security not from their tokens but from restaked $ETH, pooling Ethereum’s strong crypto-economic security across the ecosystem.
• Free-market Governance: An open market lets validators weigh risk/reward, deciding which modules to secure, akin to the venture capital model but with the risk of slashing.

This structure enables a competitive marketplace for pooled security, where protocols can purchase security, removing the capital cost of creating new security models and incentivizing the development of new modules on Ethereum.

Conclusion

restaking represents a transformative advancement in the cryptocurrency landscape. By enabling assets that are already staked to be leveraged for additional staking opportunities, restaking not only maximizes the utility of these assets but also opens up new avenues for earning rewards. Projects like EigenLayer have led the charge in this burgeoning sector, showcasing the potential of pooled security and free-market governance to enhance the overall security and efficiency of blockchain networks. As the restaking market continues to evolve, it offers a glimpse into the future of decentralized finance, where the optimization of staked assets can lead to more secure, efficient, and inclusive blockchain ecosystems. However, as with any innovation, navigating the restaking landscape requires careful consideration of the associated risks and rewards.