ReStaking

To aim to improve the utility of staked tokens, which are usually lying dormant, restaking protocols have emerged to put these tokens to use. This process aims to enhance the utility of the staked asset and may result in an additional set of compensation for the holder, albeit with added slashing risks.

What is Restaking?

Restaking is an emerging concept that allows stakers to maximize the utility of their assets by securing multiple networks or protocols simultaneously. This approach aims to enhance capital efficiency and provide additional security layers across various blockchain applications.

How Does Restaking Work?

In restaking, users commit their staked assets to the primary blockchain and then extend this commitment to other protocols or services. This can be done natively by validators running additional software or through liquid restaking, where tokenized staked assets are used to secure multiple platforms. For instance, a user might stake ETH, receive a liquid staking token, and then restake that token on a restaking protocol to secure additional services.

Restaking options

• Native restaking is only open to users who operate a validator node. Validators who wish to commit their setup to a restaking program will be expected to download and run additional node software required for the restaking module.
• Liquid restaking involves a form of liquid staking where a staker stakes their assets with a validator and receives a token that represents their stake with the validator. The staker then proceeds to stake this token on the restaking protocol.

Benefits of Restaking

• Increased Rewards: By securing multiple protocols, stakers can earn additional compensation.
• Improved Capital Efficiency: Restaking allows the same assets to be utilized across various platforms, maximizing their utility.
• Support for Emerging Protocols: New networks can leverage the security of established staked assets, enhancing their robustness.

Risks of Restaking

• Compound Slashing Risks: Engaging in multiple protocols increases the potential for penalties if any commitment fails.
• Systemic Risks: Interconnectedness between protocols can lead to cascading failures if one system encounters issues.
• Increased Complexity: Managing restaked assets requires a deeper understanding and careful monitoring.

Restaking represents a significant evolution in staking strategies, offering opportunities for greater returns and network security. However, it also introduces additional risks that participants must carefully consider.