Correct me if I'm wrong but I doubt there’s any other industry with as many terminologies as the web3 space. I also refuse to believe that there’s any “web3 professional” who has a template of the entire crypto terminologies that can be found in this industry. Guess you can say it’s what makes the space interesting; on the other hand, “what about the newbies like me?”

You might be wondering what prompted this. Well, restaking prompted this. RESTAKING.

I first came across this term back in December 2022. Then I went ahead to study it and I even wrote an exclusive article on it using EigenLayer as the case study back in January 2023. Here’s the article for context.

In this article, we’re going to be simplifying what restaking is.

What is Staking?

Staking is an activity common in blockchains where holders (stakers) of a particular token delegate (lock up) their tokens to validators who utilize them run nodes, verify transactions and secure the blockchain network. Blockchains that employ proof-of-stake consensus mechanisms use staking to ensure their network’s security.

People who stake their cryptocurrencies are often advised to be aware of the risks involved, despite the APY involved. If a token is staked (locked) for a certain period of stipulated time, it cannot be unlocked to be used within that period. Imagine you locked $100 worth of token A in a staking protocol whose lock-up period is 21 days. 7 days later after you did this, the market condition shifts, causing a massive pump in token A. Your $100 is now $1000 and you wish to TP but you can’t because you locked your token for a minimum of 21 days.

What is Restaking?

Now that you’ve grasped what staking is. Think of staking as staking².

If you think the crypto space is complex, wait till you hear this.

Restaking is a method, pioneered by EigenLayer, whereby already staked cryptocurrencies (ETH in EigenLayer’s case) are reused (restaked) in validating, hence securing another protocol. It is a capital efficiency technique that aims to provide stakers and validators with more opportunities to earn rewards, alongside the risks involved.

If you’re earning yield for staking to secure a protocol, think of restaking as a means to earn yield for securing multiple protocols (and you don’t even have to stake multiple times as your one-time staking is reused for all).

Restaking involves allowing users to simultaneously secure numerous networks by staking the same tokens on the main blockchain and additional protocols. In return for taking on greater slashing risks, restaking gives users more benefits for securing more protocols.

Side note: Slashing is a punishment given to validators who do not act according to the guidelines and cause the network harm or potential harm in any way. Slashing involves seizing all or part of the validators’ staked tokens.

Staking protocols like EigenLayer allow other smaller chains or protocols in need of security but don’t have deep pockets to make this happen, to share in the security of other bigger chains like Ethereum. In another piece I wrote months back, I shared various security-sharing models in the blockchain space and restaking as one of those models. There are two types of staking namely native staking and liquid restaking. In restaking protocols, there are roughly five characters are play:

~ The blockchain, e.g., Ethereum from which staked tokens are delegated.

~ Additional protocols that do not have the technical capability or capital to set up a secure system and thereby wish to borrow staked tokens for the security of their own networks.

~ Validators who extend their manpower to other protocols to validate their transactions and secure the network. They gain additional rewards from these additional protocols and are also prone to more risks.

~ Stakers whose staked assets are used in making all of these possible. They get additional rewards for the reuse of their tokens.

~ Protocols that facilitate the whole process of staking. E.g., EigenLayer, Swell Network, Genesis, Pendle Finance, Puffer Finance, Renzo Protocol, Ether Fi, Restake Finance, Kelp DAO, and many more. Basically, most of these staking protocols are built for ETH restaking.

What are your thoughts on restaking? I know someone who is of the belief that restaking is a ticking time bomb.