One thing about the crypto space is that you always have to stay on top of the next spark for the next big rush, and Restaking seems to be the way right now.

What Is Restaking?

Restaking is a rising narrative about capital efficiency in which users stake the same tokens on both the main blockchain and secondary protocols, protecting many networks at once. Restaking pays users for securing new protocols in exchange for taking on more platform risks. This method helps validators to maximise the rewards provided by their staked assets. However, it also broadens the cryptoeconomic security of huge blockchain networks to new applications and protocols.

EigenLayer, for example, adds restaking as an innovative primitive to the Ethereum blockchain, allowing users to actively engage in validating new applications while receiving additional incentives. EigenLayer, which operates as a decentralised trust market, enables cost-effective protocol operations while leveraging Ethereum’s strong security layer.

Staking and Proof-of-Stake

To comprehend restaking, you must first understand the notion of staking in the context of proof-of-stake (PoS) blockchains. PoS is a method for keeping blockchain networks secure and ensuring that transactions are valid. They accomplish this by reaching consensus, in which the many network participants agree on the information on the blockchain. This ensures that everyone on the network gets the same data and understands which transactions are valid. Stakers secure the network by storing a fixed amount of cryptocurrency and participating in block generation and validation operations. 

This locked-up, or staked, bitcoin serves as collateral, guaranteeing that validators act in the network’s best interests. Misbehaviour by a validator might result in the confiscation of a portion of their staked assets, a practice known as “slashing.” Staking is critical to ensuring the security and integrity of PoS networks. The more cryptocurrency staked, the more secure the network gets. Validators receive compensation for their efforts, usually in the form of interest on their staked assets. Traditional staking has drawbacks, including the fact that staked assets are locked within a single protocol and cannot be used elsewhere.

Types of Restaking

Native restaking

Native restaking entails employing smart contracts to manage assets under a validator’s node, hence increasing the crypto-economic security of the assets. Validators who participate in native restaking programs must install additional node software tailored to the restaking module, allowing them to securely submit their staked assets for further use inside the restaking ecosystem. This procedure keeps assets secure while allowing validators to earn more incentive chances.

Liquid restaking

Using Liquid Staking Tokens (LSTs), liquid restaking is the second alternative. Users stake their assets in an app in return for an LP (liquidity provider) token in this kind of restaking. After that, the user can utilise a staking protocol to stake their LP.

Why is Restaking Gaining Such Momentum?

Restaking provides several benefits that are strong enough to justify the interest this phenomenon has attracted. Investors opt to expand their portfolios through restaking because it has the potential to grow returns over time by earning interest on previously earned income. For example, there is a good chance of you earning a 36% return over a year with a consistent 3% each month normally. However, restaking raises that figure to 42.58% for the year.

Furthermore, the fact that Investors can profit without having to engage in active trading or continuous market monitoring once assets are staked makes it very appealing. It encourages investors to retain assets for extended periods. This helps them weather market volatility and avoid the temptation to sell during downturns. As a bonus, investors in restaking protocols frequently receive access to governance and decision-making processes within blockchain networks, allowing them a vote in the platform’s destiny.

Above all, by restaking, investors help to ensure the security and stability of the blockchain network. The more assets staked, the more secure the network becomes, as it is less subject to assaults and power is distributed more evenly.

How do restakers manage their restaked assets? 

Increases the effectiveness of asset management

 Token selection and wallet connection are required for users to use the EigenLayer app. First-time restakers who wish to pay into EigenLayer’s restaking contract must first authorise the process. An EigenPod, a smart contract created during the initial restaking process, is used by a restaker to manage their restaked assets. In essence, an EigenPod serves as a hub from which the restaker can manage withdrawals, restaking procedures, and other activities. One EigenPod only per Ethereum wallet address is permitted.

Visualization of network contributions.

Users gain restaked points every time a block is validated starting with their restaking date. EigenLayer calculates a user’s restaked points using a proprietary method that takes into account the number of restaked assets and the length of time they have been locked in. EigenLayer allows users to withdraw their staking payouts in either partial or full amounts. Restakers who want to withdraw their earned incentives while still delivering services go through a partial withdrawal process. Partial withdrawals necessitate on-chain proofs, and the petrol fees might be high. 

Withdrawals

Every four to five days, restakers are permitted to request one partial withdrawal. Funds that are removed must first pass through an additional escrow period before being available in the restaker’s wallet. Retakers who decide they no longer desire to work for a living can withdraw in full. Other than that, the procedure is comparable to a partial withdrawal and calls for escrow for withdrawn cash as well as on-chain proofs. Through EigenPod’s “redeposit” button, a restaker can redistribute their money if they unintentionally start a full withdrawal. Retaker access to the “Unstake” area of their EigenPod allows them to start either withdrawal procedure.

Photo credit: Unchained