What is Restaking

Restaking is a method that allows coins to be staked simultaneously in the main cryptocurrency network and other protocols. Don't be intimidated by the terminology—it’s simpler than it might seem at first glance.

To understand what restaking is, you first need to be familiar with staking. Staking involves locking assets in a cryptocurrency network. Community members who want to earn passive income from their coins engage in staking. Staking is available only in Proof-of-Stake (PoS) networks, such as Ethereum (ETH). Participants in staking receive rewards in the network's coins. For instance, Ethereum stakers earn rewards in ETH.

Validators, who are members of the crypto community responsible for processing and confirming transactions in the network, carry out staking. They connect their coins and computing equipment to the network and receive coins as a reward for their work.

Interesting Fact: Staking is an eco-friendly alternative to traditional cryptocurrency mining (in Proof-of-Work or PoW networks, like Bitcoin).

The prefix "re" in the term restaking is key to understanding it. It indicates the reuse of already staked coins. Thus, restaking provides the opportunity to stake cryptocurrency in the main network and other protocols simultaneously, to earn additional income. This method turns staked coins into valuable assets that can generate profit.

For the crypto community, restaking is a way to increase staking returns. For developers, it’s a cost-effective means of securing other elements of the main network, including protocols, oracle networks, and layer-two (L2) solutions. Developers don’t need to create their own validator network. Instead, they can offer restaking to existing validators in exchange for a small fee.

How Restaking Emerged

The principle of restaking was proposed by the creators of the EigenLayer protocol, allowing Ethereum validators to restake their coins for an additional fee.

Restaking occurs within the EigenLayer ecosystem through Actively Validated Services (AVS). AVS use restaked ETH to enhance their functionality. Project users can choose which decentralized services they want to collaborate with. In EigenLayer, you can restake both ETH and liquid staking tokens (LSTs), such as stETH, rETH, cbETH, and LsETH, which are given to community members for staking cryptocurrency on a PoS blockchain.

The protocol's main network launched in June 2023. As of April 2024, EigenLayer ranks second among all DeFi protocols by the total value locked (TVL) in its services.

Apart from EigenLayer, there are two other restaking protocols in the market—Repl and Octopus Network.

Advantages of Restaking

• It can increase staking returns.
• Developers can reduce costs by securing their protocols using already staked coins.
• Validators can simultaneously participate in securing multiple projects' networks.
• Restaking boosts the investment appeal of restakable coins.

Disadvantages of Restaking

• The security of restaking is unproven.
• There are risks of increased centralization of a crypto project due to the concentration of a large volume of coins with restakers.