Restaking Ethereum to Increase Rewards: What is it? Ethereum and other proof-of-stake (PoS) blockchains ensure the network’s security is in sync with the number of validators. The proportion of tokens in circulation that are staked and the distribution of these tokens among the validators. To keep the blockchain running smoothly, retaking mechanisms encourage the use of staked tokens, which would otherwise sit idle. This article delves into restocking, covering its definition and different types.
What is Restaking
Thanks to a new idea in cryptocurrency security called restacking, stakeholders can now utilize their Ether ETH $3,182 in the consensus layer multiple times. Facilitating the deployment of liquid staking tokens with validators across several networks allows stalkers to increase their rewards while strengthening the staking network’s security.
On proof-of-stake blockchains, staked tokens often do nothing. To activate staked tokens and unlock higher staking rewards, retakers must retake. Using a restacking protocol like EigenLayer, users can earn more rewards on their staked tokens, regardless of whether they’re staking Ethereum directly or using an LST.
Ethereum stands out due to its PoS consensus mechanism and the many validators participating in the network. Staked Ethereum, however, is inactive. Stakers can use their staked Restaking Ethereum in decentralized finance (DeFi) applications because liquid staking protocols turn it into fungible tokens. Users with smaller holdings can still earn staking rewards thanks to the mechanism that sets aside the minimum 32 ETH staking cap.
Types of Restaking
There are two main types of retaking: native and liquid. Any user with a Restaking Ethereum validator node can use native retaking. The system is controlled by a series of smart contracts that oversee the handling of assets held within a validator’s node. Restocking protocols provide crypto-economic security, which validators can use by staking their tokens. The retaking module requires validators to install and run additional node software to participate in the program.
Users use liquid staking tokens (LST) for liquid restocking. As part of this process, validators will issue tokens to stakeholders to represent the stakes they’ve taken on. Staking the LST again would allow the staker to earn more rewards.
How liquid restacking works
To better grasp the concept of liquid restaking, let’s look at EigenLayer as an example. Providing a marketplace for pooled security and an effective bridge between Ethereum and other blockchain applications, EigenLayer has a total value locked (TVL) of over $250 million.
Restocking through smart contracts
Restocking relies on EigenLayer as its primary framework. Smart contracts on EigenLayer can be accessed by anyone who has staked Ethereum, either directly or via liquid staking solutions. By doing so, they can liquidate their holdings. While simultaneously adding to the security of different platforms, essentially forming a collective security mechanism driven by Ethereum.
Collective Security Using Staked ETH
Launching a new protocol usually means introducing a native cryptocurrency and setting up a network of validators to create a new trust network for security reasons. The game-changer here is restacking, which lets these protocols or active validator sets (AVS) tap into the collective security of Ethereum’s stakes. Which speeds up development significantly. These AVS, or EigenLayer modules, can include anything from sidechains and bridges to data availability layers, keeper networks, and Oracle networks.
A malicious actor may have been able to compromise the security of these AVS in the past, causing disruption. Any such endeavor, however, would necessitate contesting the entire collective stake—worth billions of dollars—in EigenLayer’s model of pooled security. However, there are additional risks associated with participating in EigenLayer’s smart contracts, such as the possibility of increased slashing conditions for a user’s staked ETH.
This model allows Ethereum staking users to earn higher returns by securing multiple AVS with their restacked ETH, eliminating the need for separate tokens. To make this happen, EigenLayer has created a marketplace where AVS can solicit Ethereum validators. Who can choose which modules to support, depending on the incentives offered?
Concerns Regarding Restaking
Repeatedly allocating funds to comparable validators increases reward and risk, which is a common worry regarding restocking. Excessive leverage, according to developers, could cause projects to become unstable. In their view, there would be widespread ecosystem instability if additional financial risk were included in the blockchain. An Ethereum co-founder named Vitalik Buterin has voiced concern that restocking protocols may put the blockchain in systemic severe danger.
Because staking methods are expanding at such a rapid pace, the hazards linked with them are also growing and need urgent attention. There is a risk that the underlying blockchain can become insecure due to a massive failure. Nevertheless, considering the potential dangers of restacking. It can be used in low-risk misconduct situations, such as double signing, without jeopardizing Ethereum’s decentralization standards.
Staking as a DeFi Component
Ethereum staking has been behind other PoS networks in terms of staking ratio. Restocking will likely become an essential part of DeFi as it develops further, attracting more users and liquidity. The staking ecosystem on Ethereum has the potential to experience substantial development thanks to the synergies between LST and restocking.
Developers and implementers of staking services should proceed cautiously in light of the potential dangers. That retaking poses to layer-1 blockchains. To mitigate unintended consequences, resolving any disputes that may arise once retaking’s relevance has grown is crucial. All stakeholders may come ahead after considering the immediate and distant impacts of retaking the Restaking Ethereum.
