What is Restaking? all you need to know
Learn about native and liquid restaking, benefits, risks, and how DragonStake facilitates restaking on EigenLayer.
Staking is a fundamental within Proof-of-Stake (PoS) networks. In PoS, participants, known as stakers, lock their tokens with a validator node to secure the network, validate transactions, and earn rewards. This process enhances network security and decentralization. However, traditionally staked assets are often underutilized, lying dormant while earning rewards. Restaking has emerged as a solution to maximize the utility of these staked assets.
Understanding Restaking
Restaking allows users to stake the same tokens on the main blockchain and additional protocols, thus securing multiple networks simultaneously. Think of it like this: You have a savings account that earns interest. Restaking is like using that same savings account to invest in multiple projects, earning interest from each one. This increases capital efficiency, enabling stakers to earn rewards from several sources. However, it also introduces added risks, particularly slashing risks, which are penalties for network violations.
Imagine you have staked ETH in the Ethereum network. In traditional staking, your ETH would be locked up, earning rewards solely from Ethereum. With restaking, you can leverage this staked ETH to secure other protocols, like EigenLayer, without unstaking from Ethereum. This means your ETH works doubly hard, earning rewards from multiple networks.
There are two main ways to restake: native restaking and liquid restaking.
Native Restaking
Native restaking is for users running their own validator nodes. It requires downloading additional software to participate in restaking protocols, like EigenLayer. Validators must agree to extra slashing conditions, adding an extra layer of security requirements.
Think of it like having a part-time job in addition to your full-time job. You are already working hard at your main job (validating on Ethereum), but you take on another job in the evenings (restaking) to earn extra money. Both jobs require your time and effort, but the extra work brings in additional income.
Liquid Restaking
Liquid restaking is more accessible to everyday users. Here, you stake your assets with a validator and receive Liquid Staking Tokens (LSTs) in return. These LSTs can then be staked on restaking platforms, providing liquidity and the potential for additional rewards. It’s like putting your savings into a high-yield account, then using the interest earned to invest in other opportunities without touching the principal.
Imagine you have a rental property. You earn rental income from tenants (staking rewards). Liquid restaking is like taking that rental income and investing it in stocks or bonds (restaking platforms). You still own the property and earn rent, but now you are also earning returns from your investments.
Benefits and Risks of Restaking
Restaking offers several benefits. First, it improves rewards by allowing users to stake assets across multiple protocols, generating multiple streams of income. For instance, Ethereum’s solo staking might yield around 3.6%, but with restaking, the rewards can be significantly higher.
Restaking also enhances security for new protocols. New decentralized applications and networks can leverage the established security of mature networks like Ethereum. This “cold start” security is crucial for building trust and resilience in new projects. Additionally, restaking allows for scalable security measures. Protocols can adjust their security needs based on network demands, providing a cost-effective approach to maintaining robust security.
However, restaking presents several risks. It introduces additional slashing conditions, meaning higher penalties for malicious behavior or mistakes. Validators must be cautious and follow the rules of both the parent and restaking protocols. Yield risks are also a concern. As restakers chase higher yields, they might prioritize short-term gains over the long-term stability of the network, potentially leading to volatility. Over-reliance on restaking could strain the primary network’s resources, leading to conflicts during major network events or forks.
At DragonStake, we have become the first Spanish restaking operator on Eigenlayer. We work closely with Nektar, a key player in this ecosystem, to provide reliable and secure restaking services. By leveraging our expertise and our infrastructure, we help ensure that your staked assets are efficiently utilized across multiple networks, maximizing your rewards while maintaining top-tier security standards.
Restaking is a powerful tool in the blockchain ecosystem, enhancing the utility and rewards of staked assets. While it offers significant benefits, it also comes with increased risks. Understanding these aspects is crucial for making informed decisions. At DragonStake, we are committed to guiding you through this process, ensuring that your staking experience is both rewarding and secure.
Disclaimer: This article is provided for informational purposes only. Cryptocurrency investments are subject to high market risk. DragonStake is not responsible for any direct, indirect, or consequential losses as a result of the staking process. Always perform your due diligence before making financial decisions.
