Crypto Narratives 2024: Restaking vs Staking
Bitcoin Halving was one of the most anticipated events of the ecosystem after the launch of the Ethereum upgrade Dencun, and it is sure to be a significant narrative that will capture the ecosystem’s attention in 2024.
However, even though Dencun’s implementation on Ethereum was successful, the network continues to make headlines while presenting a narrative causing resistance as the market holds the attention of investors of all sizes: restaking.
While a relatively new narrative, restaking captures the attention of natural Ethereum users and a base of newbies who loot ETH and seek to maximize profits.
To put the current situation of restaking in context, EigenLayer, the leading exponent of this emerging market, is currently positioned as the second-largest application by TVL in the industry with $11 billion, according to DeFiLlama data.
Staking vs Restaking: How it works
To fully understand how restaking works, it is imperative that, as a user, you know how the validation process works in Ethereum PoS and, of course, the staking process.
Proof-of-stake (PoS) blockchains work by consensus, a group agreement, where crypto staking lets token holders pledge their crypto to verify the appropriate consensus, while in return, stakers get rewarded with a portion of the network’s transaction fees (but also through token inflation rates), called ‘staking rewards.’
Staking can yield between 3% to 10% annually on your original holdings. In many cases, staking is as simple as choosing how much crypto you’d like to stake and clicking a button
There are many ways to stake, from the basic (using a centralized exchange) to the very advanced (running your validator).
Ultimately, all staked crypto ends up in the same place — helping to validate the blockchain through a validator node, a computer that verifies the transactions in each block. But most staked crypto does not come from individuals running their validator nodes — which would be ideal for Ethereum to become more resilient and decentralized, especially if using infra DVT such as SafeStake.
Running an Ethereum validator to help secure the network, above and beyond monetary interests and gain, is one of the noblest motives driving solo stakers to run their nodes. Safestake achieves this purpose by implementing DVT, where nodes are managed by independent and decentralized professional operators in a permissionless network.
Generally, most staked crypto comes from people with little technical knowledge who delegate their crypto to those who know how to run nodes. Those two parties come together thanks to various entities, such as exchanges and crypto staking pools like Lido or Rocket Pool. String it all together, and you’ve got a staking process.
On the other hand, the staking process requires a period of unbounded for the user to dispose of their unstaked capital, making it an illiquid and impractical process for capital efficiency, requiring the Liquid Staking process to be born as a more flexible form of staking that allows users to earn rewards for deposited assets while maintaining the liquidity of those assets.
As noted above, tokens get locked for a set period in traditional staking, meaning users cannot trade or use them for some time. Liquid Staking changes this by issuing users a Liquid Staking Derivative (LSD or LST) token representing the deposited asset, where users can use their LSTs whenever they wish, as the funds are highly liquid and not locked.
Therefore, users can generate multiple income streams by using the liquid versions of their assets, i.e. LSDs, in other DeFi protocols to earn more on their initial deposits. Users can also deposit and withdraw any amount of the asset without affecting the initial deposit.
In Safestake Phase 3, ETH holders can participate in the management of a ‘Pooled Validator’, staking ETH ≥ 0.1 ETH but < 32 ETH in the Safestake pool and get sfETH tokens in return, a liquid staking token (LST).
sfETH token balances are liquid, allowing the freedom to trade, buy, or sell their tokens whenever.
SafeStake is the first ETH staking pool to implement distributed validator technology (DVT),written in Rust, for increased decentralization, security, and reliability.
But what if you can not only use these LSD tokens but also your initially locked ETH in the protocol?: Restake!
Based on this premise, EigenLayer introduced the ecosystem to restaking, which means “You take your staked ETH… and you stake it again.”
Thus, restaking lets you stake your already-staked ETH for any purpose.
In a nutshell, restaking is:
- Tokens already staked on one network
- Staking the same tokens on a different network
- New slashing conditions
- Additional rewards
From a security criterion economic point of view, applying this to Proof of Stake, restaking is when multiple networks are secured using the same equity stake.
While you provide capital to earn a return while directly protecting a blockchain network (solo staking) or indirectly by delegating your capital to a node operator (pooled staking), you must understand that during restaking, the risks of cuts amplify along with the chances of generating further returns on this capital.
In other words, the appetite for maximizing one’s capital exposes them to assuming more risks in the restaking process, as users who restake their ETH may be subject to penalties and cuts from both Ethereum and the so-called Actively Validated Services (VAS) that ensure, depending on their restaking method and the slashing conditions of each protocol.
“Economic security” refers to the amount of capital staked in the network to prevent attacks because it is economically unattractive for an attacker to carry out such actions, given the capital required to execute them.
It is important to note that proof-of-stake (PoS) consensus-based networks, such as Ethereum, maintain their security based on the amount of capital staked in their network, unlike networks such as Bitcoin that protect their network through intensive mining.
Ethereum is one of the most secure crypto-economic systems on blockchain, with over 31.2 million Ether economically protecting the network at the ETH current, around $107 billion.
Staking or Restaking with Safestake?
SafeStake is a unique, vertically integrated implementation of DVT deployed in three stages, each with a unique feature that differentiates the protocol from other options based on distributed validator technology (DVT).
It is imperative to mention that the staking process with Safestake’s goal is to expand Ethereum’s existing validator base to make the network more resilient, secure, and decentralized..
To achieve this, SafeStake encourages the participation of individual stakers (staking only) by offering a secure, decentralized, non-custodial web interface where users generate and retain custody of their private validation keys at all times.
Safestake has been designed and conceptualized to maximize operator node efficiency through the use of distributed validator technology (DVT) combined with other technological features that seek to maximize capital efficiency by reducing the chances of slashing due to inactivity and malicious actors in the network, even allowing each SafeStake node to handle up to 200 validators.
In addition, the ETH staking process with SafeStake introduces the concept of a ‘mini-pool’, where users with as little as 4 ETH can become ‘initiators’, a type of Operator who pre-stake 4 ETH to initiate the mini-pool process and select three other operators to be part of the committee managing the validator.
The advantage of this method is not only to encourage greater participation by retail users but also to allow the validator’s private key to be decentralized through the use of the Distributed Key Generation (DKG) scheme to prevent the Operator from stealing the funds.
Since Safestake introduces the concept of Liquid Staking in stage 3, the path for the restaking process is, since the conceptualization of the protocol, almost a given.
However, because transparency is our hallmark, we want to emphasize that we will not release the LST features until our stage 1 mainnet runs well and has a solid Node Operator base.
Furthermore, even though we have the LST released, SafeStake has not stipulated the native implementation of restaking in our protocol, so it will depend on other Restaking protocols to accept our LST sfETH.
However, there is a potential collaboration with protocols such as Restaking Cloud, aside from infra, to allow users to maximize sfETH holdings. Consider that once you stake your LST tokens to Restaking Cloud or any Restaking protocols, you hand over the LST ownership to the subject restaking protocols. Any risk on the restaking protocols side will cause their LST tokens loss.
When SafeStake releases the LST token feature, we will be pleased to collaborate with industry-renowned restaking protocols such as EigenLayer to position our Liquid staking token sfETH as an option for investors.
Last but not least, examine the concerns about security and power centralization in Ethereum through restaking and that it is a new narrative that has not proven to be fully efficient, especially in a prolonged crypto winter.
As an ETH user or holder, remember to consider your risk management and how to allocate your capital on any restaking protocols.
About SafeStake
SafeStake is a pioneering technology company focused on revolutionizing Ethereum staking with its cutting-edge, decentralized Distributed Validator Technology (DVT) that provides an ultra-secure, fault-tolerant environment for Ethereum validators, maximizing staking rewards and minimizing penalties while committing to the growth, innovation, and decentralization of the Ethereum network while ensuring the security and prosperity of its participants.
