In the crypto world, holding Bitcoin or Ethereum has long been the starting point for newcomers. Yet, as users dive deeper into decentralized finance (DeFi), they discover a universe of yield-generating opportunities beyond passive holding. Yield farming has become the lifeblood of crypto economics, offering dynamic ways to earn returns on digital assets.
Among the latest innovations reshaping this landscape is restaking—a concept powered by EigenLayer that allows users to amplify their earnings by repurposing staked assets. This article explores how restaking works, its risks and rewards, key ecosystem players, and what the future may hold.
Understanding Traditional Ethereum Staking
To natively stake Ethereum and earn rewards, users must hold 32 ETH and operate their own validator node. At current prices, this requires a significant investment—over $100,000—making it inaccessible for many.
Thankfully, several alternatives have emerged:
- Centralized exchanges (e.g., Binance, Coinbase): Users stake ETH directly on these platforms, which manage the validators and share rewards. While user-friendly, this approach introduces centralization risk—if the exchange fails, user funds may be jeopardized.
- Staking pools (e.g., Staked.us, Figment): These services pool ETH from multiple users, operate validators, and distribute rewards after deducting fees. Though still somewhat centralized, they reduce technical barriers.
- Liquid staking protocols (e.g., Lido, Rocket Pool): Users deposit ETH into smart contracts and receive liquid staking tokens (LSTs) in return. These tokens represent staked ETH and accrue rewards, all while remaining fungible and usable across DeFi applications.
Liquid staking tokens have become foundational in DeFi, enabling users to leverage staked assets as collateral for loans, liquidity provision, and more. Today, liquid staking accounts for roughly 30% of all staked ETH, surpassing centralized exchange staking.
What Is Restaking?
Restaking takes liquid staking a step further. It allows users to re-stake their already staked ETH or LSTs into new pools that secure additional protocols—such as rollups, data availability layers, or oracles—in exchange for extra yield.
This concept is pioneered by EigenLayer, a protocol that lets Ethereum’s proof-of-stake security be “rented out” to other projects. By doing so, new protocols can bootstrap their security without launching their own token—instead, they leverage Ethereum’s established trust and decentralization.
How EigenLayer Works
When new protocols launch, they often face security challenges. Building a decentralized validator set from scratch is costly and time-consuming. EigenLayer solves this by allowing these protocols to tap into Ethereum’s existing validator network and economic security.
Here’s how it works:
- Restakers: Users who stake ETH or LSTs to earn additional rewards.
- Operators: Validators that run nodes and perform work for secured protocols (called Active Validation Services or AVSs).
- Liquid Restaking Tokens (LRTs): Protocols that simplify restaking for users by managing operator selection and AVS exposure.
- AVSs: Services (e.g., rollups, oracles) that use restaked ETH to secure their operations.
The process flows as follows:
- Users deposit ETH or LSTs into an LRT protocol.
- LRT protocols delegate these assets to operators.
- Operators run nodes for AVSs.
- AVSs pay rewards to operators, which are passed back to users.
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The Restaking Ecosystem Today
EigenLayer is still in its early stages, but the ecosystem is expanding rapidly.
Active Validation Services (AVSs)
AVSs are systems that use restaked ETH for security. Currently, only EigenDA (a data availability layer) is live on testnet. However, over 10 AVSs are planned for launch in the coming months, including:
- Rollup infrastructure (AltLayer, Lagrange)
- Sequencers (Espresso)
- Interchain protocols (Ethos for Cosmos, Omni Network)
- Privacy and compliance solutions (Silence, Aethos)
Operators
Operators are validators that restake ETH to secure AVSs. Top operators include Figment, P2P, Chorus One, and Kiln. They perform critical tasks like transaction validation, data availability assurance, and proof verification.
Liquid Restaking Tokens (LRTs)
LRTs abstract away the complexity of restaking. Users deposit ETH or LSTs and receive a tokenized derivative that accrues yield and can be used across DeFi. Examples include EtherFi, Renzo, and Kelp DAO.
Benefits and Risks of Restaking
Advantages
- Inherited Security: New protocols can leverage Ethereum’s robust security—worth hundreds of billions of dollars—without building their own validator set.
- Capital Efficiency: Users earn multiple layers of yield on the same assets.
- Innovation Acceleration: Developers can focus on building rather than bootstrapping security.
Risks and Considerations
- Smart Contract Risk: Restaking involves multiple layers of smart contracts (e.g., LSTs, LRTs, AVSs), each introducing potential vulnerabilities.
- Over-Collateralization: Operators may restake the same ETH across multiple AVSs, increasing systemic risk if one fails.
- Centralization Concerns: A small number of operators may end up securing many AVSs, reducing decentralization.
- LRT Risk Management: LRT protocols must wisely select AVSs and operators—yet many are still untested.
Recent developments include LRTs committing large sums to specific AVSs. For example, EtherFi has pledged $5-6 billion in ETH security to Lagrange, Aethos, and Omni Network. While these commitments enhance security, they also tie stability to ETH’s market price and user behavior.
Future Innovations in Restaking
Restaking is still evolving. Here are some areas to watch:
MEV Management
EigenLayer operators—also Ethereum validators—can influence transaction ordering and block construction. This opens doors for fairer MEV distribution, anti-censorship tools, and cross-domain MEV solutions.
Decentralized AI
EigenLayer can secure AI inference networks, enabling trustless off-chain computation. For instance, Ritual is using EigenLayer to decentralize its AI operations. Future applications may include AI-powered wallets that execute natural language commands.
Zero-Knowledge Proof Verification
ZK-proof verification is computationally expensive on-chain. Offloading this work to EigenLayer operators could reduce costs and speed up processing. Aligned Layer is building an AVS for exactly this purpose.
Dynamic Payment Models
AVSs must pay operators appropriately for security. Protocols like Anzen are developing economic models to dynamically adjust payments based on risk and demand.
Improved Operator Integration
Tools that simplify AVS integration for operators will encourage participation and decentralization. Nethermind is working on solutions to make this process seamless.
EigenCerts
These future certificates will attribute staked ETH to specific operators and AVSs, enhancing transparency and allowing restakers to manage risk exposure.
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Frequently Asked Questions
What is restaking?
Restaking lets users stake already-staked ETH or liquid staking tokens (LSTs) to secure additional protocols and earn extra yield. It’s built on EigenLayer.
How does restaking differ from staking?
Staking involves locking ETH to secure Ethereum. Restaking involves locking staked ETH or LSTs to secure other networks (e.g., rollups, oracles), earning additional rewards.
What are the risks of restaking?
Key risks include smart contract vulnerabilities, over-leverage across AVSs, centralization among operators, and reliance on LRT protocols for risk management.
Can I withdraw my restaked assets immediately?
No, restaking may involve lock-up periods. Withdrawal times depend on the specific LRT protocol and EigenLayer’s unbonding phases.
What are LRTs?
Liquid Restaking Tokens (LRTs) are yield-bearing tokens issued when you deposit ETH or LSTs into a restaking protocol. They represent your restaked position and can be used in DeFi.
Is restaking available on mainnet?
EigenLayer is currently in testnet phase, with mainnet AVS launches expected in mid-2024.
Conclusion
Restaking via EigenLayer represents a paradigm shift in crypto economics, offering new ways to leverage Ethereum’s security for innovation and yield. While risks exist—particularly around smart contracts and centralization—the potential for capital efficiency and ecosystem growth is immense.
As the space matures, expect better risk management tools, more decentralized operators, and novel applications in AI, ZK-proofs, and MEV. Restaking is still in its infancy, but it already promises to redefine how we think about crypto yield and security.