What is Restaking?
Restaking involves using assets that are already staked on a blockchain to secure additional decentralized protocols or applications, offering participants new earning opportunities.
In traditional staking, validators stake tokens (like ETH on Ethereum) to secure the network, earning rewards in return. With restaking, those same staked tokens can be restaked or reused to secure other blockchain projects, such as smaller or emerging protocols that might not have enough capital to secure their own networks independently.
Types of Restaking
There are two types of restaking models:
- Native Restaking
- Liquid Restaking
Most users use the liquid restaking model since native restaking requires running a dedicated validator node.
Native Restaking
Native restaking is designed for experienced users who run their own validators. By adopting specific node software, these validators can offer their staked assets for additional security services within the restaking network.
How does Native Restaking Work?
Here’s a step-by-step guide on how to participate in native restaking:
- Satisfy Validator Node Requirement: Restakers have to operate a validator node on a Proof-of-Stake blockchain. This involves staking the blockchain’s native cryptocurrency (e.g., ETH on Ethereum) to secure the network.
- Smart Contracts and Asset Management: Specialized smart contracts or protocols manage the staked assets tied to a validator’s node. These contracts ensure that the assets remain secure and are properly allocated within the restaking ecosystem.
- Install Specific Node Software: Validators must install and run extra node software specific to the restaking network or service. This software integrates with the existing validator setup, enabling the validator to offer their staked assets for additional security services.
- Accept Restaking Terms: Validators need to agree to the terms and conditions of the restaking program. This includes understanding and accepting additional slashing conditions, which are penalties imposed for malicious behavior or network failures.
- Secure Protocols: By engaging in native restaking, validators can redeploy their staked assets to secure multiple networks or services simultaneously. These can include data availability layers, new virtual machines, and oracle networks, thereby enhancing the security infrastructure of various blockchain applications.
- Earn Additional Rewards: Validators receive extra rewards based on the number of additional protocols they help secure. The rewards are proportional to their level of participation and the specific protocols they validate, incentivizing validators to support multiple services.
Liquid Restaking
Liquid restaking is more accessible and involves using Liquid Staking Tokens (LSTs). Liquid restaking platforms simplify the process by handling the technical details, allowing users to restake their LSTs for additional yield and liquidity.
How does Liquid Restaking Work?
Here’s how the process of liquid restaking looks like:
- Stake with a Validator: Liquid restakers begin by staking their assets (e.g., ETH) with a validator through a liquid staking protocol.
- Receive LSTs: In return, restakers receive Liquid Staking Tokens that represent their staked assets. These LSTs maintain the value of the original staked assets while providing liquidity. Users can transfer, trade, or utilize these tokens in other decentralized applications, offering flexibility that traditional staking does not.
- Stake LSTs on Restaking Protocols: Restakers can then stake their LSTs on liquid restaking platforms. This involves depositing the LSTs into the restaking protocol’s smart contracts, which manage the restaking process.
- Explore Actively Validated Services: Once the LSTs are staked on a restaking protocol, restakers can choose from various AVS [Actively Validated Services] to further restake their tokens. These AVSs can include emerging blockchain applications that require additional security, thereby enhancing their robustness.
![AVS [Actively Validated Services]](https://imagedelivery.net/IEMzXmjRvW0g933AN5ejrA/wwwnotionso-image-prod-files-secures3us-west-2amazonawscom-18664812-e45a-49f6-af50-c7c6347a4f3c-8c8331d8-81ec-4ad4-83b4-70f09bc8f9b9-black-dot-removebg-preview_1png/public)
- Earn Additional Rewards: Similar to native restaking, users participating in liquid restaking can earn extra rewards by securing multiple protocols. These rewards are distributed based on the number of protocols supported and the extent of the user’s participation, providing an additional yield on top of the native staking rewards.
- Opt-in Service with Additional Slashing Conditions: Users must agree to additional slashing conditions imposed by each network or service they choose to support. These conditions are designed to ensure proper behavior and protect the security of the protocols, aligning incentives between users and the networks they support.
Traditional Staking vs Liquid Staking vs Restaking
Traditional Staking
Involves locking cryptocurrencies to support the network’s security and operations, with rewards as the main incentive.
- Main Purpose: To secure the blockchain network and earn rewards for staking the network’s native assets.
- Liquidity: Low; staked assets are locked while securing the network and cannot be used elsewhere.
- Risk Level: Moderate; Risks are primarily tied to the network itself, such as slashing penalties if a validator misbehaves or market volatility affecting the value of the staked assets. The process is relatively straightforward with fewer external factors involved.
- Risk Profile: Homogenous; The risk is uniform, focusing on the security of the underlying asset (e.g., ETH) and the performance of the chosen validator. If ETH is staked, all risks revolve around Ethereum's network stability and validator behavior.
Liquid Staking
Allows users to stake assets and receive liquid staking tokens (LSTs) in return, providing liquidity while continuing to earn rewards.
- Main Purpose: Provide liquidity for staked assets and still earn staking rewards.
- Liquidity: Medium; LSTs can be used in DeFi markets, offering more liquidity.
- Risk Level: Higher; In addition to the inherent risks of staking, liquid staking adds smart contract risks and potential depegging of Liquid Staking Tokens (LSTs) from their underlying assets. Users are exposed to additional layers of technical vulnerabilities, like bugs in the protocols issuing LSTs.
- Risk Profile: Homogeneous; Similar to traditional staking, as the same underlying asset (e.g., ETH) is involved. However, the risks expand to include potential issues with the LST's functionality, smart contracts, and liquidity, but the staked asset itself remains consistent.
Restaking/Liquid Restaking
Allows LSTs to be further used in more yield-generating activities.
- Main Purpose: Maximize yield through additional DeFi activities while securing multiple networks.
- Liquidity: High; Both LSTs and LRTs can be reinvested into multiple DeFi protocols for enhanced yields.
- Risk Level: Highest; Introduces the most complexity, as LSTs are further used in additional protocols, creating a compound risk. Restaking involves original staking risks, smart contract risks, slashing penalties from multiple networks, and vulnerabilities tied to the additional protocols used.
- Risk Profile: Heterogeneous; Each additional protocol or service that leverages restaked LSTs comes with its own risk factors, such as inflation rates, slashing conditions, or governance failures, creating a more diverse and complex risk landscape.
ㅤ | Traditional Staking | Liquid Staking | Restaking/Liquid Restaking |
Issued Token Type | / | LSTs | LRTs |
Use Case | Secure Network Staking Rewards | Secure Network Staking Rewards DeFi | Secure Network Staking Rewards DeFi |
Liquidity Level | Low | Medium | High |
Risk Level | Medium | High | Very High |
Risk Profile | Homogenous | Homogenous | Heterogenous |
Token Accessibility | Locked staked assets | Locked staked assets Liquid LSTs | Locked staked assets Liquid LSTs Liquid LRTs |
Capital Efficiency | Low | Medium | High |
Liquid Staking Tokens [LSTs] vs Liquid Restaking Tokens [LRTs]
The key difference between Liquid Staking Tokens (LSTs) and Liquid Restaking Tokens (LRTs) lies in their role and purpose within the DeFi ecosystem.
Liquid Staking Tokens
LSTs are liquid fungible tokens that represent illiquid assets deposited by a chain’s validators.
LSTs represent the staked assets themselves. When users stake their assets (e.g., ETH), they receive LSTs in return, which provide liquidity and flexibility. These tokens allow users to participate in other DeFi activities while their original assets remain staked, enabling yield generation without un-staking the assets.
LSTs represent the staked assets themselves. When users stake their assets (e.g., ETH), they receive LSTs in return, which provide liquidity and flexibility. These tokens allow users to participate in other DeFi activities while their original assets remain staked, enabling yield generation without un-staking the assets.
Liquid Restaking Tokens
LRTs are liquid fungible tokens that represent illiquid ETH, LSTs, and other assets used as restaking collateral.
LRTs represent the next layer of investment. Once users have LSTs, they can reinvest them into additional DeFi protocols via restaking platforms. LRTs are issued when these LSTs are staked again, allowing for more yield opportunities and a compounding effect, maximizing the returns from the original staked assets.
LRTs represent the next layer of investment. Once users have LSTs, they can reinvest them into additional DeFi protocols via restaking platforms. LRTs are issued when these LSTs are staked again, allowing for more yield opportunities and a compounding effect, maximizing the returns from the original staked assets.
The table that follows highlights how LSTs provide liquidity to staked assets, while LRTs take that liquidity further by enabling additional yield opportunities through restaking.
ㅤ | Liquid Staking Token (LST) | Liquid Restaking Token (LRT) |
Feature | Tokenized version of staked assets (e.g., ETH). | Tokenized representation of LSTs reinvested into restaking protocols. |
Primary Function | Provides liquidity for staked assets while earning staking rewards. | Enables further investment of LSTs for additional yield opportunities. |
DeFi Use Case | Can be traded, transferred, or used in DeFi activities. | Used for additional staking or yield-generating activities in DeFi. |
Yield Generation | Earns staking rewards while maintaining liquidity. | Earns compounded rewards by restaking LSTs into new protocols. |
Token Issuance | Issued when assets are initially staked. | Issued when LSTs are reinvested in restaking protocols. |
Liquidity | Provides liquidity for staked assets. | Further increases capital efficiency by reinvesting LSTs. |
Risk Profile | Homogenous | Heterogenous |
Base Protocol | Ethereum | EigenLayer |
Examples |
Advantages of Restaking
Some of the key benefits of restaking include:
- Flexibility: Restaking provides flexibility by allowing staked assets to be used in various financial activities without needing to unstake. This unlocks liquidity while still earning rewards, leading to more efficient capital allocation and maximizing asset utility.
- Mitigates Shortcomings of Traditional Staking: Traditional staking locks assets, making them inaccessible. Restaking solves this by allowing token holders to derive liquidity from their staked assets without losing out on rewards, appealing to those seeking both liquidity and flexibility.
- Scalable Security: Restaking enables protocols to scale security based on network demands. Validators from a restaking protocol can be contracted when more security is needed, then scaled back down when demand decreases, offering a cost-effective way to manage network security.
- Security for New Protocols: New protocols often struggle to establish adequate security in their early stages. Restaking allows these emerging protocols to access a large set of validators from the start, significantly strengthening their security framework.
- Enhanced Reward Potential: Validators can redeploy staked assets across multiple networks, creating the opportunity for multiple streams of income. This enhances the overall reward potential of staking.
- Increased Network Security: The more assets restaked, the stronger the security of the network, making it more resilient to attacks. This benefit attracts more decentralized applications (dapps), protocols, and platforms to the network.
DIA Oracle’s Role in the Restaking Ecosystem
DIA plays a crucial role in the ETH restaking ecosystem by providing highly accurate, customizable oracles that are essential for integrating restaking tokens into DeFi applications. These oracles deliver reliable pricing data for various restaking tokens, allowing them to be effectively used in lending, borrowing, derivatives, and collateralized stablecoins.
By offering custom oracles that can be tailored to specific liquidity pools, trading pairs, and pricing methodologies, DIA provides flexibility for DeFi developers to integrate ETH restaking tokens into a wide array of financial products.