Exploring the Restaking Landscape

Introduction

Restaking is a recent and innovative solution to securing blockchain networks. With restaking, blockchain validators can take their staked cryptocurrency and redeploy it across other chains to earn more rewards in proportion to their amount staked. Simply put, restaking mechanics enable staked tokens to be staked again, allowing holders to compound their rewards while enhancing blockchain security.

There are different options for restaking, and this article will cover those along with the overall restaking landscape and the protocols currently trending.

Staking Before Restaking

Staking is an integral component of any Proof of Stake (PoS) consensus network, and many of the largest blockchains utilize it. It involves validators locking up a designated amount of cryptocurrency to help secure the network as they participate in the block proposal process.

One thing to note about staking, in general, is that the cost of attacking a network amounts to approximately the funds staked in its defense. With approximately 35 million ETH staked, it's easy to understand why Ethereum is considered so safe. The more extensive a blockchain's validator network is, the broader the attack surface and the more difficult it is to attack.

The ongoing perception is that investing and staking in new projects carries higher risks compared to staking on a well-known blockchain like Ethereum. That's why new projects typically pay out higher rewards to attract validators. The result is security disparity amongst applications in the Ethereum ecosystem. Unfortunately, some applications become more secure than others.

Why Restaking?

Restaking protocols desire to overcome the above limitations by enabling validators to restake their crypto across various services. The positive result is shared security across multiple protocols, which should result in a more robust ecosystem of dApps.

and restaking with liquid staking tokens (LSTs).

Native restaking opportunities primarily target users who operate a validator node for the specific PoS blockchain. It involves staking the native cryptocurrency. Validators redeploy their staked assets to secure multiple networks to participate in native restaking.

On the other hand, liquid restaking enables users to reinvest their LSTs to earn extra yield from their staked assets. Using a liquid restaking service like Renzo (see below) is more straightforward than native restaking.

Users deposit their assets and receive liquid restaking tokens (LRTs), which are receipts that represent the staked LSTs being further utilized in restaking protocols. These liquid restaking platforms are vying to reproduce Lido's success on Ethereum. Lido stakes assets for investors and in return offers stETH, or "Lido Staked ETH," which is a derivative liquid staking token that tracks Ethereum.

In both native and liquid restaking, the point is to maximize the staked assets' profit potential by securing multiple protocols simultaneously.

Introducing EigenLayer

EigenLayer is leading the charge for the restaking investment buzz currently underway in crypto. Sreeram Kannan is EigenLayer's founder, and he describes the power of restaking to help secure blockchains like this: "Instead of each of the protocols having $1 billion separately staked, there was $100 billion commonly staked across 100 protocols. To attack any one protocol, now you need $100 billion rather than needing $1 billion."

For those looking to maximize yield, restaking provides a welcomed opportunity. Before this option, token holders could not redeploy their staked crypto assets across other protocols. Such a restriction presented two challenges:

1. Validators were limited in the number of rewards they could generate from their staked assets.

2. Network security could not be shared across different platforms.

Thus, restaking allows for extending the security of blockchain networks to data availability layers, oracle networks, blockchain bridges, and other services. It will also enable validators to generate multiple income streams through rewards to help secure various platforms concurrently.

EigenLayer - the First Restaking Platform

Ethereum is well known for its numerous validators and high-security PoS consensus mechanisms. However, with its 32 ETH staking requirement, participation was limited to the well-heeled or well-connected.

Liquid staking opportunities eliminate the 32 ETH minimum staking requirement, opening the door for small stakeholders to pool their assets with others to participate with the whales. More importantly, all the staked ETH lying dormant sparked the idea for liquid staking derivatives. Platforms like EigenLayer take this concept a step further from mere staking pools.

It allows users to take their staked ETH and then restake it with Actively Validated Services (AVSs). Restakers can earn rewards from the main Ethereum network and the protocol they are restaked to.

EigenLayer is Ethereum's restaking leader, and those who restake on it receive staking benefits from the Ethereum chain in the form of ETH and additional yield through EigenLayer from the AVS.

EigenLabs gets the credit for being the first to propose the concept of restaking. It brought its concept to fruition by launching its restaking protocol, EigenLayer, in July 2023. EigenLayer accepts other assets beyond its native token, which helps to tap into DeFi market liquidity. For further reading on EigenLayer, here's our detailed explainer.

Actively Validated Services

EigenLayer's smart contracts enable Ethereum validators to restake their crypto and secure other protocols. These protocols are called actively validated services (AVSs), which EigenLayer offers in an open AVS marketplace. AVSs are also called modules, and restakers are free to select the modules they want to help secure from the list of AVSs that EigenLayer maintains.

Choosing the correct AVS will depend on factors such as its rate of rewards, perceived risk, and/or what sector it serves. For example, a group of validators who like oracle networks and believe in their future can provide pooled security to oracle-based modules in exchange for their native tokens. Others might focus on high-risk/high-reward AVSs to maximize profits. Explore the AVS ecosystem further on our blog.

Slashing is another crucial element of PoS systems. It penalizes validators for bad behavior by confiscating all or part of their staked assets, depending on the level of offense. Each AVS determines its slashing conditions to ensure that validators play by the rules and act in the best interests of the network. Therefore, users must abide by the additional slashing conditions each AVS may set. Without such penalties, malicious validators could attack vulnerable modules.

Pros and Cons of Restaking

Like everything else in crypto, restaking has positives and negatives that users should consider before participating.

Pros of Restaking

1. Increased Security

The more assets users stake on a network, the more valuable it is and the more resilient it becomes against attacks. Better security makes a network more reliable for dApps, platforms, and protocols. Thus, this new method helps new protocols build a strong security system, particularly in the early stages.

2. Increased Rewards

Increases the user's potential for receiving rewards.

3. Improved Scalability

Restaking can help blockchain networks scale.

4. Improvement to the Staking Model

Addresses limitations imposed by the traditional staking model.

5. Reduced Dumping

Increases the original token's versatility—which discourages dumping and thus provides for a more stable ecosystem.

Cons of Restaking

Any new technology like restaking comes with its risks. Below are a few:

1. Slashing

Restaking introduces extra slashing conditions that users need to be aware of.

2. Counterparty Risk

There are risks involved in restaking with third parties because a user is entrusting them with their deposited assets. Restaking operators must follow each AVSs network guidelines or they can lose user-deposited funds via slashing. That's why it's best to only deal with reputable staking delegates like Luganodes.

3. Smart Contract Risk

Smart contracts on restaking platforms can contain vulnerabilities in their code, like bugs or errors that attackers can exploit, which can lead to security breaches or financial loss.

4. Yield Risks

Restakers who are hyper-motivated to earn the highest rewards could ultimately chase riskier protocols that offer greater yields.

5. Contagion Risk

Another concern is the ripple effect that could occur if an AVS slashes an operator, becoming a contagion that depletes an entire restaking pool's value. Thankfully, EigenLayer is working on an insurance program to address this concern.

The Restaking Landscape - Beyond EigenLayer

Other restaking protocols are also in early development. Restaking specifics might vary on the different blockchains, but they generally follow the same process. For example, to help secure other dApps and earn extra interest, users will restake the ETH they've staked on Ethereum and the SOL they've staked on Solana.

Let's look at some currently trending projects across the restaking landscape.

What is Jito?

Jito is a new project to be aware of in the restaking landscape, with the Jito Foundation recently announcing the release of its next-generation restaking module. What sets Jito apart is that it's the liquid staking service for the Solana blockchain. SOL holders can stake them for JitoSOL, a liquid staking pool token. Another unique feature of JitoSOL is how it provides maximum extractable value rewards along with traditional staking rewards to its holders.

Its two main components are the Vault Program and Restaking Program, which offer scalable infrastructure for projects desiring to create and manage staked assets, Vault Receipt Tokens (VRTs), and Node Consensus Operators (NCNs).

The Vault Program manages the creation and operation of VRTs, including their minting, burning, and delegation. Jito's Restaking Program facilitates the creation and management of operators and NCNs. It also manages reward distribution and enforces slashing penalties.

Jito is a multi-asset platform capable of leveraging staked base assets like its JitoSOL token and other LST or SPL tokens. Projects on Jito can implement multi-tiered slashing.

In sum, Jito offers networks a lightweight and highly flexible way to achieve consensus and economic security for on-chain and off-chain activities. It is a staking and restaking platform capable of adding securing mechanisms, token utility, scaling base layers, and insurance for nearly any pre-existing network with automated but centralized processes.

For more on Jito, please read our article here.

Nektar Network

Nektar Network is a restaking network that is built on top of Ethereum, utilizing its framework to help secure and scale multiple applications. The Nektar Network uses staked ETH to secure other modules. The fundamental model is similar to other restaking protocols. With Nektar, restakers delegate their ETH to Operators for rewards.

As mentioned previously, EigenLayer introduced AVSs, which harness Ethereum's collective security. Likewise, AVSs on Nektar are blockchain-based applications like sidechains, data availability layers, and oracle networks that demand their own distributed validation process for verification.

One feature that sets Nektar Network apart from EigenLayer and others is its more decentralized approach to restaking. Nektar seeks to overcome the woes of centralization and eliminate single points of failure with its Distributed Validator Technology. Further, native network restaking simplifies virtual validator creation and improves network efficiency. Nektar also focuses on LST restaking within its own ecosystem to ensure a more cohesive and secure user environment.

Symbiotic

Symbiotic enables dApps and decentralized networks to guard their networks with their shared security mechanism while allowing users to compound their interest rewards. This protocol sets itself apart by taking a more flexible and modular approach to restaking. It will take deposits of any ERC-20 token representing a staked asset, enabling capital efficiency cross-chain.

The vision of this restaking protocol is for decentralized, shared security that is not bound to a singular monolithic chain. By using Symbiotic, networks will have full control over their restaking processes as they allow deposits of any ERC-20 token. Symbiotic claims this makes them more versatile compared to other protocols that only focus on ETH.

Renzo

Renzo is a liquid restaking protocol that serves as an interface on top of EigenLayer. Its purpose is to simplify the restaking process by abstracting away the complex operations for users desiring to restake their ETH or LSTs. For users, Renzo is like deploying intermediaries to take their assets, deposit them into EigenLayer, and hand out receipts, called liquid restaking tokens (LRTs), that can be traded in the DeFi ecosystem to earn higher yields while accruing interest.

Renzo strongly advocates for EigenLayer, helping promote its widespread adoption. By abstracting away the complex process of restaking and handling the heavy lifting, Renzo is leading the charge to capture more users through ease of use.

ezETH is Renzo's liquid restaking token representing a user's restaked position. For every deposited ETH, Renzo mints an equal amount of ezETH. Renzo also uses pzETH for Symbiotic, and ezSOL for Jito.

Conclusion

Restaking protocols offer a service where validators can simultaneously redeploy their staked cryptocurrency across multiple networks. By aggregating and sharing resources across multiple platforms, restaking increases users' potential to earn more interest rewards while enhancing network security.

For the user, in particular, restaking promises better capital efficiency and profits for those willing to accept associated risks. It unlocks the potential of staked tokens lying dormant across multiple networks, putting them to work in the powerful DeFi sector.

About Luganodes

Luganodes is a world-class, Swiss-operated, non-custodial blockchain infrastructure provider that has rapidly gained recognition in the industry for offering institutional-grade services. It was born out of the Lugano Plan B Program, an initiative driven by Tether and the City of Lugano. Luganodes maintains an exceptional 99.9% uptime with round-the-clock monitoring by SRE experts. With support for 45+ PoS networks, it ranks among the top validators on Polygon, Polkadot, Sui, and Tron. Luganodes prioritizes security and compliance, holding the distinction of being one of the first staking providers to adhere to all SOC 2 Type II, GDPR, and ISO 27001 standards as well as offering Chainproof insurance to institutional clients.