Restaking: The Latest Hottest Crypto Trend of 2024

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In 2021, EigenLabs was the first start-up to propose the idea of launching a restaking protocol on Ethereum (ETH). In July 2023, the company made that proposition a reality when it started the EigenLayer, its flagship restaking protocol.

While staking is common among cryptocurrency holders looking to earn passive income, restaking offers an additional benefit by allowing investors to automatically reinvest their liquid staking tokens (LST) to compound their earnings.

EigenLayer raised $171 million over three investment rounds, quickly becoming the most discussed new project in crypto circles. Solana is reportedly launching a restaking protocol as well.

What is restaking, and how might the market respond?

Key Takeaways

  • Restaking allows cryptocurrency holders to maximize their returns by automatically reinvesting staking rewards to secure additional protocols, thereby compounding their earnings.
  • By enabling the restaking of assets, protocols like EigenLayer contribute to the security and robustness of multiple blockchain networks simultaneously, strengthening the entire ecosystem.
  • The success of EigenLayer’s restaking on Ethereum has prompted other blockchains like Solana to explore similar strategies.
  • Restaking fosters new opportunities in DeFi, such as integrating gamification elements into staking practices.
  • While restaking offers significant advantages, it also introduces risks, including potential asset loss due to market volatility, security breaches, and issues with staking platforms.

What is Restaking?

Restaking in cryptocurrency is a strategic practice where staking rewards are automatically reinvested to bolster the total staked amount to enhance one’s future rewards.

According to Gracy Chen, the managing director at Bitget, crypto investors see restaking as a way to grow their holdings without actively trading or investing in other, more volatile assets. She said:

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“Since smaller blockchain applications may find it difficult to maintain their own Proof-of-Stake [PoS] security systems — which need significant funding and an engaged community — many suggest that restaking aids in enhancing the security of those apps.”

Additionally, restaking helps investors maximize their returns on staked assets by letting them use their idle tokens to earn additional rewards across multiple networks, effectively increasing their yield.

George Khoury, the head of education and research at CFI Financial Group Holding, added:

“This method amplifies the benefits of traditional staking, which already offers a passive income stream by holding tokens to support network operations. It also supports the security and decentralization of more than one blockchain simultaneously, contributing positively to the ecosystem.”

Restaking on Ethereum

Johnny Gabriele, the head of decentralized finance (DeFi) at the CryptoOracle Collective, described restaking as the “brainchild” of EigenLayer since the protocol was the first to make restaking happen, with a plethora of other projects also jumping into the trend.

EigenLayer’s innovative restaking concept allows stakers to earn extra rewards and enhance their investments’ liquidity and utility while maintaining their original commitments and optimizing resource use.

This is done by allowing users to take the Ethereum tokens they previously staked with Ethereum and restake them with Actively Validated Services (AVS). Such services include blockchain protocols that provide support for ETH scaling solutions.

Additionally, EigenLayer has distinguished itself in the restaking realm through its approach to enhancing crypto-economic security on the Ethereum network.

Charles Wayn, the co-founder of Galxe, said:

“By introducing a mechanism that allows for the reuse of ETH or liquid staking tokens (LST) through smart contracts, EigenLayer extends security to other applications within the ecosystem. This not only addresses key challenges in Web3 security by creating a more robust and integrated trust network but also opens new avenues for yield opportunities for its users.”

Led by Ethereum restaking, other projects have started to come out that are integrating this new concept into their protocols, such as the crypto token Puff.

According to the Puff Coin team, restaking plays a vital role in the coin’s gamification and has become an integral part of the Puff Dragon story, allowing for enormous flexibility in capital allocation.

Restaking on Solana

Seeing the massive success that ETH restaking experienced in recent months, key individuals in the crypto industry note that Solana might soon enter the restaking industry.

According to Bitget’s Chen, this move could be expected as quickly as the next quarter of 2024. She noted:

“The market response to restaking entering the Solana ecosystem could be positive, as it may attract more investors looking to restake their assets and earn rewards on a fast and scalable blockchain network. Especially given the strength of Solana’s memecoin sector – it could really propel the market forward.”

With projects like Jito (JTO), Solana’s largest liquid staking protocol, and Picasso announcing that it will bring restaking to Solana, the restaking industry could truly see a surge in interest in coming months, CFI’s Khoury added, especially it could lead to a surge in Solana’s total value locked (TVL), making the ecosystem a more attractive space for both users and developers.

Restaking Can Increase Passive Income But Also Sees Risk of Asset Loss

While liquid restaking comes with an array of benefits, such as increasing passive income for crypto investors and contributing to greater network security, it also comes with a number of risks associated with asset loss due to market volatility or even slashing if validators behave improperly.

Bitget’s Chen explained:

“The primary benefits of restaking include earning passive income, supporting the network’s security and decentralization, and having a say in governance decisions. However, there are risks involved, such as potential loss of funds due to market volatility, security breaches, or technical issues with the staking platform.”

Additionally, the Puff Coin team told Techopedia that a broader array of gamification elements, such as engagement, competition, challenges, and social interaction, can be further explored through crypto restaking.

“At Puff, we are exploring new ways that can transform the staking into a more dynamic and entertaining experience for users… By encouraging users to restake in various ways, we aim to create a robust ecosystem of committed stakeholders who are actively involved in shaping the future of our project.”

Bitget’s Chen added that in the coming years, crypto restaking could become a more widespread phenomenon in the industry as investors seek passive income opportunities and new ways to promote network security and decentralization across various blockchain ecosystems.

CFI’s Khoury was also bullish on the future of crypto restaking, noting that in the coming years, platforms enabling restaking could proliferate more easily, integrating deeper with DeFi to offer more liquid staking solutions and cross-chain functionality.

The Bottom Line

Restaking has emerged as a powerful trend in the cryptocurrency world, led by innovations like EigenLayer on the Ethereum network. This practice enhances passive income opportunities and overall network security by allowing stakers to reinvest their rewards to secure multiple protocols simultaneously.

However, despite the appealing benefits of increased returns and network support, restaking carries inherent risks, such as potential asset loss due to market volatility and the technical challenges associated with multi-network security.

As the industry evolves, the continued growth and adaptation of restaking will depend on balancing these lucrative opportunities with the crucial need for robust security measures.

FAQs

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Iliana Mavrou
Crypto journalist
Iliana Mavrou
Crypto journalist

Iliana is an experienced crypto/tech journalist reporting on blockchain, regulation, DeFi, and Web3 industries. Before joining Techopedia, she contributed to a number of online publications, including Capital.com, Cryptonews, and Business2Community, among others. In addition to working in journalism, she also has experience in tech and crypto PR.  Iliana graduated from the City University of London with a degree in Journalism in 2021. She is currently pursuing a Master's degree in Communication.