What is DeFi Restaking?
DeFi restaking is a way to make your staked cryptocurrency work harder by using it to support more than one service at once, earning you extra rewards. If you’ve already staked assets like ETH to help secure a blockchain network, restaking lets you take those same locked-up assets and use them to secure additional decentralized services without needing to unstake or commit more crypto. Essentially, restaking puts your staked assets to work on multiple fronts.
Restaking in a Nutshell: In traditional staking, your crypto helps validate transactions on one network. Restaking builds on that by letting you support other services, too, all while keeping your original stake intact.
How does restaking work?
Here’s a simple breakdown of how DeFi restaking works:
- Start with staking: First, you stake your crypto (e.g. ETH) on a network like Ethereum. This involves locking it in a smart contract to help validate transactions and earn rewards.
- Restake your assets: Through platforms like EigenLayer, you can restake your staked ETH or even liquid staking tokens (LSTs, like stETH from Lido) to support additional services. These services, often called Actively Validated Services (AVSs), might include decentralized oracles, data storage, or other blockchains.
- Earn extra rewards: By contributing your staked assets to these services, you generate extra rewards alongside your original staking income.
For example, if you’re an Ethereum validator, you can tweak your settings to restake via EigenLayer. Or, if you hold LSTs, you can deposit them into a restaking platform and pick which services you want to back. This approach maximizes the potential of staked crypto.
Where do the rewards come from in DeFi restaking?
Restaking generates income from two primary sources:
- Primary staking rewards: These are the usual rewards you earn from staking on the main network, like Ethereum’s block rewards and transaction fees.
- Additional service rewards: Restaking earns extra payouts from the AVSs being supported. These services compensate you for helping secure their operations, providing an added income stream.
Think of it like this: your primary staking rewards are your base salary, and restaking rewards are like a side gig—same assets, more income!
Is DeFi restaking safe?
DeFi restaking can be secure, but it’s riskier than traditional staking. Here’s why:
- Increased slashing risk: If any of the services you support through restaking fail or act maliciously, your staked assets may be subject to slashing, meaning you lose a portion of your crypto as a penalty. This risk is higher than regular staking because you're exposed to multiple systems.
- Complexity: Restaking involves additional steps, smart contracts, and decisions about which services to support, making it more intricate and potentially overwhelming for newcomers.
Slashing explained: Slashing is a penalty mechanism in proof-of-stake networks where validators lose a portion of their staked assets for misbehavior or downtime. In restaking, slashing risk extends beyond the primary network to any additional services supported, increasing exposure. To mitigate risks, it's crucial to stick to reputable platforms and thoroughly research the services you plan to support. Balancing potential rewards with added responsibility is key.
What are the advantages of DeFi restaking?
Restaking in DeFi comes with some cool perks:
- Extra income: Generates additional rewards on top of your base staking yield, maximizing returns.
- Capital efficiency: Enhances the utility of staked assets without requiring additional capital.
- Ecosystem growth: Contributes to the security and expansion of DeFi by supporting innovative services.
For those looking to optimize their staking strategies, restaking presents an attractive opportunity.
Where can I start restaking in DeFi?
Ready to give restaking a shot? Here are some platforms to check out:
- EigenLayer
- Symbiotic
- Karak
Restaking can be a bit trickier than regular staking, so take your time to research and understand the risks before jumping in.