Staking Ethereum is the process of using Ether that has been staked on the Ethereum network to simultaneously maintain the security of other decentralized protocols.
The security of the network is synchronized with the quantity of active validators, the proportion of circulating tokens staked, and the distribution of these tokens among the active validators in proof-of-stake (PoS) blockchains like Ethereum. Restaking systems encourage these staked tokens, which would otherwise be idle, in order to enhance the blockchain’s overall performance.
This article addresses staked ether collective security, the definition of restaking, forms of restaking, and considerations related to restaking.
How Does Restaking Work?
Restaking allows holders of cryptocurrencies to employ their Ether in the consensus layer several times, introducing a revolutionary notion in cryptocurrency security. By making it easier to deploy liquid staking tokens with validators across several networks, it enables stakers to maximize their payouts while fortifying the security of the staking network.
On PoS blockchains, stalled tokens typically remain inactive. Higher staking payouts are made possible for restakers when restaking activates staked tokens. To earn extra rewards on their staked tokens, users can employ restaking protocols like EigenLayer, regardless of whether they are directly staking Ethereum or utilizing a liquid staking token (LST).
The PoS consensus process on the Ethereum network is unique due to the huge quantity of validators that are involved in it. However, staked Ethereum is idle. Stakeholders can use their staked ETH in decentralized finance (DeFi) apps since liquid staking protocols turn it into fungible tokens. Users with smaller holdings can still receive staking benefits because the method reserves the minimum 32 ETH staking ceiling.
Types of Restaking
Native and liquid restaking can be generically classified as types of restaking. Ethereum validator node operators can do native restaking. It operates by means of a collection of smart contracts that oversee the administration of assets staked within the node of a validator.
Restaking protocols provide crypto-economic security, which validators can take advantage of and use to stake their coins. Validators must install and run additional node software for the restaking module in order to take part in a restaking program.
Users that engage in liquid restaking do so by using liquid staking tokens (LST). In this process, a staker stakes their assets with a validator, who then awards them with a token representing their stake. To get further rewards, the staker would retake the LST.
The Process of Liquid Restaking
For the sake of explaining how liquid restaking operates, let’s use the EigenLayer example. EigenLayer, which has a total value locked (TVL) of more than $250 million, serves as a market place and pooled security for Ethereum and other blockchain applications.
Using Smart Contracts to Reinvest
The fundamental framework of restaking is EigenLayer. EigenLayer’s smart contracts are available to everyone who has already staked ETH, either directly or through liquid staking solutions. As a result, they are able to reinvest their holdings and strengthen the security of other platforms, so establishing an Ethereum-powered collective security system.
Procedure for Restake on EigenLayer
This is how to restake using EigenLayer.
Step 1: On the EigenLayer website, click “Restake” to the right of the top menu.
The following tab will show the EigenLayer program, where the user can finish the restaking procedure.
Step 2: Select the “Connect wallet” option located in the upper right corner. The options available to users are WalletConnect, Coinbase Wallet, MetaMask, and OKX Wallet.
Users can see a symbol with three horizontal lines at the top right of the screen. Through it, users may access forums, blogs, Discord, and support manuals.
Step 3: Select the LST by clicking on it in the “Liquid Restaking” box.
Let’s say someone chooses Rocket Pool Ether. On the window that displays, they can stake or unstake. As of this writing, deposits have been suspended.
Staked ETH for collective security
For security reasons, when a new protocol is introduced, it usually entails creating a new network of trust, which includes creating a network of validators and introducing a native coin.
Restaking alters the rules by enabling these protocols, also known as active validator sets (AVS), to take use of Ethereum’s stakers’ collective security, which greatly accelerates development. These AVS, also known as EigenLayer modules, can be anything from data availability layers, keeper networks, oracle networks, sidechains, and bridges.
In the past, one of these AVS’s security might have been compromised by an attacker looking to cause havoc. With EigenLayer’s pooled security approach, though, this kind of endeavor would necessitate contesting the entire collective stake—worth billions of dollars. However, there are extra dangers associated with using EigenLayer’s smart contracts, such as the potential for higher cutting conditions for a user’s staked ETH.
This strategy gives Ethereum staking users the opportunity to secure multiple AVS with their restaked ETH and increase their earnings without requiring more tokens. EigenLayer makes this possible by providing a marketplace where AVS can entice Ethereum validators to endorse it. These validators can then choose which modules to back by considering the incentives offered.
Concerns about Restaking
Re-allocating funds to validators that are comparable raises concerns about restaking that are frequently voiced, as it increases both risk and yield. Developers have cautioned against using too much leverage since it may cause projects to become unstable. They contend that adding additional financial risk to the blockchain will simply cause instability throughout the entire ecosystem. Ethereum co-founder Vitalik Buterin has issued a warning, stating that restaking protocols may put the blockchain at serious risk of catastrophic failure.
Because restaking methods are expanding quickly, the hazards associated with them are also growing and need to be addressed right away. A widespread malfunction can jeopardize the blockchain’s security. Ankr, a restaking protocol developed on the BNB network, was breached in 2022; this should act as a warning of a potential blockchain network disaster.
Nonetheless, given the potential hazards associated with restaking, it can be utilized in situations involving low-risk transgressions, such as duplicate signatures, without jeopardizing Ethereum’s decentralized principles.
Staking’s emergence as a DeFi component
Restaking is expected to become a crucial DeFi element as it develops further, bringing more users and liquidity to Ethereum staking, which has historically lagged behind other PoS networks in terms of staking ratio. The combination of LST and restaking could lead to a notable expansion of Ethereum’s staking ecosystem.
Potential threats to layer-1 blockchains from restaking point to the need for caution in the design and implementation of staking services. Negative impacts can be avoided by resolving potential disputes after they develop significance. Taking into account both the immediate and long-term impacts of restaking on the Ethereum ecosystem could lead to a situation where all stakeholders benefit.
