Back to main

What Is Ethereum Restaking?

Table of Contents

Ethereum restaking is a new concept enabled by the restaking protocol EigenLayer. It allows users to re-stake or reuse their staked ETH (for example, ETH deposited with liquid staking services like Lido) and leverage Ethereum’s own security to additional protocols via a process called “pooled security.” 

Once ETH is restaked, users earn restaking rewards on top of staking rewards. Restaking rewards are generated from fees collected from so-called Actively Validated Services (AVSs), which are decentralized services like bridges, exchanges, liquid staking pools, and others that connect to EigenLayer to benefit from increased security.

In this article, we are going to explain how Ethereum restaking works, what its advantages and disadvantages are, and examine projects that use the novel concept.

Key highlights:

  • Ethereum restaking, powered by the EigenLayer protocol, allows staked ETH to secure additional protocols, boosting both capital efficiency and network security.
  • EigenLayer is central to the Ethereum restaking space, offering a marketplace for pooled security and connecting decentralized services like bridges and liquid staking protocols with stakers.
  • Restaking increases the security for new and emerging protocols by leveraging the established trust network of Ethereum's validators, thus facilitating lower costs and higher transaction throughput.
  • Despite its benefits, Ethereum restaking introduces risks such as potential vulnerabilities from smart contract failures and lacks effective measures against malicious validators until further features are implemented.

What is staking in crypto?

Crypto staking in a Proof-of-Stake (PoS) system is like putting money in a savings account. Instead of using lots of computer power to secure the network and process transactions like in Bitcoin and other Proof-of-Work (PoW) systems, participants stake some of their own crypto. By doing this, they get a chance to be chosen to validate transactions and add new blocks to the blockchain. In return for helping secure the network, they earn rewards, similar to earning interest in a savings account.

Learn more: Ethereum Staking Explained: Is ETH Staking Worth It?

What is Ethereum restaking, and how does it work?

Ethereum restaking, enabled by the EigenLayer protocol, is a new approach that enhances the utility of staked Ethereum (ETH). It allows staked ETH to be repurposed as cryptoeconomic security for other protocols on top of Ethereum, thereby increasing both capital efficiency and network security.

Stakers can opt into the EigenLayer protocol, either with their previously staked ETH or through liquid staking tokens (LSTs). This involves setting their withdrawal credentials to EigenLayer’s smart contracts, which allows their staked ETH to be used to secure other protocols, thus earning additional rewards from multiple protocols with the same capital. 

This process not only improves the capital efficiency for stakers but also boosts the security for new and emerging protocols by providing them with an established trust network without the need to build their own validator communities.

EigenLayer introduces a marketplace for pooled security, where protocols can buy security from ETH validators who opt to provide their staked ETH as a security resource. This creates a competitive environment where validators can choose which protocols to support based on the rewards offered, aligning incentives across the ecosystem.

What is EigenLayer?

EigenLayer is an Ethereum crypto-restaking protocol designed around the concept of “pooled security.” In simple terms, users can restake their already staked ETH with EigenLayer, and the protocol then allows external services – called “Actively Validates Services” – such as bridges, liquid staking protocols, and others to connect to EigenLayer and use its pooled funds for increased security.

Learn more: EigenLayer Crypto Restaking: What Is EigenLayer?

What are the pros and cons of Ethereum restaking?

EigenLayer facilitates a decentralized data availability layer (EigenDA) and other services that benefit from the pooled security and trust network provided by Ethereum's validators. This setup aims to lower transaction costs and enhance the throughput of the network, making Ethereum more scalable and efficient​.

However, restaking has risks. One significant risk, at least at the moment, is the lack of the slashing features, which are meant to punish validators who misbehave. While these features are expected to roll out sometime later this year, currently, there’s no efficient system in place that would disincentivize validators from acting maliciously.

Additionally, the restaking concept depends heavily on the robustness of the underlying smart contracts and system algorithms. Any failure in these systems could expose staked assets to vulnerabilities.

Pros of Ethereum restaking:

  • Restakers can leverage their staked ETH to earn additional rewards from multiple protocols without needing to stake additional capital
  • By allowing staked ETH to be used across different protocols, pooled security helps smaller or newer projects by providing them with a trust base to build upon without the high initial costs​
  • Restaking also offers validators the flexibility to choose their risk and reward profiles by selecting different protocols to secure based on the returns they offer
  • Developers can innovate more freely with the assurance of an established security base

 

Cons of Ethereum restaking:

  • The system adds complexity for both validators and users, with the need to manage additional smart contracts and understand the specifics of multiple protocols
  • As stakers might gravitate towards protocols offering higher yields, there's a potential risk of centralization, where a small number of protocols could dominate

 

Ethereum restaking projects

The most important player in the Ethereum restaking space is definitely EigenLayer. It enables restaking capabilities and connects decentralized services with stakers. However, there are several other projects that are being built in the space. Here’s a brief description of the most prominent ones:

  • EigenLayer: Incorporates a mainnet and a data availability service called EigenDA, which extends Ethereum's security to other networks through smart contracts.
  • AltLayer: Uses restaked rollups, bundling multiple transactions into a single one, which reduces congestion, improves scalability, and makes the blockchain more efficient overall
  • Omni Network: A Layer 1 blockchain that serves as a bridge within Ethereum's ecosystem, particularly uniting various rollup technologies to create a seamless environment for developers.
  • Renzo: A liquid restaking protocol that aims to provide an easy-to-use interface to the EigenLayer ecosystem.

The bottom line

Ethereum restaking through EigenLayer represents a significant shift towards more flexible and efficient use of staked assets, contributing to the broader Ethereum ecosystem's scalability and security while offering validators and stakers new opportunities for earning returns.

If you are interested in staking crypto assets other than Ethereum, we suggest you check our list of the best cryptos to stake in 2024.

Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

Read on CoinCodex Investment Disclaimer