Key Takeaways
- Ethereum restaking allows ETH stakers to use their staked tokens to secure other blockchain networks and participate in various blockchain events without losing staking rewards.
- By leveraging Ethereum’s validators and staked tokens, smaller and newer networks can benefit from its robust security and trust system, reducing the risk of attacks or failures.
- While Ethereum restaking offers additional staking rewards and opportunities, it comes with increased slashing risks, a high barrier to entry, and complexities for Ethereum’s consensus that need to be addressed for its widespread adoption.
If you’ve staked or plan to stake your crypto to secure Ethereum, you’ve likely heard about the drawbacks, such as that you can’t use your digital assets for as long as they’re staked.
A likely solution to this drawback is Ethereum restaking. So, what is Ethereum restaking, how does it work, and what does it mean for you?
What Is Ethereum Restaking?
Ethereum co-creator Vitalik Buterin defines Ethereum restaking as a process that enables Ethereum stakers to “simultaneously use their stake as a deposit in another protocol.” Your ETH will remain staked on Ethereum, but you can extend its associated staking power to other blockchain networks.
Instead of new blockchain networks to rally new validators and request that they stake new tokens, these networks can leverage Ethereum’s validators and staked tokens to secure their trust systems. While you’ll most likely restake to secure other networks in exchange for staking rewards, you can also restake to prove trust (and gain verification) or to participate and vote in a blockchain event without rewards.
EigenLayer, a protocol founded by Sreeram Kannan, introduced the restaking mechanism for Ethereum (check out the EigenLayer whitepaper [PDF]). This restaking protocol implements smart contracts on Ethereum that enable ETH stakers to agree to validate new networks built on Ethereum.
EigenLayer went live on June 2023 and, as of October 2023, has a total value locked (TVL) of about $216 million, per DefiLlama data.
If you agree to restake, you can validate several systems, including virtual machines, crypto bridges, and consensus protocols. However, in addition to receiving extra value for your ETH, you’ll be exposed to more slashing conditions on your staked tokens.
How Does Ethereum Restaking Work?
When you stake ETH on Ethereum, your tokens are deposited and locked into a smart contract that activates the transaction validation software. Similarly, when you want to restake, you must enter into another smart contract that directs the staking power of your staked tokens to the secondary network you want to secure or participate in.
This is what EigenLayer does: the protocol implements these smart contracts on Ethereum such that ETH stakers can choose to extend the staking power of their staked assets to secondary supported networks.
There are two ways to restake via EigenLayer. First, you can restake the ETH you have staked on Ethereum or liquid staked on platforms like Lido and Rocket Pool. As of 2023, EigenLayer supports liquid staking of Coinbase Staked Ether (cbETH), Rocket Pool ETH (rETH), and Lido ETH (stETH), with plans to support more protocols.
To restake your liquid-staked tokens, you can visit the EigenLayer app and connect your cryptocurrency wallet, taking advantage of the already deployed smart contracts. To stake your native ETH, you must create EigenPods and assign your beacon chain withdrawal credentials to the EigenPods’ address.
EigenLayer also intends to onboard actively validated services (AVSs), modules that don’t contain Ethereum virtual machine (EVM) code, which you can opt-in to validate as an ETH restaker.
The redirected staking power from Ethereum will allow you to validate transactions and earn rewards on both networks—Ethereum and the secondary network—simultaneously.
Benefits of Ethereum Restaking
Several benefits are attached to Ethereum restaking for validators, developers, and new projects.
1. Additional Staking Rewards
The most prominent advantage of Ethereum restaking is that it allows you to avoid the opportunity cost usually attached to ETH staking. Normally, when you stake your ETH, you can’t restake the already staked token again. You can’t exploit other new crypto staking opportunities and earn more staking rewards.
With Ethereum restaking, however, you don’t need to wait for the unlocking period to stake your already staked ETH again and even use it to gain access to other blockchain applications or as collateral.
2. Strengthening of Smaller, Newer Networks
Instead of newer blockchains to build new validation systems, they can leverage Ethereum’s robust security and trust system through restaking, and there are several claims that this can be done without sacrificing the security of Ethereum. This means developers can easily reduce the risk of attacks or failures on their networks and applications.
Additionally, with access to Ethereum’s staked tokens and validator set, developers can build systems with lower capital costs.
Limitations of Ethereum Restaking
While Ethereum restaking seems super appealing, especially to ETH stakers, it has many risks.
1. Increased Slashing Risks
When you stake your ETH, you’ll be exposed to crypto slashing to ensure good behavior while participating in Ethereum’s validation processes. Now, when you restake (sign smart contracts to participate in validating transactions for other networks), you’re subjecting yourself to a higher degree of slashing risks.
If you decide to validate various blockchains, you’ll be subject to many sets of slashing risks.
Besides, using smart contracts increases the risk of attacks, meaning that a potential attack vector or smart contract vulnerability can slash your ETH.
2. High Barrier to Entry
As of October 2023, you can only restake via EigenLayer, with only a few token formats supported. Moreover, there are usage limits per supported asset and user, although there are talks of increasing the limits over time.
Despite its appeal, Ethereum restaking remains a complex process in its early stages of development; clarifying, simplifying, expanding, and securing the process is necessary for its adoption.
3. Increased Complexities for Ethereum
The extension of Ethereum’s staking power to multiple networks comes with more risks and challenges—many of which have been expressed by Vitalik Buterin.
Essentially, reusing validators means they’ll be doing more work and following more rules, which means more risks. Also, there’s a possibility that the community of Ethereum validators can be divided on a decision for a secondary network, leading to a new Ethereum soft or hard fork.
While Sreeran Kannan claims these risks can be avoided, Buterin believes it’ll be better for developers to create new strategies to secure their systems.
Ethereum Restaking Is Exciting But Needs More Work
Ethereum restaking allows staked ETH to be reused for secondary blockchains and apps in the crypto ecosystem. As this innovation matures, it could offer more use cases alongside the option to earn more from your staked ETH.
However, all the potential risks and benefits of Ethereum restaking aren’t clear yet. While more research and due diligence are conducted, liquid staking is another option for more flexible Ethereum staking.