If you are a crypto enthusiast, you are likely to come across the term ‘restaking’. The restaking was first introduced back in 2023, and it focuses on capital efficiency. As the name suggests, the strategy allows to use of already staked tokens to gain more. Curious to know more? Read on! The article delves deeper into resatking, how it works, the benefits, and risks. 

What is Restaking in Crypto?

Restaking is the process of reusing the staked assets to secure additional blockchain protocols and applications. The restaking enhances capital efficiency as the staked coins otherwise remain dormant. 

There are two types of restaking, one where validators opt in directly, termed as native staking, and the other using “Liquid Restaking Tokens” (LRT). The latter is popularly called the liquid restaking and is done via specific platforms. 

The EigenLayer on Ethereum is an example of the former, while Ether. Fi is a platform that offers tradable liquid restaking tokens (LRTs).

How Does Restaking Work?

• Initially, the users need to stake the tokens in a proof-of-stake network as usual. 
• Staking generally involves depositing native tokens, especially to improve the network’s security. Such networks use a Proof-of-Stake consensus mechanism to validate transactions and give rewards instead of the energy-intensive mining process followed by proof-of-work networks such as Bitcoin. The Ethereum and Solana networks are good examples. 
• The usual staking leads to securing the concerned network and earning rewards; restaking, on the other hand, allows the same asset to be re-staked through a restaking protocol. 
• Users can opt for native staking or go for liquid restaking. 
• Participants will receive a “Liquid Restaking Token (LRT) ” if they opt for the latter.
• The liquid restaking token will help earn more rewards. The tokens are aggregated to form Actively Validated Services (AVSs) by the restaking protocol to provide additional security.
• Participants can earn extra rewards for the additional security in the form of AVS’s native token or fees.

What are the Benefits Associated with Restaking Crypto?

Restaking became quite popular among the crypto community due to the higher rewards and enhanced capital efficiency. Here is a list of the benefits associated with crypto restaking.

• The restaking ensures better capital efficiency as the same asset is used to gain multiple rewards. In the usual case, the asset remains dormant; here, it is utilized to provide security to base chains and protocols.
• The crypto restaking enables the traders to earn more rewards using the same asset.
• Nascent projects can borrow the security from large firms by using their set of validators, making the pooled network more secure and less vulnerable to attacks.
• The Liquid Restaking Tokens open doors to more financial opportunities. The token can be used across different platforms and for different purposes, such as lending or used as collateral.
• The restaking distributes security across the crypto ecosystem, which is in alignment with the decentralization ethos of the broader crypto network. 

Risks Associated with Crypto Restaking?

Despite the pros, the restaking is not without risks. Here is a brief overview of the risks associated with restaking.

• While restaking the risk, the slashing risk enhances as every AVS has its own slashing risk.
• There are risks associated with using unreliable third-party platforms and a higher chance of committing mistakes while making changes to user settings, as the restaking involves complex settings and several settings spread across multiple platforms.
• The users may concentrate their assets with a few well-known operators, which may lead to centralized control. Besides, an attack on the few could result in huge losses.
• The restaked digital assets are subjected to market volatility.

Frequently Asked Questions Regarding Staking and Restaking

Restaking is the process of reusing staked assets to secure additional blockchain protocols and applications.

Restaking is the process of reusing staked assets to secure additional blockchain protocols and applications.

Staking can be a source of passive income, but it’s worth noting that it is subject to risks such as market volatility. Ultimately, whether staking is profitable depends on the individual’s risk tolerance. 

The key difference between staking and holding is that the former can act as a source of passive income while the latter solely depends on the price appreciation of the asset in hand. The better option out of two depends on individual circumstances, such as risk tolerance and income targets. Both involve risks, so investors are advised to take a cautious approach.