Restaking in the crypto world is becoming a widely used concept as the market edges on the rise. More than $18 billion worth of cryptocurrency has been transferred to a new kind of platform that rewards investors for locking up their tokens. According to a Reuters report, analysts worry that this intricate plan puts consumers and the cryptocurrency market at risk.
As cryptocurrency prices rise and traders seek yield, the practice of “re-staking” or “restaking” is becoming more and more common. This is the newest example of risk-taking in the field. The largest cryptocurrency, Bitcoin, is almost at an all-time high, and the second-largest, Ether, has increased by more than 60% this year.
What is Restaking?
In the realm of cryptocurrency security, restaking is an idea that allows you to use your Ethereum (ETH) at the consensus layer many times. For example, you can utilize a service like EigenLayer to earn extra benefits on your Ethereum stake if you’re staking it directly or via a liquid staking token (LST).
Other decentralized protocols can use Ethereum’s staked assets to strengthen their security thanks to restaking protocols. Contractual validators and assets are compensated by the renting protocol’s or platform’s validator incentive terms. In addition to receiving incentives from the parent Ethereum network, validators and nominators also receive benefits from the network or protocol they are restaked to.
Is It Worth Taking A Risk?
While some people are in favor of re-staking and believe it would increase capital efficiency and enable the development of new, creative services on top of Ethereum, others are concerned about the second and third-order impacts of restaking. One thing to keep in mind is that restaking has the potential to cause stake concentration because validators can use restaking services to provide their delegators with more APY.
As a result, more delegation is drawn to particular validators, which leads to stake centralization—the loss of neutrality and financial premium—and a small number of validators owning the stake.
EigenLayer invented restaking, a resource management strategy for decentralized staking. To maximize staked token value in a way that benefits stakers, other networks, and the restaking protocol itself, these protocols employ Liquid Restaking Tokens (LRT), a flexible variant of staked tokens. The story of retaking is becoming more and more popular, and numerous projects are investigating the most effective ways to use retaking resources or take on the role of retaking resource provider.
