The Rise of Restaking: Why Crypto Natives Are Embracing This DeFi Gamechanger

Restaking
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Restaking is one of the DeFi narratives that has been thriving over the past year, with more and more crypto natives taking an interest. But what exactly does this new DeFi niche entail? Is it another passing fad or could it shape the next generation of DApps? 

To understand how restaking works, let’s take a step back to the concept of native staking on Proof-of-Stake (PoS) blockchains such as Ethereum. Staking is the process by which users of a blockchain ‘lock’ or ‘stake’ a certain amount of tokens to contribute towards the security of the network and other operations like the validation of transactions. In return, the stakers are rewarded by a portion of the fees that are collected or newly generated tokens. 

Enter restaking, one way to describe this concept is an advanced version of staking which is technically designed to maximize the capital efficiency of staked assets. Unlike staking where the tokens can only be of use the native blockchain where they are ‘staked’ or ‘locked’, restaking allows for staked tokens to be used across multiple protocols in supporting what has been dubbed ‘Actively Validated Services

In simple terms, restaking gives validators on blockchains such as Solana and Ethereum the flexibility to redeploy their staked assets across other PoS-based ecosystems. 

Why Restaking Could be the Next Big Thing in DeFi

If you’ve been around the crypto block for sometime, you probably understand that the trends in this nascent industry tend to move faster than we can all keep up. Amidst this noise, however, there is always some value at the end of it. 

For example, the ICO booms gave us the likes of Ethereum and XRP, the DeFi summer birthed unicorns such as Uniswap, and more recently there has been a fundamental shift with institutions joining the bandwagon following the approval of Bitcoin Spot ETFs by theSEC. 

While still a bit early to predict, restaking is emerging as another major trend that could define the building of the next generation DApps. 

Numbers Never Lie! 

For starters, restaking as the whole ecosystem has witnessed significant gains this year, with the total value locked (TVL) jumping from $1.3 billion at the beginning of 2024 to $13.4 billion as of writing.

DeFi Llama
Source: DeFi Llama

It is also interesting to observe the leading restaking project, Eigen Layer, has attracted a lot of funding over the past year, with notable raises such as $100 million earlier this year from renown crypto VC Andreessen Horowitz. 

Fundamentals are Solid

One of the biggest challenges that niche crypto innovations struggle with is providing real value or solving actual problems. Most of the focus is normally directed to marketing initiatives that will likely involve pumping a native token. 

Well, that’s not the case for restaking projects, at least for one’s that are serious. The value proposition of restaking projects is another solid reason why this DeFi sector ought to be on anyone’s radar. As mentioned in the introduction, restaking introduces capital efficiency in crypto security and network operations. Instead of one staking on ETH alone, why not repurpose the staked ETH to secure more PoS services? 

The process is pretty straightforward; let’s again take the example of Eigen Layer, which commands over 75% of the TVL currently locked in staking protocols. For one to get started, all they have to do is to choose to enroll their staked ETH on EigenLayer via smart contracts. In doing so, they make validator services available to support other protocols beyond Ethereum, including middleware services, data availability layers, and oracle networks. 

This flexibility allows the validators who have restaked their tokens to not only earn additional rewards but also contribute towards more projects across the DeFi ecosystem. A much needed solution to maximize the utility of DeFi assets and bridging the liquidity gap without necessarily relying on new capital injections.

Liquid Restaking – A Glimpse Into The Future! 

What if the restaked tokens on Eigen Layer could further be made liquid for the owners or stakers to chase more gains in the DeFi market? That’s exactly what liquid restaking protocols such as Kelp DAO are building. 

Although a relatively new niche, liquid restaking has been gaining popularity in parallel with retaking. Currently, there’s over $10 billion locked across liquid restaking protocols, but what’s more intriguing is the idea behind this ecosystem. 

Take Kelp DAO for example, this liquid restaking project was specifically designed to provide liquidity to illiquid restaked assets that are locked on restaking platforms such as the Eigen Layer. Kelp DAO enables owners of LSTs to stake their assets and in return mint the liquid rsETH tokens. With these liquid restaked tokens, the owners can contribute towards more DeFi or PoS services while maximizing their returns. Even better, Kelp DAO’s swapping infra allows rsETH owners to instantly liquidate their tokens through AMMs. 

The liquid restaking initiative may seem like a narrative whose time is far from ripening, but looking at the stats, it will likely be a huge trend that will go hand in hand with restaking. For context, the TVL locked across all DeFi protocols stands at $82 billion; out of this, $13.4 billion is in restaking while $10 billion is in liquid restaking. Quite a significant amount for a niche that has only gained momentum this year. 

Conclusion

The fundamentals restaking and liquid restaking seem aligned with a solution that was desperately needed by the industry. Gone are the days when only new capital injections were what could sustain the industry, capital is now being reused or put to work to support multiple ecosystems in parallel. Of course, there are some risks such as slashing should a validator provide wrong information but that’s part of making the DeFi ecosystem not only sustainable but trustworthy.

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