Nobody wants to be separated from their loved ones, do they? 🥲

In staking, users lock in their money or cryptocurrencies and earn rewards, but their funds are locked for a certain period of time. Nobody wants to be separated from their loved ones or their assets (especially).

Restaking is the process wherein users stake their ETH or restake their LSTs for higher staking rewards and securing multiple networks simultaneously. After all, we are a big happy community. 🌚

The protocol where ETH is originally staked is known as the Primary Protocol. By restaking funds, stakers earn from the Primary Protocol as well as from other subsidiary networks where the funds are staked. 💸

LSTs & LRTs?

• In exchange for staking or locking their funds/cryptocurrencies, stakers receive tokens that have the same value as the originally staked ETH. These tokens are known as Liquid Staking Tokens (LSTs). 💵🔒🪙

• As the name suggests, LRTs, or Liquid Restaking Tokens, represent assets that have already been restaked across multiple protocols, thereby enhancing overall security and interoperability.

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Restaking Methods on EigenLayer

Now that Users are ready to be Stakers, there are a few Restaking methodologies on offer, namely:

1. Native Restaking:

   1. The ETH which is already staked is allowed to be added in the Security Pool by the EigenLayer’s Smart Contract, without unstaking it.

   2. Restaking with already staked ETH. Wait, what? 😵‍

3.Remember the Magic Coin & Original Coin analogy? Here, your Original Coin is staked, but the value of the same coin is being used. Take it as the credentials of an account are shared.

1. Liquid Native Restaking

• Users can utilise their natively staked ETHs in other forms like lending, trading, etc. while they are already restaked using EigenLayer.

The other two methodologies are LSD Restaking & Liquid LSD Restaking which are similar to the previous methods, just that LSTs are used instead of Native ETHs.

The Pros & Cons of Restaking

While all the users/stakers enjoy higher rewards, such as 4% from Ethereum for native staking, 5% from Project-1 for restaking, and 7% from Project-3, there are significant risks that could have catastrophic effects.

“Financial Failure is a Chain Reaction, not a Single Event!”

As the restaking protocols offer higher yields, they also come with higher risks. 💀

• What if the validator set defaults and a major chunk of the staked or restaked ETH is slashed from the supply?

• What if the underlying protocol falls in valuation, consuming a major chunk of the liquidity?

• What if excessive leverage or staking leads to market fluctuations, ultimately reducing value?

Even a single smart contract failure in the EigenLayer can cause significant losses in the ETH community, considering the current total value locked (TVL) stands at approximately USD 15 billion.