Remember one of our past posts when we explained what "staking" is and how it differs from "liquid staking"? Now, DeFi is evolving, and there is “liquid re-staking”! Are you ready for the next step👀?

Once again, think about the metaphor of the decentralized art gallery:
When you lend your painting to the gallery and earn a share of the ticket sales, but your painting is locked up in the gallery for a set period, that`s like staking in DeFi. If you receive a special "Art Token" for lending your painting that represents your painting's value, and you can keep it, earn more rewards with it, trade it with other art lovers, use it to buy other artworks or services in the gallery, that is liquid staking.

Now, imagine another decentralized art gallery located outside the business district. There is no reason to go there unless you are a real hardcore art lover. But if you know that this is a “sister” art gallery of the original one, showing the same quality standard works of art from the original gallery, you might feel much more comfortable going there. As an art-loving person, you have much more confidence that when visiting this unknown art gallery, you can at least be sure you`ll see some great paintings. And as the owner of the original painting, now already in the possession of the special “Art Token”, you are free to decide that your painting is also shown at this second gallery.

By doing this, you contribute to the overall evolution of the art scene in your city. At the same time, there is a financial incentive to earn a share of the ticket sales of two galleries. In DeFi, this is called “liquid re-staking (LRT)”. At any time, you can trade your token back for your “Art Token” and subsequently to your original painting. Put in other words, re-staking involves staking assets (= showing paintings) on multiple networks or protocols (= different galleries) to maximize yield and utility (= 2-times sale). More economically speaking, it’s a form of capital efficiency because the same staked asset (= painting) can secure multiple networks (= supporting multiple galleries) simultaneously.

In sum, LRTs are like a traveling exhibition of art that combines two concepts. First, users (or painting owners) stake their assets in a primary staking protocol (lending their paintings to a gallery). Afterwards, they can decide to re-stake the issued liquid staking token (“Art Token” on hiking) in additional protocols or networks (different galleries), to potentially earn multiple rewards (entrance fees). Second, these tokens maintain the liquidity of the underlying staked assets (the painting is still owned and tradeable), allowing owners to trade or use them in other DeFi applications while still earning staking rewards (entrance fees).

Overall, liquid re-staking tokens (LRTs) represent a sophisticated financial tool within the crypto ecosystem. This novel system aims to provide liquidity and enhanced yield opportunities for staked assets.

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This article was authored by Nils Otter for ALANA