ReStaking is considered another accelerator for Ethereum in this bull market, besides the Cancun upgrade and spot ETF. This article provides an overview of the principles, advantages, disadvantages, and ecological projects of ReStaking, allowing readers to understand this DeFi narrative.
What is ReStaking and how does it work?
As the name suggests, “ReStaking” refers to re-pledging assets after the initial staking. Its working principle allows the already staked ETH to be re-staked in another staking scheme or platform, aiming to increase the utility of the staked assets and provide additional rewards to holders. However, it also brings new risks to stakers, so users need to choose platforms carefully.
Types of ReStaking
ReStaking allows users to stake the same ETH on both the Ethereum mainnet and other protocols, ensuring the security of all these networks. It includes the following types of staking:
1. Local ReStaking
Local ReStaking is operated through a set of smart contracts and is only open to users who operate Ethereum verification nodes.
2. Liquid ReStaking
Liquid ReStaking utilizes liquidity staking tokens. Usually, users pledge their assets on the platform to earn profits, and the platform rewards them with a Liquid Staking Token (LST) to prove the liquidity they provided. Liquid ReStaking refers to pledging LST on other ReStaking protocols to earn higher returns. These DApps are often referred to as Active Validation Services (AVSs) and can obtain secure infrastructure through ReStaking.
What are Liquid ReStaking Tokens?
Liquid ReStaking Tokens (LRT) represent the evolution of liquidity staking tokens (LST). They also provide liquidity for ETH but can generate additional returns on top of ETH staking rewards. The difference between the two is as follows:
LST:
Users deposit ETH into the protocol and receive tokens that prove liquidity. The protocol stakes ETH on Ethereum to distribute rewards to stakers.
LRT:
Users deposit ETH or LST into the ReStaking protocol and receive tokens that prove ReStaking. The protocol stakes ETH or LST in the ReStaking protocol to distribute rewards to stakers.
Advantages and disadvantages of ReStaking
Advantages:
Leverage of earnings: ReStaking allows users to obtain multiple returns from the same asset.
Improved capital efficiency: Users can participate in other staking projects, lending, and stablecoin minting without withdrawing their original staked assets, effectively improving capital efficiency.
Reduction of sell-offs: ReStaking makes the original tokens more useful, thus avoiding sell-offs.
Disadvantages:
Risk of asset loss: If a node engages in improper behavior, there is a risk of asset confiscation or fines, which may lead to partial or total loss of assets.
Smart contract risk: If the network is hacked, you may lose all your assets.
Asset bubble: The market value may no longer reflect the true value due to the inflation of new wrap tokens or token value multiplication. Using assets that represent locked value in validators to mint stablecoins increases risk.
Excessive tokens in the market: When there are too many tokens in the market, DeFi newcomers may feel confused and easily deceived, especially by low-quality projects that mint a large number of garbage tokens, which will flood the cryptocurrency market.
Introduction to Ethereum ReStaking Projects
1. EigenLayer
EigenLayer is the first project to develop and introduce the ReStake model to the community. It introduces the concept of ReStaking, allowing Ethereum nodes to re-stake their staked ETH or LSD tokens in other protocols or services that require security and trust. This enables them to receive double rewards and governance. It also extends the utility of the Ethereum consensus layer to various protocols such as middleware, data availability layers, and side chains, allowing them to enjoy Ethereum-level security at lower costs. EigenLayer has received a total investment of $64.5 million from Blockchain Capital, Coinbase Ventures, Polychain Capital, Electric Capital, and a whopping $100 million from renowned US crypto venture firm a16z.
2. Renzo
Renzo is a liquidity ReStaking protocol based on the Ethereum ReStaking protocol EigenLayer. It allows users to easily participate in Ethereum ReStaking on EigenLayer. Its main contributor, Lucas Kozinski, stated that Renzo was created to enable users to participate better in EigenLayer. Renzo has already been listed on Binance and is currently trading at $0.149, with a market capitalization of $170 million.
3. ether.fi
ether.fi is a decentralized, non-custodial delegation staking protocol. Stakeholders can control their own keys throughout the entire staking process, from creation to redemption, and can withdraw their ETH by exiting validators at any time, upholding the concept of “Your keys, Your crypto.” It has received recognition from Arthur Hayes, the legendary trader and founder of the exchange BitMEX. The Maelstrom family office fund, associated with Arthur Hayes, has also invested in ether.fi. Ether.fi has been listed on exchanges such as Binance and OKX, with a price of $4.743 and a market capitalization of $546 million.
On May 15, it was reported that the founder of Lido and crypto venture Paradigm are secretly funding a new ReStaking project called Symbiotic, which could threaten EigenLayer’s leading position.
On April 24, Binance announced the launch of the liquidity ReStaking protocol Renzo (EZ) on its Launchpool. Renzo (EZ) was listed on April 30, with trading pairs including EZ/BTC, EZ/USDT, EZ/BNB, EZ/FDUSD, and EZ/TRY.
On April 18, popular Ethereum ReStaking project Puffer Finance announced the completion of a $18 million Series A funding and the upcoming launch of its mainnet.
On February 23, Ethereum liquidity ReStaking protocol EigenLayer announced that it has secured a $100 million investment from renowned US crypto venture firm a16z.
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