The launch of restaking on the Ethereum mainnet in June 2023, and the subsequent success of decentralized restaking protocol EigenLayer, has completely transformed the way we think about network security and token utility. By allowing users to have their cake (stake) and eat it too (by using the liquidity elsewhere), restaking is creating a more dynamic, resilient and interconnected blockchain ecosystem, one that extends cryptoeconomic security beyond a single network. With EigenLayer leading the way, and infrastructure projects like SSV widening the accessibility of staking, the future looks bright for DeFi’s hottest new primitive.
In short order, restaking has become one of the most talked-about activities in all of DeFi, feted for enhancing the security of blockchain networks while furnishing token-holders with fresh opportunities to maximize their returns.
Let’s dive into why restaking has become such a game changer.
Understanding Restaking
First, a quick primer on restaking itself. It is a process that involves users restaking their already staked tokens into other protocols, rollups and oracles, a feat made possible by the issuance of liquid restaking tokens (LSTs). The latter, tokenized derivatives representing staked assets, enable users to earn extra rewards from projects like EigenLayer, which permits their use on the Ethereum consensus layer.
By restaking, users can effectively stake their tokens twice: first to secure the main network, then to other protocols to secure multiple networks simultaneously and generate more yield.
The Blockchain Security Challenge
The popularity of restaking is easy to grasp, particularly from the user’s perspective. But what about blockchains themselves?
Distributed ledgers require a hefty amount of capital to secure their networks. In Proof-of-Work (PoW) systems, miners solve computationally intensive algorithms to validate transactions. Proof-of-Stake (PoS) systems, on the other hand, depend on users ‘locking up’ tokens to run validator nodes. While very different, both approaches incentivize participants with rewards to ensure network security.
Attracting sufficient capital, though, is no mean feat – especially for newer blockchains. Established platforms like Bitcoin and Ethereum have a first-mover advantage, robust reward systems, and plenty of cultural capital, making it difficult for rivals to compete. Particularly as potential participants are naturally wary of locking capital in unfamiliar tokens, which can hinder the growth and security of incoming networks.
Restaking: A Win-Win Solution
Restaking effectively addresses this challenge by letting users contribute to a network’s security without fully committing to a single, potentially unfamiliar token. It is an approach that offers several advantages beyond the amplified returns that can be earned from multiple sources.
Networks, of course, are big beneficiaries as they welcome more liquidity and the mass of users needed to strengthen their security and expand their ecosystems.
Among the many players operating in the hyper-competitive restaking scene is SSV, a distributed validator network that enables what it calls Distributed Native Restaking. In a nutshell DNR is about disintermediating validator operations, giving trust-minimized operators responsibility for a key share rather than the entire validator key. A feature that dramatically reduces validator downtime/slashing risk while boosting network security, since the validator’s private key can be safely stored offline.
SSV’s Distributed Validator Technology has seen it forge several high-profile partnerships with major restaking players, Lido among them. A leading liquid staking protocol, Lido leverages DVT to expand its node operator set, reduce risk, and achieve greater decentralization. SSV’s infrastructure has also been integrated by many staking-as-a-service providers and staking pools.
