If you have been following crypto news lately, you have probably heard the term restaking thrown around alongside eye-catching yield figures. With Bitcoin surging past $34,000 and Ethereum holding steady near $1,776 as of late October 2023, the crypto market is heating up again — and restaking is one of the hottest topics in DeFi. But what exactly is restaking, how does it work, and what risks should beginners understand before jumping in? This guide breaks it all down in plain language.
The Basics
To understand restaking, you first need to understand regular staking. When you stake Ethereum, you lock up your ETH to help secure the Ethereum network. In return, you earn staking rewards — currently around 3-4% annual yield. The problem is that once your ETH is staked, it is locked and cannot be used for anything else.
Liquid staking protocols like Lido, Rocket Pool, and Coinbase solved this problem by giving you a receipt token when you stake. When you deposit ETH into Lido, you receive stETH — a token that represents your staked ETH plus accumulated rewards. You can then use stETH across DeFi: trade it, lend it, or provide it as liquidity. This is liquid staking, and it has become enormously popular, with Lido alone holding over $15 billion in staked ETH.
Restaking takes this concept one step further. Built primarily on EigenLayer, restaking allows you to take your liquid staking tokens — stETH, rETH, cbETH, or even native ETH — and stake them again to secure additional protocols beyond Ethereum’s main consensus layer. These additional protocols, called Actively Validated Services (AVSs), can be anything from data availability layers to oracle networks to bridge protocols. By restaking, you earn additional yield on top of your base staking rewards.
Why It Matters
Restaking matters because it solves a fundamental economic problem in the crypto ecosystem. New protocols that need economic security — a financial stake that ensures honest behavior — previously had to build their own validator sets from scratch. This is expensive, time-consuming, and creates fragmented security across the ecosystem.
EigenLayer allows new protocols to tap into Ethereum’s existing pool of staked ETH for their security needs. This dramatically lowers the barrier to launching new trust-minimized services and creates a more efficient allocation of capital. Stakers earn more yield, protocols get instant access to world-class security, and the overall ecosystem becomes more resilient.
The total value locked in restaking is growing rapidly. As of October 2023, EigenLayer has attracted significant deposits from major stakers and institutional players. The potential market size is enormous — if even a fraction of Ethereum’s $200 billion staked capital is redirected through restaking, the economic implications are profound.
Getting Started Guide
Getting started with restaking involves several steps. First, you need to have either staked ETH or liquid staking tokens. If you have not staked yet, you can use a liquid staking protocol like Lido (for stETH), Rocket Pool (for rETH), or Coinbase (for cbETH) to convert your ETH into a liquid staking token.
Next, you need to navigate to the EigenLayer interface and connect your wallet. From there, you can deposit your liquid staking tokens into a restaking pool. Different pools may support different combinations of tokens, so check which assets are accepted. Once deposited, your tokens are restaked and you begin earning additional rewards from the AVSs that your restaked capital helps secure.
It is important to understand that rewards accumulate over time and the exact yield depends on which AVSs are active and how much capital is competing for the same rewards. Early participants in restaking may earn higher yields as the supply of restaked capital is lower relative to demand.
Common Pitfalls
The first and most important risk is smart contract risk. Restaking involves interacting with multiple layers of smart contracts: the liquid staking protocol, the EigenLayer contracts, and potentially the AVS contracts. Each layer adds potential points of failure. The Astrid Finance exploit on October 28, 2023, which lost $228,000 due to a withdraw function vulnerability, is a stark reminder that even well-intentioned protocols can contain critical bugs.
The second risk is slashing. While EigenLayer has not yet activated slashing (as of October 2023), the plan is to eventually implement penalties for validators who misbehave. This means that if the AVS you are securing through restaking detects malicious behavior — even unintentional — you could lose a portion of your staked capital.
The third risk is opportunity cost. While your tokens are restaked, you cannot easily use them for other DeFi activities. If a more profitable opportunity emerges elsewhere, your capital is locked. Some protocols are developing liquid restaking tokens that solve this, but the ecosystem is still maturing.
The fourth risk is concentration. If too much of Ethereum’s staked capital flows into restaking, it could create systemic risk. Regulators and Ethereum core developers have expressed concern about the potential for cascading failures if a major AVS exploit leads to significant slashing events.
Next Steps
If restaking sounds interesting to you, start by reading EigenLayer’s official documentation and understanding the current state of the protocol. Join the community Discord or Telegram channels to ask questions and learn from experienced restakers. Start with a small amount of capital that you can afford to lose — this is still an emerging technology with real risks.
Monitor the security audits of any restaking pool you consider using. Look for pools that have been audited by reputable firms and that have transparent disclosure of their smart contract architecture. As the restaking ecosystem matures, expect to see more sophisticated risk management tools, insurance products, and analytics platforms that help restakers make informed decisions about where to allocate their capital.
Disclaimer: This article is for informational purposes only and does not constitute financial or investment advice. Staking and restaking involve significant risks, including the potential loss of your entire stake. Always conduct your own research and consider consulting a financial advisor before making investment decisions.
the 3-4% base staking yield then restaking on EigenLayer for another layer of rewards sounds great until you realize you are stacking risk on risk on risk
stacking risk on risk is exactly right. base staking then restaking then defi leverage on top. one slashing event and the whole cake collapses
Lido having over 30% of staked ETH is itself a centralization risk that nobody wants to talk about. Adding restaking on top just compounds it.
^ valid concern but liquid staking derivatives being composable is what makes DeFi work. without stETH most of the ecosystem breaks
Lido at 30% of staked ETH is already a single point of failure. Adding EigenLayer restaking on top just means the blast radius is bigger when something goes wrong
Good beginner explanation. Would add that slashing risk is still theoretical for EigenLayer but when it activates, restakers need to understand what they signed up for.
nina is right about slashing still being theoretical. but when eigenlayer turns it on the cascade effects through restaking protocols will be something nobody modeled