Restaking allows validators on blockchains like Ethereum and Solana to redeploy their staked cryptocurrency across other proof-of-stake (PoS) based services.

Staking is an important part of the PoS consensus mechanism used by many of the world’s largest blockchain networks. It involves people called validators locking away an amount of native cryptocurrency to help secure the network and participate in the block proposal process.

In simple terms, the larger a blockchain’s validator network (also known as a trust network), the harder it is to attack.

If you are unfamiliar with this process, check out our Kraken Learn Center article, What is crypto staking?

Prior to restaking, staked crypto assets could not be redeployed across other protocols. This restriction presented two problems:

• Validators were limited in the number of rewards they could generate from their staked assets.
• Network security could not be shared across different platforms.

Restaking focuses on aggregating and extending the security of large blockchain networks to other services such as oracle networks, data availability layers and blockchain bridges to name a few.

It also allows validators to generate multiple forms of rewards for helping secure several platforms concurrently using a single cryptocurrency.

Restaking protocols provide an opt-in service where validators (called restakers) can redeploy their staked ETH, SOL or other cryptocurrency across multiple protocols at the same time.

This also includes liquid staked assets from protocols like Rocket Pool and Lido Finance.

EigenLayer, as a leading example, consists of a set of smart contracts that allow Ethereum validators to restake their assets and secure other Ethereum-based protocols. 

EigenLayer collectively refers to these protocols as “modules” or “actively validated services (AVSs).”

You can find the latest list of EigenLayer AVSs here.

When opting into restaking protocols, users accept additional slashing conditions set by each module, on top of Ethereum’s own slashing measures. 

Slashing is an important component of PoS systems whereby a validator’s staked assets are partially or wholly confiscated if the protocol detects malicious behavior.

Each AVS specifies its own slashing conditions to encourage validators to act within the best interests of their network. Without these additional penalties, malicious validators could collectively target and attack vulnerable modules.

Similar to delegated PoS models, validators can entrust registered operators to stake on their behalf.

This option offers restakers who may not have the time or equipment to meet the system resource requirements of certain modules a chance to participate in their networks and earn rewards (minus fees charged by the operator).

Beyond EigenLayer’s pooled security feature, it also introduces an open AVS marketplace where restakers can freely choose which modules they want to help secure.

Decisions may be influenced by several factors such as a module’s resource requirements, rate of rewards, perceived risk or what sector it caters to.

For example, a group of validators that believe in the future of oracle networks may decide to provide pooled security to oracle-based AVSs in exchange for their native tokens.

Others might specifically target high reward, high risk AVSs launched on top of EigenLayer in a bid to generate maximum rewards on their staked assets.

Any new technology presents its own set of unique risks.

Restaking is no different.

This list represents just some of the risks that restaking presents, and is by no means exhaustive.

Rigorous due diligence is always advised before interacting with any new cryptocurrency technology.

• Smart contract risk: Smart contracts can contain potential vulnerabilities or flaws in their code, such as coding errors, bugs and backdoors. These problems can lead to unintended consequences such as financial loss, security breaches or exploitation by malicious actors.
• Slashing risk: Slashing can occur without warning and result in considerable losses. Cryptocurrency opted into restaking protocols may face increased slashing risks due to the additional conditions imposed by each AVS.
• Counterparty risk (Operator): Dealing with third-party staking delegates requires restakers to entrust them with their deposited assets. Restaking operators must abide by each module’s network conditions or risk losing funds via slashing. In these scenarios, it’s unclear if restakers would receive any compensation from these events.

Beyond EigenLayer’s Ethereum-based restaking protocol, other instances of the restaking protocols are in early development across other leading Layer 1 blockchains.

• Bitcoin: Babylon

• Solana: Picasso

• Near: Octopus 2.0

In summary, restaking represents a significant advancement in the realm of blockchain technology, particularly in proof-of-stake (PoS) based networks like Ethereum. 

By enabling validators to redeploy their staked cryptocurrency across various PoS services, restaking addresses key limitations in the traditional staking model. 

This innovation not only expands the potential rewards for validators but also enhances network security by aggregating resources and sharing them across different platforms.

Now that you have learned all about crypto restaking, are you ready to take the next step in your crypto journey?

Click the button below to start buying restakable cryptocurrencies on Kraken today!