Institutional investors are finally embracing cryptocurrency staking, and not a moment too soon. Restaking — a more versatile approach to securing blockchain protocols — is already reshaping Web3. It will transform crypto investing and propagate a completely new asset class in financial markets.
Staking involves securing blockchains — such as Ethereum (ETH), Solana (SOL), and Avalanche (AVAX) — by posting crypto as collateral with validators in exchange for network fees. Restaking extends the same “crypto-economic security” across the entire Web3 ecosystem, from layer-2 scaling networks to Web3 protocols and off-chain apps.
Restaking platforms — such as EigenLayer, Symbiotic and Karak — collectively command almost $13.5 billion worth of restaked crypto collateral, according to data from DeFiLlama. Eigenlayer is the largest by far, commanding nearly $11 billion in total value locked (TVL) as of Sept. 17.
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Already, restaking platforms secure dozens of decentralized apps, or “actively validated services” (AVS) in EigenLayer’s parlance. So far, only one AVS — EigenLayer’s own data storage and management protocol, EigenDA — is paying rewards.
More will start soon. ARPA Network, an AVS specializing in trustless random number generation, told Cointelegraph it plans to start paying restakers as soon as September. Expect more dApps — such as Lagrange State Committees and AltLayer MACH — to join the fray.
Restaking is creating “a two-sided marketplace for raw crypto-economic security,” a16z General Partner Ali Yahya wrote on X. On the demand side: dApps and others seeking on-chain security. On the supply side: retail and institutional restakers, who post crypto collateral and earn a cut of protocol revenues in return.
The restaking marketplace is incredibly rich, and evolving daily. Restakers can choose from at least 10 restaking protocols and dozens of collateral tokens, including ETH and its liquid-staking derivatives (LSD), wrapped Bitcoin (BTC), and native protocol tokens such as EigenLayer’s EIGEN.
Restakers also need to choose which AVSs they want to secure, and then delegate restaked tokens to a node operator (EigenLayer has 1,500). Alternatively, they can deposit into a restaking pool in exchange for a liquid restaking token (LRT). There are at least 20 LRT protocols to choose from.
Adding to the complexity, on Sept. 10 EigenLayer unveiled an upgraded security model designed to bind restaking returns to the performance of specific AVSs. Each AVS has its own business model and sets its own terms rewarding and penalizing (“slashing”) validators.
Stakers on EigenLayer delegate ETH to operators who ask to participate in operator sets created by AVSs. Source: EigenLayer
The inevitable result will be a re-staking marketplace where the cost of capital — in this case for crypto-economic security — varies dynamically based on risk/reward tradeoffs for each AVS.
“The risk-prone investor restakes into new, risky, high-yield AVSs and is happy, and the risk-averse investor puts his money into blue-chip AVSs,” decentralized finance (DeFi) protocol Byzantine Finance, which specializes in restaking strategies, said in a Sept. 11 post on X.
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If this sounds like the makings of a new asset class, you might be on to something. DeFi protocols like Byzantine are developing restaking strategies with targeted risk exposure. Institutional staking services and custodians — such as Figment and Anchorage Digital Bank — are supporting restaking.
Investment managers are following suit. Nomura’s crypto arm, Laser Digital, announced plans to start restaking in April. S&P Global, a market researcher, expects restaking eventually “may create an ‘internet bond’ market.”
“Restaking, unlike staking, is not a specific investment, but rather an investment class,” Byzantine Finance wrote in a blog post.
This isn’t a passing fad. Web3 is throttled by severely limited transaction throughput on layer-1 networks, such as Ethereum, resulting in costlier transactions and slower confirmation times. Restaking is one of the most promising solutions. It’s also highly adaptable, and can’t be fully displaced by other emerging security methods, such as zero-knowledge (ZK) proofs.
For now, AVSs are paying restakers with token incentives. That won’t last. As restaking improves network performance, on-chain activity will continue to climb. Revenues will follow.
“The only way this makes sense long term is if restaking networks get customers, and those customers, directly or indirectly, pay money for the services that these other restaking networks provide,” liquid-restaking protocol Ether.fi CEO Mike Silagadze said in August.
“But on the flip side, I think it’s inevitable,” he added.
Alex O’Donnell is a senior writer for Cointelegraph. He previously founded DeFi developer Umami Labs and worked for seven years as a financial journalist at Reuters, where he covered M&A and IPOs. He is also the crypto growth lead at startup accelerator Expert Dojo.
This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts, and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.