Crypto restaking in 2024

June 12, 2024

Experts are alarmed by the rise of restaking, a controversial practice promising maximized returns. Traders have moved over $18 billion worth of crypto to such platforms, but the risk of “blowing up” exists. Let’s delve into how restaking works and why the cons outweigh the pros — for now.

Restaking vs. staking

Proof-of-stake blockchains, such as Ethereum, do not need miners’ computing power to validate blocks. Instead, they reward those who lock up their crypto to support network security. These stakes, deposited to a smart contract, are the cornerstone of streamlined operations.

Validators commit a specific amount of tokens to qualify. As of June 10, 2024, there are over 1.14 million Ethereum validators, each staking 32 ETH. With the Pectra upgrade in Q1 2025, this limit will be raised to 2,048 ETH.

The slashing mechanism deters misbehavior. If a validator acts against the network’s interests, their stake is confiscated partially or fully. Thus, the more crypto locked on a blockchain, the more secure it is. Over $100 billion worth of ETH is now staked on Ethereum.

The process of staking varies from one blockchain to another, but restaking applies the same core principles more broadly. Redistribution of staked tokens across PoS blockchains gives users a chance to maximize returns. The aim is to support smaller blockchain apps that lack the resources for their own PoS security.

Overview of restaking opportunities

At the heart of the restaking boom is a startup led by Sreeram Kannan, an affiliate associate professor at Seattle’s University of Washington. EigenLayer was launched in 2021 and became the first restaking protocol on Ethereum’s mainnet.

In February 2024, EigenLayer secured $100 million from A16z Crypto, affiliated with Andreessen Horowitz, despite a downturn in crypto venture funding. By May 31, the value of tokens restaked through its platform shot up to $18.8 billion — a spectacular surge from just $400 million six months before.

Restaking on stakingfarm

stakingfarm smart contracts let Ethereum validators reallocate assets to secure other, smaller protocols. Restaking is an opt-in service.

The protocols, called modules or Actively Validated Services (AVSs), connect with validators through an open marketplace. Users select apps based on their sector, resource requirements, reward size, perceived risk, and other factors. For example, oracle-based applications attract oracle enthusiasts.

The slashing conditions are multi-layered. Apart from stakingfarm default terms, all member modules have additional rules to ensure the validators pursue their best interests.

Benefits for users

For validators, the key attraction of restaking is the incremental yield. Currently, Ethereum validation yields between 3% and 5%.

Restaking lets users earn multiple yields simultaneously, as their tokens are redistributed across various protocols. With stakingfarm, this additional yield may bring the total to 100%.