What is Restaking in Crypto, and How Does it Work?

Staking cryptocurrency is one of the most common ways investors earn passive rewards. But it comes with a catch: once tokens are staked, they’re locked up on a single network. They secure that chain, but they can’t be used anywhere else.

A new idea called restaking is changing this. It lets the same staked assets secure more than one protocol at a time. In simple terms, it’s like putting your crypto to work twice without unstaking it. The security that protects one blockchain can now help protect others, too.

This concept started on Ethereum and is spreading fast across the crypto space, including blockchains like Ethereum and Solana. In this article, we’ll discuss what is restaking in crypto, how it works, its advantages, and risks.

Key Takeaways

• Restaking = staking twice (or more): You reuse already-staked tokens to secure multiple blockchains or services at once.
• Higher efficiency and rewards: Instead of earning from only one network, you collect rewards from both the original chain and the additional protocol. No extra capital required.
• Shared security: Smaller projects that struggle to attract stakers can “borrow” security from large networks. This makes them harder to attack and more decentralized.
• Two forms:
  • Native restaking – validators opt in directly (e.g., EigenLayer on Ethereum).
  • Liquid restaking – done through platforms like Puffer or Ether.Fi, where you get tradable liquid restaking tokens (LRTs).
• Risks to note: Restaking isn’t risk-free. Extra slashing conditions, smart contract bugs, and the chance of contagion across shared security pools all add complexity.

In short, restaking makes crypto more capital-efficient and opens new doors for network security. But it also comes with trade-offs that every investor should weigh before jumping in.

What is Restaking in Crypto?

Restaking projects reuse the staked assets that are used to secure smaller blockchain applications. Put differently, they enable the existing validator stakes to obtain more than a single protocol.

This may enhance the general security of the pooling of the economic weight of numerous projects through liquid restaking protocols.

Staking in crypto describes the act of staking an asset that has been staked on a second network or protocol. Put simply, it consists of securing your cryptocurrency (such as ETH) so as to assist in operating one blockchain, and then operating or securing another blockchain or application concurrently using the same crypto you have staked.

In this manner, you are essentially doubling your bet (also known as re-staking) you have made on the previous chain, and now on a new platform.

This was first introduced by EigenLayer on Ethereum in 2023. In 2022, Ethereum transitioned to Proof of Stake, which caused millions of ETH to be staked in its beacon chain. The concept at EigenLayer was: can we put that staked ETH to better use, allowing users to leverage their assets across multiple protocols? The validators ensure the security of Ethereum, but are also allowed to ensure that of other services on the side.

EigenLayer proposed the protocol according to which Ethereum validators are able to pledge their deposited ETH as security to other protocols or dApps (decentralized applications), and receive additional fees as a reward.

In effect, restaking Ethereum to new projects and exporting it constitutes a staking of Ethereum to fresh projects to allow them to piggyback on the billions of dollars already staking Ethereum.

An example of the strength of restaking can be seen in the following analogy by the founder of EigenLayer. As a matter of fact, when 100 various blockchain applications are set with their own $1 billion stake, an attacker can focus on the tiniest one with an equivalent of 1 billion and probably break it.

However, assuming that those 100 apps have a common pool of $100 billion invested in them, it would cost $100 billion to compromise any one of them.

By sharing security via restaking, each protocol becomes as secure as the combined whole, not just its individual stake. “Imagine that instead of each of the protocols having $1 billion separately staked, there was $100 billion commonly staked across 100 protocols,” explained Sreeram Kannan, the founder of EigenLayer. “To attack any one protocol, now you need $100 billion rather than needing $1 billion.”

Crucially, restaking doesn’t print new tokens or magic up free money – it repurposes what’s already there. Your staked crypto (like ETH or SOL) acts as collateral on multiple platforms. It’s similar to reusing an asset in multiple places, which is why people often compare it to rehypothecation (reusing collateral) in finance.

Done carefully, restaking can increase the utility of staked crypto and improve capital efficiency (you get more output – security and rewards – from the same input of tokens). However, it also means your one asset is now carrying multiple responsibilities.

How Does Crypto Restaking Work? The Mechanism Behind Restaking

Comparison of security models today versus EigenLayer’s restaking (conceptual diagram). Without restaking (left), each decentralized app must rely on its own small validator set (often called an AVS), leading to high capital requirements and weaker security.

With a restaking protocol like EigenLayer (right), Ethereum’s large validator pool can be extended to secure many DApps via AVSs, greatly raising security while improving capital efficiency and enabling the use of multiple protocols.

At a high level, restaking works by providing an opt-in layer on top of a Proof-of-Stake blockchain. Validators (or even regular token holders via certain services) can choose to “re-stake” their tokens through a restaking protocol.

Let’s break down how it typically works in practice, using blockchain and other protocols like Ethereum’s EigenLayer as the primary example:

• Opting in as a Validator: You are an Ethereum validator, and typically, you are staking 32 ETH of Ethereum. To redeem on EigenLayer, you would only change your withdrawal credentials to the Ethereum beacon chain to reflect the EigenLayer smart contract. This simply files your staked ETH with EigenLayer. You are still a validator on Ethereum, just like before, but you have indicated that your stake can be offered to EigenLayer, enabling you to participate in multiple protocols simultaneously.
• Choosing Additional Protocols (AVSs): When you have selected Additional Protocols (AVSs), you have the option as to which Actively Validated Services (AVSs) you will support with your stake. AVSs are the modules or protocols that require additional security, i.e., an oracle network, a bridge, a data availability chain, etc. You may choose some that you believe in or are gratified with. EigenLayer offers a market of such modules in which restakers can select according to the rate of rewards, risk, or preference.
• Running the Required Software: Every AVS may need you to start some other software or an Oracle service on your node (e.g. an Oracle service may have its own client to report information). Restaking is not all set and forget, as validators must work on those other services they have subscribed to. Nevertheless, not all can manage to allocate the time, the expertise, and the equipment to execute additional modules. In these situations, the validators may outsource such functions to third-party operators.
• Earning Multiple Rewards: Once set up, your single staked asset now yields multiple streams of rewards. You continue to earn staking rewards from the base blockchain (e.g. ETH rewards from Ethereum’s protocol) and you earn additional rewards or fees from each AVS you support. These additional rewards might come in various forms: the AVS’s own token, a cut of fees that the AVS protocol generates, or extra ETH distributed by EigenLayer.

• Extra Slashing Conditions: With greater reward comes greater responsibility. When you opt into restaking, you also agree to the slashing conditions of each additional protocol. Slashing means if you (or the operator running on your behalf) fail to follow the rules or act maliciously on any supported service, a portion of your stake can be confiscated. In EigenLayer’s case, a restaked validator could potentially lose up to 100% of their staked ETH if they break the rules of any one of the supported protocols.
• Pooled Security Effect: Behind the scenes, the restaking protocol aggregates all these restaked tokens into a common security pool. For example, suppose 1,000 ETH validators each restake into EigenLayer – that’s effectively a big pool of up to 32,000 ETH securing any project that uses EigenLayer. A new DeFi app could launch and use EigenLayer instead of issuing its own token for security or recruiting its own validators, allowing users to stake the same tokens across multiple protocols. The app benefits from Ethereum’s trusted validator set and huge economic security, which it could never have achieved alone as a small startup project.
• Restaking via Liquid Tokens: You don’t necessarily need to be a big validator with 32 ETH to participate. Many restaking protocols also accept liquid staking tokens (LSTs) or other staked asset derivatives. For instance, if you have stETH (Lido’s liquid token for staked Ether), you can use that to restake. EigenLayer and others allow deposits of certain LSTs or LP tokens from DeFi as collateral for restaking.
• Example beyond Ethereum – Solana: While EigenLayer is the poster child of restaking on Ethereum, the concept is spreading. Solana, for example, has plans for a restaking-like feature where users can restake SOL (the native token) that they’ve already staked on Solana to secure other Solana-based apps and earn extra interest. Other networks like NEAR have also explored similar ideas. The details differ per blockchain, but the core idea is consistent: leverage the main network’s staked asset to boost the security of the wider ecosystem.

Key Benefits of Restaking

1. Double or Triple Rewards

The greatest direct advantage is increased returns. Traditional staking may offer an investor a 5 percent annual yield. Restaking provides the opportunity to earn extra returns on top of the staked asset without having to withdraw it or inject extra funds. Basically, the tokens are the same ones that produce various channels of revenue, and therefore, they are more productive.

2. Capital Efficiency

In the conventional staking, assets are held in security and cannot be employed elsewhere. Restaking opens up a second use case. As an illustration, in the case of liquid restaking tokens (LRTs), an investor is able to trade or utilize the assets they have staked in DeFi and at the same time, contribute to various protocols. This enhances liquidity, utility, and enables the ecosystem to accomplish more with less locked assets.

3. Shared Security

Small or new projects often struggle to attract enough stakers to secure their networks, which is where restaking enables broader participation. Restaking lets them “borrow” security from large blockchains like Ethereum. This pooled protection raises the cost of attacks and reduces vulnerabilities. In practice, it’s like a community sharing a single, powerful security force instead of each project hiring its own.

4. Boost for Innovation

Launching a blockchain service normally requires convincing people to stake a new token. Restaking lowers that barrier. Developers can lease security from an existing restaking network, speeding up experimentation and deployment. This model is already enabling new services such as bridges and oracle networks, which can rely on restaked ETH instead of creating their own validator base.

5. More Choice for Stakers

Restaking lets investors diversify their staking strategy. They can allocate security to different projects based on risk preferences or personal interest, supporting early-stage DeFi services for higher yields or sticking to established protocols for stability. This personalization also aligns incentives, as stakers can directly back ecosystems they believe in.

6. Strengthening Decentralization

By spreading security to smaller projects, restaking allows for the creation of a more decentralized multi-chain ecosystem. Independent blockchains gain access to strong protection without having to merge with larger platforms or rely on centralized solutions.

7. Fueling DeFi and Liquidity

LRTs not only improve efficiency but also add new assets to DeFi, enhancing the capabilities of liquid restaking protocols. These tokens can be traded, lent, or used as collateral, injecting liquidity that was previously locked in staking contracts. This composability strengthens the broader DeFi ecosystem.

In summary, restaking creates a win-win model: stakers maximize returns from their assets, while new projects gain access to enterprise-grade security. This combination explains why it’s seen as a promising force for growth in the blockchain space.

Main Risks of Restaking

There are also severe challenges with restaking, although this would be a worthy idea. These are some risks that should be understood before involvement.

1. Complexity and User Error

Restaking also has several platforms and protocols, as opposed to one-click staking. Wrong settings, like withdrawal credentials errors or the use of unreliable third-party services, may lead to the loss of money. The complexity increases the probability of errors.

2. Slashing Risks

There are more slashing conditions associated with restaking. A validator may lose money even in the case of a failure of one of the restaked protocols or when it is attacked, even when the validator is working correctly on Ethereum. This concentrates risks across systems, resulting in a situation where honest validators lose money. In the worst-case scenario, restakers may end up losing all their stake due to increased slashing risks.

3. Smart Contract Vulnerabilities

Smart contracts are crucial in restaking platforms, and they may be buggy. With more contracts come more chances of adventures or frozen money. These systems are not battle-tested as base layer staking has been the issue of restaking is still fairly new.

4. Counterparty Risk

The restaking operations will be delegated to the operators or exchanges by many users. This introduces trust risk. Delegators would be slashed in case of mismanagement of their duties or violation of protocols by an operator. There is no promise of payment, and it is important to choose trustworthy operators.

5. Contagion and Systemic Risk

Due to the connection between several services, any issues in one region may propagate quickly because of restaking. A huge exploit/slashing incident may spill over to the ecosystem and decrease confidence in the whole system. This is compared to financial crises in which interconnected risks cause extensive failures to critics.

6. Centralization Concerns

Restaking may not decentralize power but concentrate it. When any of the protocols, such as EigenLayer, becomes dominant, bulk ETHs can pass through it, which will act as a single point of failure. Likewise, when a small number of large operators own the majority of restaked assets, they will have disproportionate power, which reduces the network’s resilience.

7. Economic and Incentive Risks

Restaking alters reward dynamics. Projects may compete by offering higher yields, which can be unsustainable and cause token inflation. Excessive layering of yield opportunities also risks over-leveraging, where users stake, receive LSTs, restake them into LRTs, and use those in other protocols. This “yield stacking” can unwind dramatically if any part of the chain fails, echoing financial bubbles.

FAQs

What is restaking?

Restaking means using already staked crypto to secure another platform without unstaking it. For example, ETH staked on Ethereum can also be used via protocols like EigenLayer to support other networks, earning extra rewards while securing multiple systems.

What is the difference between staking and restaking?

Locking tokens on one blockchain to validate transactions and earn rewards. Using those staked tokens again to secure other protocols, creating multiple reward streams. In short, staking is equal to one network; restaking means one network plus others, but with added risks, particularly in terms of increased slashing risks.

What is restaking crypto?

It’s the practice of deploying staked tokens into new protocols (e.g., EigenLayer) to increase utility and rewards. Restaking boosts earning potential but comes with extra risks and complexity compared to plain staking.

What is BTC restaking?

Since Bitcoin has no native staking, BTC restaking uses sidechains, time-locks, or protocols like Babylon and BounceBit to let holders earn rewards. BTC stays secured on its chain while pledged to other systems, showcasing the versatility of liquid restaking protocols. This makes Bitcoin productive in DeFi, but solutions are new and carry higher risks.