Restaking explained

Restaking means using ETH that is already staked as security for other services as well. You earn extra rewards, and you accept extra ways to lose the stake. This lesson explains the idea and why it needs care.

The idea

Staked ETH secures Ethereum. Validators behave because they have something to lose.

Other services would like the same kind of security: price oracles, bridges and data networks, for example. Building a pool of staked value from nothing is slow and costly. Restaking lets them borrow the security of ETH that is already staked.

The best-known system for this is EigenLayer.

Who is involved

• Restakers deposit staked ETH, or liquid staking tokens from Lesson 48, into the restaking contracts.
• Operators run the software for the extra services. Restakers delegate their stake to an operator.
• Services pay rewards to operators and restakers when the work is done properly. EigenLayer calls them autonomous verifiable services.

The price of the extra reward

Each service sets its own conditions for slashing. If an operator breaks them, stake delegated to that operator can be slashed. EigenLayer's documentation puts it simply: a slashing "results in a burning/loss of funds".

So the same ETH now stands behind several promises at once:

1. Ethereum's own rules
2. The rules of each extra service the operator has signed up to

Break any one of them and part of the stake is gone.

Two details matter here. The documentation says restakers should consider which services their operator runs, because that decides what they are exposed to. It also says slashing by a service "does not have to be objectively attributable", meaning it does not always rest on proof recorded on the blockchain. You are trusting each service's own process.

Layers on layers

Restaking is often wrapped again. A liquid restaking token is a receipt for a restaked position, in the way stETH is a receipt for staked ETH. That token is then used as collateral for loans.

Count the layers in a common chain:

1. ETH is staked with a pool.
2. The pool's token is restaked.
3. A receipt for the restaked position is issued.
4. The receipt is used as collateral to borrow.
5. The borrowed money buys more ETH, and the loop starts again.

Each layer has its own contracts, its own governors and its own way to fail. A problem at the bottom reaches everything above it. The Bank for International Settlements has warned about exactly this pattern in DeFi, where borrowed funds are reused as collateral.

Is the reward worth it?

The extra yield is payment for the extra risk. It is not a free top-up.

Ask the questions from Lesson 44:

• Who is paying? A service with real users and revenue, or a reward token created to attract deposits?
• What can slash me? Which services does my operator run, and what are their conditions?
• How do I get out? Restaked positions have their own waiting periods on top of Ethereum's.
• Do I understand every layer? If not, the rate is not the point.

For most people holding ETH for the long term, plain staking is simpler and its risks are easier to see.