Staking Ethereum is the process of using Ether that has been staked on the Ethereum network to simultaneously maintain the security of other decentralized protocols.
The security of the network is synchronized with the quantity of active validators, the proportion of circulating tokens staked, and the distribution of these tokens among the active validators in proof-of-stake (PoS) blockchains like Ethereum. Restaking systems encourage these staked tokens, which would otherwise be idle, in order to enhance the blockchain's overall performance.
This article addresses staked ether collective security, the definition of restaking, forms of restaking, and considerations related to restaking.
How does restaking work?
Stakers can spend their Ether ETH in the consensus layer several times thanks to a new idea in cryptocurrency security called restaking. By making it easier to deploy liquid staking tokens with validators across several networks, it enables stakers to maximize their payouts while fortifying the security of the staking network.
On PoS blockchains, stalled tokens typically remain inactive. Higher staking payouts are made possible for restakers when restaking activates staked tokens. To earn extra rewards on their staked tokens, users can employ restaking protocols like EigenLayer, regardless of whether they are directly staking Ethereum or utilizing a liquid staking token (LST).
The PoS consensus process on the Ethereum network is unique due to the huge quantity of validators that are involved in it. However, staked Ethereum is idle. Stakeholders can use their staked ETH in decentralized finance (DeFi) apps since liquid staking protocols turn it into fungible tokens. Users with smaller holdings can still receive staking benefits because the method reserves the minimum 32 ETH staking ceiling.
Kinds of restaking
Native and liquid restaking are the two main categories into which retaking can be divided. Users that operate an Ethereum validator node can perform native restaking. It operates via a collection of smart contracts that oversee the administration of assets staked inside the node of a validator.
Restaking protocols give crypto-economic security, which validators can take advantage of and use to stake their coins. Validators must install and run extra node software for the restaking module in order to take part in a restaking program.
Users that engage in liquid restaking do so by using liquid staking tokens (LST). In this process, a staker stakes their assets with a validator, who then awards them with a token representing their stake. To get further rewards, the staker would retake the LST.
The process of liquid restaking
Let us examine liquid restaking using EigenLayer as an example. EigenLayer, which has a total value locked (TVL) of more than $250 million, serves as a market place and pooled security for Ethereum and other blockchain applications.
Utilizing smart contracts for restaking
The fundamental framework of restaking is EigenLayer. EigenLayer's smart contracts are available to everyone who has already staked ETH, either directly or through liquid staking solutions. As a result, they are able to reinvest their holdings and strengthen the security of other platforms, so establishing an Ethereum-powered collective security system.
April 2024, Cryptoniteuae