What is restaking in crypto and how does it enable capital efficiency?

• Restaking is a method that allows users to stake the same tokens on the main blockchain and other protocols, securing multiple networks at once.

• This process may result in additional compensation for securing extra protocols, in exchange for increased slashing risks.

• Restaking is a concept being explored in the crypto space, which strives to enhance capital efficiency and extract more value from staked tokens.

Restaking is a concept that has emerged in the crypto space, focusing on capital efficiency. It allows users to stake the same tokens on the main blockchain and other protocols, thereby securing multiple networks simultaneously. This process may result in additional compensation for users for securing extra protocols, albeit with increased slashing risks.

The concept of restaking is a resource management approach to decentralized staking. Some protocols in this sector may use a form of liquid staking, which involves issuing a token that represents a staked asset, to extract more value from staked tokens in a way that benefits stakers, other networks, and the restaking protocol itself.

Blockchain security architecture falls into two broad categories: Proof of Work (PoW) or Proof of Stake (PoS). In the case of PoS networks, assets are committed to the network’s security infrastructure through a process known as staking. Stakers lock their assets with a validator node on the network, where the security level of the network depends on the number of active validators, the percentage of the total circulating tokens that are staked, and how these tokens are spread across active validators.

To aim to improve the utility of these staked tokens, which are usually lying dormant, restaking protocols have emerged to put these tokens to use. This process aims to enhance the utility of the staked asset and may result in an additional set of compensation for the holder, albeit with added slashing risks.

Restaking allows users to stake the same coins on both the main network and other protocols, securing all of these networks at once.

There are different types of restaking options available:

• Native restaking is only open to users who operate a validator node. Validators who wish to commit their setup to a restaking program will be expected to download and run additional node software required for the restaking module.

• Liquid restaking involves a form of liquid staking where a staker stakes their assets with a validator and receives a token that represents their stake with the validator. The staker then proceeds to stake this token on the restaking protocol.

Restaking may provide several advantages, including the potential for additional compensation and improved capital efficiency. However, it also comes with increased risks, particularly in the form of slashing. Slashing is a mechanism used in PoS blockchains to penalize validators who fail to act in the best interest of the network. In the context of restaking, the risk of slashing is increased due to the additional commitments made by the staker.

Despite these risks, restaking is a concept being explored in the crypto space, with many projects exploring various ways to utilize restaking resources or play a role as a restaking resource provider. As with any decision, potential participants should carefully consider the implications and potential outcomes before deciding to participate in restaking.