Restaking: The New Frontier in Cryptocurrency Investment
Institutional investors are finally embracing cryptocurrency staking, and not a moment too soon. Restaking, a more versatile approach to securing blockchain protocols, is already reshaping Web3. It will transform crypto investing and propagate a completely new asset class in financial markets.
The Mechanics of Staking and Restaking
Staking involves securing blockchains such as Ethereum, Solana, and Avalanche by posting crypto as collateral with validators in exchange for network fees. Restaking extends this “crypto-economic security” across the entire Web3 ecosystem, from layer-2 scaling networks to Web3 protocols and off-chain apps.
Restaking platforms such as EigenLayer, Symbiotic, and Karak collectively command almost $13.5 billion worth of restaked crypto collateral, according to data from DeFiLlama. EigenLayer is the largest by far, with nearly $11 billion in total value locked (TVL) as of mid-September.
The Role of Restaking Platforms
Restaking platforms secure dozens of decentralized apps, or “actively validated services” (AVS) in EigenLayer’s parlance. So far, only one AVS — EigenLayer’s own data storage and management protocol, EigenDA — is paying rewards. More will start soon, with ARPA Network, specializing in trustless random number generation, planning to begin paying restakers soon. Expect more dApps like Lagrange State Committees and AltLayer MACH to join the fray.
A Two-Sided Marketplace
Restaking is creating a “two-sided marketplace for raw crypto-economic security,” according to a16z General Partner Ali Yahya. On the demand side, dApps and others seek on-chain security. On the supply side, retail and institutional restakers post crypto collateral and earn a cut of protocol revenues in return.
The restaking marketplace is rich and evolving daily. Restakers can choose from at least ten restaking protocols and dozens of collateral tokens, including ETH and its liquid-staking derivatives (LSD), wrapped Bitcoin, and native protocol tokens such as EigenLayer’s EIGEN.
Restakers also need to choose which AVSs they want to secure and then delegate restaked tokens to a node operator (EigenLayer has 1,500). Alternatively, they can deposit into a restaking pool in exchange for a liquid restaking token (LRT). There are at least 20 LRT protocols to choose from.
Adding to the complexity, EigenLayer unveiled an upgraded security model designed to bind restaking returns to the performance of specific AVSs. Each AVS has its own business model and sets its own terms for rewarding and penalizing validators.
The Restaking Marketplace
The inevitable result will be a restaking marketplace where the cost of capital for crypto-economic security varies dynamically based on risk/reward tradeoffs for each AVS.
“The risk-prone investor restakes into new, risky, high-yield AVSs and is happy, and the risk-averse investor puts his money into blue-chip AVSs,” decentralized finance (DeFi) protocol Byzantine Finance, which specializes in restaking strategies, explained.
Emerging Asset Class
If this sounds like the makings of a new asset class, you might be on to something. DeFi protocols like Byzantine are developing restaking strategies with targeted risk exposure. Institutional staking services and custodians — such as Figment and Anchorage Digital Bank — are supporting restaking.
Investment managers are following suit. Nomura’s crypto arm, Laser Digital, announced plans to start restaking. S&P Global, a market researcher, expects restaking eventually “may create an ‘internet bond’ market.”
“Restaking, unlike staking, is not a specific investment, but rather an investment class,” Byzantine Finance noted.
The Future of Restaking
This isn’t a passing fad. Web3 is throttled by severely limited transaction throughput on layer-1 networks, resulting in costlier transactions and slower confirmation times. Restaking is one of the most promising solutions. It’s also highly adaptable and can’t be fully displaced by other emerging security methods, such as zero-knowledge (ZK) proofs.
For now, AVSs are paying restakers with token incentives. That won’t last. As restaking improves network performance, on-chain activity will continue to climb, and revenues will follow.
“The only way this makes sense long term is if restaking networks get customers, and those customers, directly or indirectly, pay money for the services that these
