Restaking

A restaking mechanism allows users to use cryptocurrency already staked in a proof-of-stake network (like Ethereum) to also secure other applications, sidechains, or services. Restaking increases yield but introduces additional slashing risks: if the restaked application is compromised, the original stake could be slashed.

How restaking works

On a traditional blockchain like Ethereum, validators stake coins and earn rewards for securing the single network. Their stake is at risk only if they misbehave on Ethereum.

With restaking, validators can “restake” their Ethereum stake (or liquid staking tokens like stETH) to a separate application (called a middleware or AVS — actively validated service). For example:

1. Base layer: A validator stakes 32 ETH on Ethereum, earning ~4% staking rewards.
2. Restaking: The validator also commits their 32 ETH to an AVS (e.g., a data availability network).
3. Dual yield: The validator earns ~4% from Ethereum + additional yield from the AVS (e.g., 5% more).
4. Multi-layer risk: If the AVS is compromised, the validator’s 32 ETH could be slashed on both layers.

Eigenlayer: the primary implementation

Eigenlayer is the most prominent restaking protocol, deployed on Ethereum. It allows validators and liquid staking token holders to restake on applications built on top of Ethereum.

Applications built on Eigenlayer (called AVSs) can offer their own security to Ethereum users while being secured by Ethereum’s validator set.

Yield composition

With restaking, yield consists of:

• Base staking yield: ~4–6% from Ethereum.
• Application yield: Variable, depending on the AVS (could be 5–20% or higher).
• Fees: Protocols take cuts of yields.

Total yield could reach 10–20%+ but introduces proportional risk.

Risks: multi-layer slashing

The primary risk is multi-layer slashing. A validator could be slashed on:

1. Ethereum layer: For misbehaving as an Ethereum validator.
2. Application layer: For failing to properly secure the AVS.

If an AVS is compromised and validators are slashed there, their Ethereum stake is also at risk.

Example: A validator restakes on a data availability AVS. The AVS is hacked, and the attacker causes the AVS to slash all validators. The validator’s entire 32 ETH is at risk on both Ethereum and the AVS.

Opportunity costs and diversification

Restaking forces validators to choose between:

• Diversification: Restake on multiple AVSs, earning from multiple sources.
• Concentration: Restake heavily on high-yield AVSs, earning more but with greater risk.

Balancing these is a key challenge for restakers.

Security assumptions

Restaking works only if:

1. AVS security is high. The application must not be trivially compromised.
2. Slashing is properly enforced. If validators are slashed on the AVS but not on Ethereum, the system fails.
3. Validator incentives align. Validators must not collude to perform attacks on the AVS.

Meeting all three is challenging, especially for newer AVSs with unproven security.

Regulatory considerations

Restaking introduces complexity for tax and regulatory purposes:

• Multiple yield sources. Are they all taxed the same way?
• Slashing treatment. Is slashing a capital loss?
• Securities regulation. Are AVSs securities?

These questions remain largely unsettled.

Comparison with traditional delegation

Restaking differs from traditional delegated proof-of-stake:

• Traditional delegation: Token holders delegate votes to validators. Slashing is limited to the validator (delegators are not harmed).
• Restaking: Validators’ stake is directly at risk on multiple layers.

Restaking gives validators stronger incentives to properly validate AVSs but also creates greater risk.

Risks of application failure

If an AVS (e.g., a new data availability layer) fails or is compromised, restakers lose funds. This is similar to the risk of a cryptocurrency exchange failure — you lose what you deposited.

To mitigate this, restakers should:

• Research AVS security thoroughly.
• Diversify across multiple AVSs.
• Limit restaking to amounts they can afford to lose.

Outlook

Restaking is emerging as a mechanism for funding new blockchain infrastructure. Instead of requiring its own validator set and security model, a new blockchain can plug into Ethereum’s validator set via restaking.

This could accelerate blockchain innovation but introduces systemic risks if validators over-restake and multiple applications are compromised.

See also