What is Re-Staking?

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Re-staking

Re-staking is often likened to the "merge-mining" practices on Bitcoin and is also analogous to traditional finance's re-mortgaging, where existing loan collateral is used for another loan.

How to Re-Stake Ether on Ethereum?

Re-staking on Ethereum is facilitated through smart contracts on EigenLayer.

Re-stakers deposit ETH or LSTs into EigenLayer, serving as a decentralized marketplace for economic security.

The deposited assets undergo dual staking: firstly, to help protect Ethereum's mainnet, and secondly, to safeguard selective additional protocols. Thus, re-stakers can choose to extend their staked ETH across multiple networks, taking on additional risks for greater rewards.

What is Liquidity Re-Staking?

Just as Liquidity Staking Tokens (LSTs) represent tokenized versions of staked ETH with accumulated rewards, Liquidity Re-Staking Tokens (LRTs) represent tokenized versions of re-staked ETH with accumulated rewards.

These protocol types eliminate the requirement to possess 32 ETH for staking, reducing entry barriers and unlocking liquidity through providing receipt tokens usable in DeFi.

This form of liquidity re-staking should not be confused with re-staking swETH on EigenLayer, where the latter involves effectively locking your liquidity staking tokens to continue receiving re-staking rewards.

What is rswETH?

rswETH is a native Liquidity Re-Staking Token (LRT). It allows users to indefinitely receive re-staking rewards without effectively locking their liquidity. Behind the scenes, validators in the rswETH re-staking pool directly point to the EigenLayer smart contract.

Risks of Re-Staking

Re-staking has gained enthusiastic support from builders and stakers due to its potential for increased staking rewards and the ability to extend Ethereum's base layer security to other protocols.

However, it has also raised concerns about risks. Some influential voices in the Ethereum community, including Vitalik Buterin, have expressed worries about the risks of re-staking and its impact on Ethereum's long-term consistency. Vitalik Buterin wrote about the dangers of overloading Ethereum's consensus in May 2023.

How to Mitigate Risks?

Some solutions to mitigate re-staking risks include optimizing re-staking parameters (TVL limits, penalty amounts, fee distributions, minimum TVL, etc.) and ensuring diversification of funds among different AVS. A direct step that re-staking protocols can consider is allowing users to choose different risk profiles when depositing for re-staking.

Ideally, each user should be able to assess and select the AVS for re-staking without delegating the process to a DAO. This requires collaborative efforts from AVS and EigenLayer to ensure there is a roadmap to minimize these risks to the maximum extent.

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