Original author: Beehive Validator

Original translation: Shen Chao TechFlow

Currently, staking is one of the biggest sectors in the DeFi market, with the staked total value (TVL) of the liquidity staking protocol Lido ranking first. It allows ETH holders to earn more profits and boosts the decentralization and security of the Ethereum network.

Since Ethereum transitioned to PoS, there has been a sharp increase in demand for staking ETH, leading to the development of liquidity staking protocols. Currently, numerous blockchain platforms, including Ethereum, NEAR Protocol, BNB Chain, Avalanche, Cosmos, Sui, Aptos, etc., use the PoS consensus mechanism. Therefore, we believe that the liquidity staking market has enormous potential.

So, why use liquidity staking?

Liquidity staking solves the main issues of simplifying staking, preserving liquidity, and enhancing network decentralization. In the DeFi market, we pay close attention to the problem of unlocking liquidity, such as the Lido protocol allowing users to stake ETH and receive stETH of equivalent value with the ability to transfer it to other exchanges, operating in the DeFi market.

ReStaking refers to one of the activities involving the repeated use of liquidity staking token assets (such as stETH) to stake in validators on other networks or blockchain platforms. This concept was initially introduced by EigenLayer, maximizing the utilization of liquidity staking liquidity and paving the way for the development of numerous other applications.

What is ReStaking

ReStaking is using liquidity staking token assets to stake in validators on other networks and blockchains to earn more rewards while still contributing to the security and decentralization of the new network.

ReStaking can also be understood as using a portion or all of the rewards obtained from staking to deposit further into the same node, increasing future profits. However, the main focus of this article is about the concept of staking LSD tokens on other networks.

Through ReStaking, investors can earn double rewards from both the original network and the ReStaking network. Although ReStaking allows stakers to earn higher profits, it also carries risks of smart contract vulnerabilities and fraudulent staking behavior.

In addition to accepting the original assets, ReStaking networks also accept other assets such as LSD tokens, LP tokens, etc., which increases the security of the network. It also releases an unlimited liquidity source for the DeFi market while still generating actual income for the protocol and its users.

The revenue of the ReStaking network and the standard network comes from fees generated by secure leasing, validators and dApps, protocols, and layers. Staking participants on the network will receive a portion of the network's revenue and may also receive inflation rewards in the network's native token.

How ReStaking Works

The ReStaking network is similar to other networks, with the only difference being that it accepts more low volatility, low-risk, and security-enhancing assets. When the staked value on the network is high, hackers would need a substantial amount of assets to gain majority staking rights. Additionally, ReStaking assists holders in increasing profits.

Each ReStaking project may have different goals and operational mechanisms, but the differences between them are negligible.

Pros and Cons of ReStaking

Advantages:

1. Unlocking liquidity for LSD and LP tokens: Staking LSD or LP tokens to validators can increase the staking quantity of the underlying assets on the native network and provide more liquidity asset options for the DeFi industry.

2. Enhanced earnings: Stakers can earn twice the profits by approving the asset on both networks. Furthermore, after staking assets in the second network, investors can continue to earn a representation of the asset that can be used for collateral to mint stablecoins and bring them to the DeFi market to generate profits.

3. Increasing the security of networks that use liquidity staking: With more assets being staked, the network's value increases, making it more resilient to attacks and a trusted position for other decentralized applications, protocols, and platforms.

4. Reducing sell-offs: ReStaking makes the native token more valuable, thereby preventing sell-offs that could cause significant value loss for the project and its investors.

5. Boosting the motivation for original asset holders to participate in staking: Increasing network security and decentralization.

Disadvantages:

1. Asset loss risk: If a node engages in improper behavior, your assets are at risk of being seized or fined, potentially resulting in partial or complete loss of assets.

2. Smart contract risk: If the network experiences a hack, you are at risk of losing all of your assets. However, in theory, projects using liquidity staking are highly resistant to attacks.

3. Asset Bubble: The market value no longer reflects its true value due to the inflation of the market through new Wrap Tokens or Tokens that multiply in value. In addition to the platform, using assets that represent the value locked in validators to mint stablecoins adds risk and makes the original assets vulnerable to liquidity.

4. Excessive tokens in the market: When there are too many tokens in the market, DeFi beginners can easily get confused and fall victim to scams. Especially low-quality projects that mint a large number of junk tokens will flood the cryptocurrency market.

Comparison between ReStake and Liquidity Staking

Outstanding Projects in the ReStake Domain

EigenLayer

EigenLayer is developed by a highly respected and experienced team in the cryptocurrency market. The project has received funding support of up to $64.5 million, including Blockchain Capital, Coinbase Ventures, Polychain Capital, and Electric Capital.

EigenLayer is the first team to develop and introduce the ReStake model to the community. The project utilizes LSD ETH and LP ETH for validator staking. Ethereum network nodes continue to participate in Ethereum network validation.

EigenLayer's main business model is secure leasing and validation. Customers can be dApps, Layer 2 protocols, or cross-chain bridge protocols. They can use validators with high security or low security, depending on their requirements. A single validator can authenticate multiple consumers.

The protocol that uses this network will generate profits for EigenLayer. A portion of the assets will be granted to the stakers. Users will not receive a second token when staking assets on the EigenLayer network. In addition, users must choose reputable validators to ensure the security of their assets. If a validator engages in inappropriate behavior, the network will fine them, potentially resulting in partial or complete asset confiscation. Therefore, those who authorize validators will also lose their assets.

Advantages and Disadvantages of EigenLayer

Advantages:

1. EigenLayer serves as the foundation for many other dApps, protocols, Layer 2, Layer 3, and clients.

2. The structure of attaching validators to individual layers can multiply the network's value. By penalizing validators for improper behavior, the risk of being hacked is minimized.

3. Ethereum nodes can earn additional income by participating in the EigenLayer network. Additionally, individual validators can validate multiple clients.

4. Maximize the profit from holding LSD ETH and LP ETH assets and their applicability.

5. Due to heightened security and high yields in the Ethereum network, staking ETH has attracted many people.

Disadvantages:

1. Smart contract risk - in the event of a network hack, you may lose all your assets. However, theoretically, projects using ReStaking are highly resistant to attacks.

2. When nodes behave improperly, there is a risk that your assets will be confiscated or fined, which may result in partial or permanent losses.

3. In the event of a fork or issues, the Ethereum community may become divided. As Vitalik recently stated, EigenLayer repurposes ETH assets and validators on Ethereum.

4. EigenLayer must develop a sufficiently large ecosystem and customer base. If incentives are given in the form of project tokens or if there are no incentives, profit is no longer attractive for those choosing to stake.

Tenet

Tenet is the L1 of the Cosmos ecosystem, developed using the Cosmos SDK toolkit. This project is developed by the same team that developed the largest liquidity staking project ANKR in the BNB Chain ecosystem and the Cosmos ecosystem.

Tenet, like other blockchain platforms, adopts the PoS consensus mechanism and integrates the governance token Stake Token into validators to ensure the security of the network. Compared to networks that accept LSD Token assets such as Ethereum, BNB Chain, Cosmos, Cardano, Polygon, Avalanche, and Polkadot, Tenet is more advanced.

Investors participating in asset staking will be accepted and issued tLSDToken tokens. This asset can be used as collateral for the minting stablecoin LSDC to continue profiting from the DeFi market.

Tenet's business model includes charging fees for the network and compensating validators. In addition, the network provides the TENET governance token as a reward for each generated block. The rewards will be proportional to the staking share. The weight of TENET is always 1, while the DAO will determine the weightage of other assets, which will all be less than 1.

When borrowing LSDC, borrowers only need to pay a one-time fee, calculated as a percentage of the total assets, ranging from 0.5% to 5%. Or convert LSDC on TENET; users only need to bear a one-time exchange fee, ranging from 0.5% to 5%. All these fees will depend on the conversion activities on the network; if the activity is low, the fees will be cheaper, and vice versa, to ensure the value of LSDC remains anchored at $1.

Staking TENET will yield veTENET, which can participate in project governance, share profits, and receive additional rewards.

Tenet has created a large enough revenue-generating ecosystem to attract investors, which is still the most important factor. If network activity is slow and no users use TENET tokens as rewards for each newly generated block, the network will not develop.

Pros and Cons of Tenet

Pros:

1. Supports various native tokens from other blockchains.

2. Stake and receive tLSDToken tokens as collateral, allowing Mint Stablecoin LSDC to participate in the DeFi market and gain more profits.

3. Provides interest-free LSDC loans based on 0.5% to 5% Mint fees depending on network activity.

4. When conversion activity is high, fees are also higher, and vice versa. This mechanism helps maintain the price of LSDC.

5. The veToken model, which uses TENET for governance, is excellent. It prevents the dumping of Token TENET while veTENET holders can participate in the index and share in the profits.

Disadvantages:

1. There are smart contract risks and underlying asset liquidation risks when borrowing Stablecoin LSDC.

2. TENET Tokens are rewarded for every newly generated block, leading to inflation.

Predictions for ReStaking

Currently, the largest market in the DeFi industry is Staking, with a total value of approximately $20 billion (TVL). Especially now that many blockchain platforms are under development, the size of the cryptocurrency market is constantly expanding. Therefore, the ReStaking market will have numerous growth opportunities.

With the contributions of Staking and ReStaking to the DeFi market, the underlying blockchain becomes more secure and investors gain greater passive income. Furthermore, the development of these two markets will pave the way for the growth of other markets such as AMM, Lending, and Farming.

In the current market, ReStaking has many opportunities to grow and become an integral part of DeFi. In addition to increasing profits, ReStaking also increases the risk exposure for participants.

Summary

By the end of 2022, approximately six months after the birth of ReStaking, this market will rapidly expand and become a trend. ReStaking is not a fleeting narrative but one of the most important and promising areas in DeFi.

Because ReStaking not only helps users gain profits but also helps platforms enhance their security, especially by driving growth in other areas of the industry and pushing for market expansion.

However, this also comes with risks such as asset loss, smart contract risks, asset value inflation, and bubble burst. Therefore, when participating in this market, we must proceed with caution and tolerate the risk of capital loss.