But, what even is restaking?
In a world where the average APY for Ethereum staking has been around 4-5%, users are ready to take on more risk for more yield.
Thus, the LSDFi narrative has totally flourished in the recent year as many protocols have been able to take advantage of this demand.
This makes me quite bullish on 'LRTFi' or Liquid Restaking Finance.
In today's post you'll learn about the fundamental concept of restaking, why I'm bullish on LRTFi, and a top quality project leading the charge forward in this niche ๐
Restaking is the act of reusing staked ETH security for other networks and blockchains to enhance trust and security.
Basically, you can stake you Ethereum, get the receipt of this staked Ethereum and then restake it to earn further yield.
It amplifies the foundation of Ethereum's cryptoeconomic security and extends its offerings to different applications on the network.
It's a "double-profit" model, where speculators earn from the original network and the restaking network.
๐๐ฐ๐ธ๐ฆ๐ท๐ฆ๐ณ, ๐ช๐ต ๐ค๐ฐ๐ฎ๐ฆ๐ด ๐ธ๐ช๐ต๐ฉ ๐ต๐ฉ๐ฆ ๐ช๐ฏ๐ฉ๐ฆ๐ณ๐ฆ๐ฏ๐ต ๐ณ๐ช๐ด๐ฌ ๐ฐ๐ง ๐ด๐ฎ๐ข๐ณ๐ต ๐ค๐ฐ๐ฏ๐ต๐ณ๐ข๐ค๐ต๐ด ๐ญ๐ช๐ฌ๐ฆ ๐ข๐ฏ๐บ ๐ฐ๐ต๐ฉ๐ฆ๐ณ ๐ฑ๐ณ๐ฐ๐ต๐ฐ๐ค๐ฐ๐ญ.
Typical restaking networks accept LSTs and validators.
This increases the network's security and unlocks the infinite liquidity source of the DeFi market, see below on @eigenlayer, for example, which supports liquid staking of @LidoFinance stETH, @Rocket_Pool ETH (rETH), and Coinbase Wrapped Staked ETH (cbETH):
Users in these pools certainly take on smart contract risks, so why would exactly would they choose to participate in restaking?
Lets dive into the benefits:
1. ๐๐ถ๐พ๐๐ถ๐ฑ๐ถ๐๐ ๐๐ผ๐ผ๐๐: Staking LSD or validator Tokens in Validators not only increases the stake of the native asset on its network (double staking, extra yields) but also introduces more liquid options in the DeFi sector.
2. ๐๐ป๐ต๐ฎ๐ป๐ฐ๐ฒ๐ฑ ๐ฃ๐ฟ๐ผ๐ณ๐ถ๐ ๐ฃ๐ผ๐๐ฒ๐ป๐๐ถ๐ฎ๐น: Additionally, staking on the second network provides liquid assets that can be used to mint stablecoins, creating opportunities for further capital efficiency in the DeFi market.
3.๐๐บ๐ฝ๐ฟ๐ผ๐๐ฒ๐ฑ ๐ก๐ฒ๐๐๐ผ๐ฟ๐ธ ๐ฆ๐ฒ๐ฐ๐๐ฟ๐ถ๐๐: Restaking increases various networks value, making them more resilient against attacks.
4. ๐ฅ๐ฒ๐ฑ๐๐ฐ๐ฒ๐ฑ ๐๐๐บ๐ฝ๐ถ๐ป๐ด: Restaking provides a tokenholder with a yield source and because of the increased yield, they will be less inclined to sell.
5. ๐ก๐ฎ๐๐ถ๐๐ฒ ๐ก๐ฒ๐๐๐ผ๐ฟ๐ธ ๐ฆ๐ฒ๐ฐ๐๐ฟ๐ถ๐๐: Encouraging original asset holders to participate in staking enhances the native network's security and decentralization.
Overall, restakingenhances yield by approving the asset on two networks, increases network security, reduces token dumping/sell pressure by temporarily locking liquidity, and strengthens the security of the native network.
Today we'll look into @RestakingCloud K2 restaking design, and why you should keep your eyes on it for this upcoming restaking narrative.
Restaking Cloud is a new infra layer for a modular blockchain future, launching with its flagship protocol, K2.
It replicates the economic security of staked ETH, offering a platform for other networks and protocols to enhance their operational logic and decentralized trust.
K2 was first introduced in 2022 by Matt Shams and is now fully operational and transitioning to testnet.
K2 accepts any validators, or LSTs. For example, somebody could mint LSTs and then restake the validator after.
๐ง๐ต๐ฒ ๐ฎ๐ฑ๐ฑ๐ฟ๐ฒ๐๐๐ฎ๐ฏ๐น๐ฒ ๐บ๐ฎ๐ฟ๐ธ๐ฒ๐ ๐ถ๐ ๐ฎ๐น๐น ๐๐ฎ๐น๐ถ๐ฑ๐ฎ๐๐ผ๐ฟ๐ ๐ฎ๐ป๐ฑ ๐๐ฆ๐ง๐, ๐๐ต๐ถ๐ฐ๐ต ๐ ๐ฒ๐ ๐ฝ๐ฒ๐ฐ๐ ๐๐ผ ๐ฏ๐ฒ ๐ฎ ๐ง๐ฅ๐๐๐๐๐ข๐ก ๐ฑ๐ผ๐น๐น๐ฎ๐ฟ ๐บ๐ฎ๐ฟ๐ธ๐ฒ๐ ๐ผ๐ป๐ฒ ๐ฑ๐ฎ๐.
Users can use the LP token (an ERC20) from staking as an LST in DeFi if they choose,
The K2 validator delegation system is shown below:
As you can see, K2 redistributes the inherent security of Ethereum for other dApps, middlewares and infra to boost decentralization. By doing this, validators and LST holders are able to earn extra yield on their already staked ETH while also contributing to the state security of Ethereum.
K2 allows users to run a liquid staking validator and then restake that validator and assume no additional slashing risk. Slashing is managed at the pool level by K2's risk engine.
@RestakingCloud ๐ฎ๐ฐ๐ฐ๐ฒ๐ฝ๐๐ ๐๐๐๐ง๐, ๐ฟ๐๐ง๐, ๐ฑ๐๐ง๐, ๐ฎ๐ป๐ฑ ๐ธ๐๐ง๐ ๐ฎ๐ ๐ฑ๐ฒ๐ฝ๐ผ๐๐ถ๐๐.
Native Delegation allows anyone to delegate their validators' staked ETH to K2 without changing withdrawal credentials, adding additional capital, or operating additional software or hardware.
K2 uses a zk gadget (aka a Reporter) that allows middleware to tailor slashing rules to their specific requirements. This zk-based mechanism removes network overhead, provides a deterministic source of truth with a designated verifier, and ensures data privacy.
The baseline yield expected is an additional 5-10% APR, on top of the liquid staked Ethereum.
@RestakingCloud offers a comprehensive suite of features, including ETH payouts, protected principle deposits, which can be argued as missing in Eigenlayer. Its ability to replicate the economic security of staked ETH and its innovative zk gadget further distinguish it as a superior solution.
K2 enables applications and middle layers to access packaged and bespoke services across various domains and layers.
Using what the team calls โstake borrowingโ allows you to create an ETH stake pool on K2 with customizable parameters with 24/7 slashing logic and K2 backed security.
As you can see above, the service layer is able to interact with different types of infra, which can interop with the Reporter for decentralized, secure restaking.
๐ง๐ผ ๐๐ฟ๐ฎ๐ฝ ๐๐ฝ:
LSDFi has amassed a total value of roughly $20B TVL, without restaking.
Looking ahead, the future of restaking looks extremely ripe for disruption. As the Ethereum ecosystem continues to mature, restaking is likely to grow massive mindshare as the market becomes aware of the possibilities.
However, as with any emerging technology, the landscape of restaking is likely to evolve rapidly. New players may enter the field, and existing platforms may introduce new features or improvements. As such, it's crucial for users to stay informed and understand the risks as well as the rewards.
I'm very much looking forward to supporting @RestakingCloud during their event at DevCon in Istanbul, and currently by being a content creator.
๐๐ ๐๐ถ๐๐ต ๐ฒ๐๐ฒ๐ฟ๐๐๐ต๐ถ๐ป๐ด ๐ฎ๐ป๐ผ๐ป, ๐ฏ๐ฒ ๐๐ฎ๐ณ๐ฒ. ๐๐ฌ๐ข๐ฅ. ๐ฆ๐๐ฟ๐๐ถ๐๐ฒ. ๐๐ผ๐ผ๐๐๐ฒ๐ฑ ๐๐๐ต๐ฒ๐ฟ๐ฒ๐๐บ ๐๐ถ๐ฒ๐น๐ฑ๐ ๐ฎ๐๐ฎ๐ถ๐ ๐๐ผ๐.