Guide for Liquid Restaking on EigenLayer

Want to get started with restaking on EigenLayer? The first step is to buy ETH on Kraken.

Staking on Ethereum is often a great way for holders to get extra returns for their investment. However, EigenLayer is taking it a step further by allowing users to restake tokens that are already staked on the Ethereum mainnet. Essentially, you can stake the same Ethereum multiple times and earn additive rewards.

However, assets deposited on EigenLayer take 7 days to withdrawal, meaning your ETH or liquid staking tokens will not be liquid when restaked on EigenLayer. As such, many new protocols have emerged to offer users liquid restaking tokens (LRTs). LRT holders gain access to restaking, farm protocol rewards, and earn staking yield. Let's dive in.

Liquid Restaking Ethereum TLDR:

There are several protocols that support liquid restaking on EigenLayer, with the most prominent being KelpDAO, Renzo, EtherFi, and PrimeStaked. Instead of depositing directly on EigenLayer, users deposit to the liquid restaking protocol to earn rewards. LRTs deposit your funds for you, issuing you a new token that represents your deposit. These tokens can be traded on DEXs, making it easy for users to gain access to EigenLayer restaking.

What is Liquid Ethereum Restaking?

Generally speaking, staking is a way for a blockchain to secure and process transactions. Holders of the token can lock up their tokens on the chain and are then allowed to verify transactions. For this service, the chain will provide you a fee in the form of interest. Additionally, the chain holds your tokens as collateral and can slash your tokens if you are found to be a bad actor.

Liquid restaking is similar to staking with a few differences to highlight. 

First, restaking is a process popularized by EigenLayer that allows ETH stakers and LST holders to partake in securing networks outside of Ethereum. Liquid restaking is a new primitive built on top of EigenLayer that allows users to keep their funds liquid while participating in restaking.

Why Should You Restake Ethereum?

As an individual investor, the main benefits revolve around the extra rewards that you can gain on ETH you are already holding.

Restaking allows you to take advantage of the interest offered on staked deposits. For example, if you staked $100 of ETH for 10 years at a rate of 5%, you would have $127. However, if you restaked the original ETH just one time for a total of $100 staked across 2 protocols for 10 years at a rate of 5%, you would have $154. 

Another benefit is that you can earn this interest rate on Ethereum you would have held anyway if you are a long-term investor of ETH. It makes sense to stake or restake if you are holding on to ETH for the long haul, as you can get extra rewards for holding onto the tokens, something you were planning to do any way. 

Restaking can also have benefits for blockchain developers in terms of efficiency of capital allocation. For some start-up blockchains, they have to provide large incentives for users to stake their tokens as the prices can be volatile. These new projects can use EigenLayer and restaking to help secure their chain. 

What Are EigenLayer Points?

EigenLayer recently unveiled a system to track activity on the application called EigenLayer Points. This system uses several equations and multiple variables (how long you have restaked, how many ETH tokens, etc.) to create a numerical representation of how much you have contributed to the project. 

While there is no guarantee that these points will end up meaning anything, other projects have used similar points systems to determine how many tokens certain users get for an airdrop. 

How to Liquid Restake Ethereum

To restake Ethereum in exchange for LSTs, head over to the EigenLayer application. On the app, there are several different restaking pools to choose from. You can take a look at each project and decide which best suits your risk tolerance and investment goals. 

Once you have a staking pool (or pools) selected, connect your wallet. As of right now, EigenLayer supports MetaMask, Coinbase Wallet and WalletConnect. Once you have connected your wallet, you can deposit ETH. Once you verify the transaction, the restaked balance should increase. 

Risks of Ethereum Restaking

Despite the potential benefits of liquid restaking, it does come with some risks. 

One of the largest risks comes from the 270-day lockup period for those who restake on EigenLayer. This means that you cannot withdraw your tokens for 270 days. During the 270 days, the price of ETH could move drastically and you would be unable to sell. While this feature is meant to uphold the stability of the platform, it could be detrimental to investors if ETH begins to move rapidly. 

Another risk is that of overlevering protocol. Since the same amount of ETH can be restaked several times, it creates leverage on the initial amount. Overleveraging has been a problem for crypto in the past, most notably in the case of Luna Classic, which was overleveraged and eventually collapsed. 

The new wave of deposits and staking could lead to slashing. As stated earlier, this is when the chain deems a validator to be suspicious or guilty of incorrectly validating. If this happens, the chain can charge a penalty, usually forcing the staker to lose some or all of their deposit. 

Where to Buy Ethereum

If you are interested in restaking Ethereum, you need to buy ETH. You can do so on Kraken, which is a crypto trading platform known for its low fees, ease of use and security. You can get started today with as little as $10. 

Should You Restake Ethereum?

There are two main camps on the issue of restaking. Some believe that it will provide huge rewards for both investors and developers because of its additive interest and increased capital efficiency. Conversely, some believe that it will lead to overleveraged ETH tokens and will eventually come tumbling down. Despite the ongoing debate, EigenLayer has accumulated over $4 billion in deposits. If you are willing to tolerate the risk and believe that the potential rewards outweigh the risks, then restaking Ethereum could be a good way to earn large rewards on your ETH holdings.