How to Restake ETH on EigenLayer (Airdrop Potential) 

Imagine if you could open a CD with $10,000, and then reuse that $10,000 to open another CD, allowing you to earn twice the rewards for the same amount of money. While this idea sounds outlandish and too good to be true, it may already exist on the Ethereum chain. EigenLayer is leading the charge for a new technology called restaking, which allows users to stake tokens across multiple protocols.

How to Restake Ethereum TLDR:

EigenLayer offers four types of restaking: Native Restaking, LST Restaking, LST LP Restaking, and ETH LP Restaking. Once you choose the type of restaking, you can connect your wallet. With a connected wallet, you can select to transfer the tokens into a staking pool that allows you to earn rewards. 

What is Ethereum Restaking?

Staking is a way for blockchains to secure and process transactions. Users can lock up tokens for a certain amount of time, which allows them to process transactions and earn rewards. The tokens are held as a form of collateral so that the validators are incentivized to accurately and honestly process transactions. Most of the time, users place funds into a staking pool, which collects tokens from a large pool of users and validates for them. 

Restaking allows users to use the same ETH tokens as collateral for staking on another protocol. This means that you can stake your ETH across multiple protocols at the same time. 

This process could allow for more cost efficiency for new blockchains. These chains often have to give large incentives for users to stake on their platform since it is relatively unknown. However, with restaking, they can save money on creating a validation protocol and offering high rewards, as they can use the lower-cost restaking platform.

Restaking could increase innovation in crypto projects. Users can effectively take advantage of Ethereum’s security without having to build on Ethereum. This feature can allow them to work with chains that offer more freedom of development (Cosmos) while maintaining the security offered by the Ethereum chain. 

Why Should You Restake Ethereum?

While restaking could affect developers, it could also impact on the individuals who restake tokens.

By restaking, you can take advantage of the compounding rewards offered by staking in general. For example, if you were to stake $1,000 of ETH at 5% a year, you would have $1,276 after 5 years. However, if you restaked the same amount of ETH across two protocols at 5% a year for 5 years, the same $1,000 turns into $1,552, averaging out to around 9% per year.

Another reason to restake Ethereum is that long-term holders can gain extra rewards for doing what they would have done anyway. If you are bullish on ETH and plan on holding for a long period of time, then it could make sense to stake and restake because you will hold on to the tokens regardless, so you may as well earn some extra rewards.

Restaking and staking could give you the chance to earn airdrops. 

What are EigenLayer Points?

EigenLayer points are a system that numerically tracks how much you have contributed to the ecosystem. It takes into account several factors, such as the number of tokens restaked, the amount of time and other factors, to create a numerical representation of an individual’s contributions to the project.

While it is not confirmed, many projects have used a similar points system to determine the number of tokens given in an airdrop. 

How to Restake Ethereum

To restake Ethereum on EigenLayer, you head over to the website and connect your wallet. EigenLayer currently supports MetaMask, Coinbase Wallet and WalletConnect. From there, you deposit your ETH into a variety of pools. These pools create a new asset called a liquidity provider token (LP) (oETH, swETH, stETH), which represents your investment and is issued 1:1 with staked ETH. You then have ownership over the new asset, which can be converted back into ETH and sold for fiat currency.

There are four main types of staking:

• Native restaking: Give withdrawal rights to already staked ETH to EigenLayer in exchange for the ability to restake
• LST restaking: Restake using tokens that are already staked on another protocol on EigenLayer
• LST LP restaking: Stake an LP token that is already staked on another protocol
• ETH LP restaking: Stake an LP token that is paired with ETH

Risks of Ethereum Restaking

While restaking may sound like a great way to earn some additional rewards, it does not come without significant risks. 

One major risk is slashing. This occurs when the chain believes that a validator is suspicious or has not validated correctly, so the chain charges a penalty to the user. If you were to take part in an activity that the chain deemed worthy of slashing, there is a chance you could lose all your ETH.

There is also a lock-up period of 270 days for those who want to stake. This means that you cannot get back your ETH for 270 days after you begin staking. While this is meant to maintain the stability of the platform, it could be less than ideal in the event of a flash sale or other downturn for ETH. 

The act of restaking could create too much leverage. Since the same amount of ETH can be restaked several times, it creates leverage on the initial amount. Dan Bar is the CIO at Bitfwd Capital. He said that “while moderate schemes of restaking could be beneficial for capital efficiency purposes, any crypto assets manager and finance professional worth their salt knows too well how easily and quickly leverage can turn into a slew of synthetic toxic financial instruments that bring disasters into even the most healthy of ecosystems.” In this quote, Bar is specifically referencing the collapse of Luna Classic. 

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?

While restaking sounds like a good idea in theory, it faces some opposition from the likes of Vitalik Buterin and others. Additionally, there are substantial risks associated with restaking. However, if you can tolerate these risks or believe that the potential rewards outweigh the risks, then restaking Ethereum could be a good way to earn large rewards on your ETH holdings.