Exploring the Rise and Impact of Restaking

HodlX Guest Post  Submit Your Post

In 2024, the restaking sector evolved from an emerging concept to a significant reality of the DeFi (decentralized finance) ecosystem.

The success of restaking is closely tied to the limitations of layer-one blockchains, which can only guarantee the validation of information held within the chain.

While developers could easily leverage each layer-one trust network to secure DApps (decentralized applications), whose operations performed solely inside the chain, distributed systems such as bridges, sequencers and data availability layers have not enjoyed the same level of security.

For such DApps, developers had to establish their own trust networks to secure these systems, making the process more complex and resource-intensive.

Restaking seeks to address a major issue – the fragmented blockchain security – thus, extending each layer-one trust network to all services operating with off-chain information.

The rise of liquid restaking protocols

The introduction of restaking protocols has been met with significant enthusiasm, since it addressed a key limitation in current blockchain infrastructures while also creating a secondary layer of reward opportunities for its users.

Restaking protocols have quickly gained traction, with restaking infrastructures now boasting over $13 billion in TVL (total value locked).

However, much like the early days of Ethereum 2.0, staking and restaking require users to lock up their assets, leading to capital inefficiency – an issue many users are reluctant to face.

To overcome this, liquid staking protocols emerged on Ethereum, and similarly, liquid restaking protocols have now risen to support the restaking ecosystem.

These liquid restaking protocols have been warmly received by the community, now encompassing more than 80% of the total restaked value.

By leveraging the restaking infrastructures, these protocols allow users to unlock additional liquidity from their restaked assets.

Liquid restaking protocols introduce LRTs (liquid restaking tokens) – derivatives representing restaked positions. When users restake their tokens through these protocols, they receive LRTs in return.

These can be freely exchanged or utilized in other DeFi applications, effectively releasing liquidity that was previously locked up.

At first glance, the creation of LRTs appears to be a straightforward process.

However, it’s important to recognize that restaking introduces a second layer of…