Move over staking: the hottest sector in Ethereum is now restaking. The sprawling blockchain ecosystem that’s coalesced around Ethereum, incorporating layer2 (L2) networks such as Optimism and the Coinbase-created Base, draws its security from that of the mainchain. The rise of restaking is now bringing Ethereum’s security model to other EVM chains – and unlocking new financial opportunities along the way.
Ethereum’s High Stakes Game
In 2022, Ethereum shifted from the energy intensive Proof of Stake consensus, as pioneered by Bitcoin, to the leaner Proof of Stake. With Proof of Stake (PoS) blockchains, validators are chosen to create new blocks and validate transactions based on the number of native tokens they hold – e.g. ETH – and are willing to stake as collateral.
Ethereum’s transition to a staking security model in 2022 quickly spawned a thriving industry for liquid staking: the process by which depositors who lock their ETH up to participate in network consensus receive a corresponding derivative token on a 1:1 basis with their staked ETH. This liquid staking derivative (LSD), also known as a Liquid Staking Token (LST), can be used in DeFi protocols to generate additional yield to that being earned on the staked ETH.
From Staking to Restaking
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