Restaking is gaining traction, and Swell is set to enter the ecosystem with the launch of rswETH.
In our latest Space, we were joined by Lucas from Renzo Protocol, Riad from Cubist, Chunda from Ion Protocol and Diogo from Ankr for a deep dive into liquid restaking.
In case you missed it, here are the top questions from the event.
In a nutshell, how would you describe restaking?
"Restaking is effectively the reutilization of staked ETH, and is one of the primary mechanisms that is able to hyperscale Ethereum’s security. This also extends to LSTs, which are receipt tokens of staked ETH that help secure those various services. This is really powerful particularly when it comes to bootstrapping services that require some form of decentralized trust."
— Daniel, Swell
"Where staking secures the Ethereum's consensus layer, restaking has the ability to secure multiple services whilst also being rewarded for securing those services with their one stake."
— Lucas, Renzo
"One thing that is important to note is that by opting into these various services and earning these additional rewards by using your staked ETH to secure these systems/networks, you then enter into different slashing conditions that are set by any one of these different services."
— Chunda, Ion
What excites you about restaking?
"From a mechanism design perspective, restaking lets you build on Ethereum in some sense without needing to use all of Ethereum's primitives. This is an extra degree of freedom when designing a new protocol because now you have this choice: “Am I going to make my protocol something that runs on Ethereum L1 / L2, or do I want to create my own consensus network that is secured by a subset of Ethereum’s validators?”. It is a new design point and I think we are going to see entirely new designs that are much harder to do if you don't have the option to change everything except for the people securing it."
— Riad, Cubist
"I'm excited for the applications we can build on top of what we have now, as the possibilities are beyond our expectations. Of course, as a liquid staking protocol what we are looking for is how the liquid restaking projects are going to be able to measure the risk and try to create these delegation strategies where they can pick which node they will delegate their assets to based on the risk. I think it will be quite interesting to see the risk tolerance of the players and how these strategies will be built."
— Diogo, Ankr
"At Renzo Protocol, we are going to be publishing a research piece that one of our contributing founders has been working on, highlighting how we are thinking about risk management and how to define max loss to find that optimal yield reward strategy. Some of the questions we are asking ourselves internally is: How can we secure these services? How do you wind them down? What is the process?. When you think of these specialized services and Actively Validated Services (AVS's) launching, you have to think about having to coordinate with operators to properly secure them and those services safely."
— Lucas, Renzo
"Risk is kind of the first step on what the demand side is capable of imagineering. There are a lot of underlying financial and infrastructural primitives that just the idea of restaking brings to the table, that has to do with improving and making the core product of restaking more accessible to people."
— Chunda, Ion
"One other thing that we should think about is the new risks. This is something where each time you join a new AVS they are basically promising to follow a new set of rules and so it's a really interesting question: “How do you make sure you have designed a set of rules that people can reasonably follow and make it safe and secure?”
— Riad, Cubist
What is your approach to scaling the adoption of restaking, and how do you see it coming together over the next few years?
"The comparison I often draw is that restaking is in the cycle of where staking was in 2018/19, where there are a handful of players and everyone is trying to figure it out. There are a number of unknowns that everyone is building towards. Staking and the creation of LSTs took about 3 to 4 years to become mainstream, and I think we are going to see the cycle extremely accelerated when it comes to restaking. Even though there are many more complexities and we are at a lot more risk, we have the benefit as builders in the space to look at some of the lessons learned from liquid staking protocols such as Lido and Rocketpool, and draw from their experiences to accelerate the adoption of restaking. The space is going to quickly grow and adapt and within a 2 year cycle we will see the adoption of restaking being mainstream to the extent that you are going to hear less about staking and more about restaking."
— Lucas, Renzo
"I would have to agree with the above. Another reason is having to do with how access to staking yield will be variably compressed and become more exclusive over time. Realistically when we think about how to actually scale adoption of restaking, especially in a more mature LSTFi market, we have a lot of rich opportunities for users to gain access to different sources of yield that are both risk on and risk off. The opportunity of cost for users is only going to get more pronounced in DeFi, and restaking will be slightly behind. Our perspective is to think about how we want to allow users to participate in restaking and then participate in the greater DeFi infrastructure and ecosystem."
— Chunda, Ion
"There is a very interesting statistic which is that 90% of users just stake and hold LSTs, and only 10% interact with DeFi opportunities. I think a similar thing may happen with liquid restaking projects. DeFi can be very niche and highly complex and I don't think they have the means for mass adoption. It is great that we have really smart people building, but it will probably still be used by a niche crypto community. When we talk about mass adoption we need to clarify if it is mass adoption within the current web3 ecosystem, or adoption where everyone will know what liquid staking is and how to use it."
— Diogo, Ankr
"We should all be asking ourselves: “Who is our target user, and if that target user isn't the mainstream audience then what does that mean for what we are building?”. We need to be realistic about what the liquid staking landscape will look like and in the immediate term I don’t think we will see mass adoption."
— Lucas, Renzo
"I tend to take a step back and think about financial products available on web2 and how many people care about or know where the yield is coming from. We are currently on a maturity curve from an adoption standpoint. It's really easy to forget that DeFi summer was only 3 to 4 years ago, and we are still early in the adoption cycle. As the technology and products mature, you’re going to see this foundation of DeFi become established and once there is a level of certainty and ability to manage risk, you are going to see other services that are really focused on bridging the gap and not having to worry about acquiring users. It's extremely hard to build a protocol in a safe manner and then be able to scale it, but it's a whole other thing to actually build a community and in turn see mass adoption from a user perspective. We are going to see that adoption accelerate in the next couple of years, but it is going to be different to what it might look like today. If we have a little bit of patience and focus on building, the adoption will come as long as the technology and the protocols being built are solid. It will just look different to how we think about it today."
— Riad, Cubist
"In the long run, we will definitely see ease of use and accessibility. I think that generally speaking, restaking is still in its early stages where there is a lot of complexity, price discovery and information discovery to be had. At Swell, we are trying to build out the best possible liquid staking and soon restaking experience for DeFi. Part of this is going to be the need for simplicity and abstraction because most users are not going to have the headspace to understand the complexity that comes with these new technologies."
— Daniel, Swell
Thanks to everyone who attended the event.
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