Restaking is expected to herald a new era for Ethereum.
Pioneered by EigenLayer, this new primitive takes staking to the next level — enabling staked ETH to be used to secure not only Ethereum’s blockchain, but also additional services.
Dive into this blog to explore restaking, and brush up on your knowledge before the launch of Swell’s own native liquid restaking token: rswETH.
An introduction to restaking
In a nutshell, restaking is a new concept in crypto economic security which enables the established economic trust of Ethereum to be extended to secure other distributed systems, such as oracles, bridges, or sidechains.
- For stakers, this means new opportunities to pledge assets to secure additional protocols (known as Actively Validated Services) adding more layers of risk and reward.
- For new protocols, this streamlines development. They can tap into restaked ETH for immediate economic security, instead of having to bootstrap the validators and tokenomics needed to secure a blockchain network — a process that can be costly and time-intensive.
Still getting to grips with the idea?
Restaking is often compared with the practice of “merged mining” on Bitcoin, and has also been likened to the TradFi idea of rehypothecation, in which existing loan collateral is pledged against another loan.
To aid your understanding, here are a few other colorful explanations from Crypto Twitter:
“You take your staked ETH… and you stake it again!” — Gabriel Haines
"The coordination engine for open innovation." — Sreeram Kannan, EigenLayer
"Corporate bonds on Ethereum" — David Hoffman, Bankless
How restaking ETH works
Restaking on Ethereum is conducted via smart contracts on EigenLayer.
Restakers deposit ETH or LSTs into EigenLayer, which acts as a decentralized marketplace for economic security.
The deposited assets are then staked twice over; first to help secure Ethereum's mainnet, and second to secure optional additional protocols.
Restakers can thus choose to receive more rewards by taking on the additional risks of extending their staked ETH to multiple networks.
Learn more about how restaking works in the EigenLayer docs.
What is liquid restaking?
Just as liquid staking tokens (LSTs) represent tokenized versions of staked ETH and accrued rewards, liquid restaking tokens (LRTs) represent tokenized versions of restaked ETH and accrued rewards.
Both types of protocols lower the barrier to entry by removing the need to have 32 ETH to stake, and unlock liquidity by providing a receipt token that can be used in DeFi.
This liquid form of restaking is not to be confused with restaking swETH on EigenLayer, which entails effectively locking up your liquid staking token to continue receiving restaking rewards.
What is rswETH?
rswETH is a native Liquid Restaking Token (LRT).
This means that it gives you uncapped access to restaking rewards, without the need to effectively lock your liquidity.
Under the hood, it means that the validators for the rswETH restaking pool are pointed directly towards the EigenLayer smart contracts.
How to restake ETH with rswETH
Once live, you will be able to restake ETH on the Swell app under the ‘Restake’ tab, and receive rswETH in return.
By simply holding rswETH you will earn:
- Staking yield from the Rewards earned by staking your ETH in Swell.
- Pearls. Swell’s pre-token point system that represents your share of Swell’s upcoming airdrop. These will be redeemable for $SWELL tokens at TGE, scheduled for late Q1.
- EigenLayer Restaked Points, which measure your contribution to the shared security of the EigenLayer ecosystem.
- Future restaking rewards, when EigenLayer onboards the first Actively Validated Services to mainnet.
Plus, you will also be able to earn additional yield by using your rswETH in DeFi protocols. rswETH is expected to offer the same extensive range of DeFi opportunities as its sister token swETH.
The risks of restaking
Restaking has enthused builders and stakers alike with its potential to both increase staking yield and extend Ethereum's base layer security to other protocols.
But, it has also raised questions about risk. Some of the loudest voices in Ethereum have expressed concerns about the risks of restaking and its long-term alignment with Ethereum.
That includes Vitalik Buterin, who wrote in May 2023 of the dangers of overloading Ethereum’s consensus — sparking a thought-provoking exchange of ideas with EigenLayer founder Sreeram Kannan, and many others who have chimed in since.
This conversation is still developing, and has covered risks spanning from higher risk of slashing penalties, to operator collusion, and potential for centralization.
Swell is leading this dialogue, and is collaborating with leading risk management firms to proactively assess risk, and ensure safe and secure practices are established as we begin our liquid restaking journey.
To that end, Swell has also established the Liquid Restaking Council, which comprises leading protocols, services, companies and operators in the restaking ecosystem, all collaborating to ensure the safe and secure design and delivery of rswETH!
rswETH is coming sooner than you think, and is now expected to hit mainnet in the next few weeks!
Stay tuned for further announcements about rswETH, and join our thriving community on Discord, DeBank, and X.
