Key Points
- The Ethereum staking landscape is changing due to the rise of restaking and lower annual percentage rates (APRs).
- Restaking is boosting Ethereum’s growth and security by encouraging continuous participation.
The staking landscape of Ethereum is experiencing a shift.
This change is caused by the declining annual percentage rates (APRs) and the emergence of a new strategy known as restaking.
Restaking is becoming popular due to the decreasing returns from traditional staking methods, providing investors with a means to increase their profits and enhance network security.
Ethereum Staking and Restaking
Staking is a crucial part of Ethereum’s Proof-of-Stake (PoS) consensus mechanism.
It involves the locking of crypto assets to validate transactions and earn rewards.
Historically, staking has been profitable, providing returns significantly higher than traditional savings.
However, with the increasing popularity of staking, competition has also risen, leading to reduced individual rewards.
In reaction to this, restaking has gained popularity.
As the decentralized finance (DeFi) sector evolves, restaking allows investors to use their already staked tokens to earn extra rewards.
By unlocking the potential of these “locked-up” assets, restaking generates more income for investors while also strengthening Ethereum’s security by encouraging continued participation.
Factors Driving Restaking
The recent increase in restaking can be attributed to several factors.
On August 15, 2024, Ethereum’s token supply exceeded 120 million, partly due to increased restaking, according to Ultrasound.money.
As investors realize the potential to restake and earn more rewards, the demand for restaking grows, which in turn increases ETH issuance.
Artemiy Parshakov, Head of Staking at P2P.org, observes that broader trends also contribute to the surge in restaking.
Higher network participation reduces individual staking rewards, leading to expectations of lower APRs for traditional staking. As a result, restaking becomes a more attractive option for investors looking to maximize their returns.
Parshakov also highlights the impact of competition in the staking ecosystem.
He notes that competition among staking service providers, custodians, and wallets to provide higher returns and innovative technologies has sped up the adoption of restaking.
Restaking doesn’t only benefit investors.
Parshakov explains that it allows protocols to enhance security without additional operational costs or the need for proprietary mechanisms, benefiting both investors and network security.
Developments in Ethereum Driving Restaking
The recent increase in restaking is driven by developments within the Ethereum ecosystem.
Alessandro Maci, Senior Product Manager at P2P.org, points to the recent launch of EigenLayer, which now allows users to claim rewards on restaked assets through the EIGEN token.
Moreover, the emergence of permissionless restaking protocols like Symbiotic presents a viable alternative to EigenLayer.
Maci sees this protocol as a strong competitor, further fueling the growth of the restaking market.
