Restaking 101
What is Restaking?
Restaking represents a novel method for validating transactions and achieving consensus in a blockchain network. Similar to how PoS tackled inefficiencies in PoW, energy wastage, and sustainability issues, restaking contributes to the blockchain ecosystem by addressing challenges that new projects may encounter within current PoS frameworks, such as initial liquidity bootstrapping and security vulnerabilities. The core concept of restaking revolves around sharing economic security. Asset holders can deposit their assets or LSTs through restaking to secure services beyond their asset's native chain, thereby reducing unnecessary costs.
The three participants in restaking
Actively Validated Services (AVSs)
Services or applications that require trust and utilize the network's security by leveraging restaking. AVSs play a crucial role in accelerating open innovation by enabling developers to launch a diverse range of blockchain systems. These include fast finality layers, data availability layers, virtual machines, keeper networks, oracle networks, bridges, AI inference/training mechanisms, and committees for trusted execution environments.
Restaker
Asset holders who deposit their assets to provide economic security to the network and typically receive rewards in return. Restakers pledge their assets to the ecosystem, and in return receive rewards for their commitment.
Operators
Operators are essential for maintaining and managing decentralized trust networks through node operations, ensuring nodes are operational and adhering to consensus protocols to uphold network security and integrity. They also play a critical role in supporting AVSs by providing the necessary infrastructure and security assurances for their operations.
Restaking Explained with John: A Practical Guide
Take John for example; John has gone through a bear market and he has accumulated a capital worth of 100 $TIA, now sitting in his cold wallet. He decides to stake half of them to leverage dormant capital for potential yield generating opportunities. John wants to split his investment based on his risk profile, so he opts into Milkyway to issue a liquid position, $milkTIA, over his staked assets. So John has now 50$milkTIA and 50$TIA.
John decides one day that it would be even better to use 25 $milkTIA and 25 $TIA to deposit into Milkyway Restaking Hub to provide economic security for Milkyway Validated Services and earn rewards for his well-received services. So John now holds 25$ milkTIA and 25$TIA and has restaked 25$milkTIA and 25$TIA via MilkyWay.
Opposed to John, who provides economic security, there are Milkyway AVSs consuming economic security and paying fees for this service. An Actively Validated Service(AVS) is essentially any decentralised service that needs to bootstrap its own decentralised trust network and economic security.
Risks
Restaking enhances yields on staked assets but can deter users due to its inherent complexity, relying on intricate contracts and demanding a deep grasp of blockchain technology, which may alienate those less familiar with digital finance and tech.
It also introduces contagion risk. For instance, if an operator is slashed by an AVS, this could ripple across the entire staking ecosystem, potentially reducing the value of the restaking pool and compromising the security of other AVSs
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