Restaking Explained: How EigenLayer Works

What Is Restaking?

Restaking is the process of taking assets that are already staked on a proof-of-stake network (like Ethereum) and opting them into securing additional protocols and services. Instead of your staked ETH only securing the Ethereum base layer, restaking extends that economic security to other systems that need it, earning you additional rewards in the process.

Think of it like a security guard who works at a bank during the day (securing Ethereum) and then takes a second shift at a jewelry store at night (securing an AVS). The guard earns two paychecks for their time, but also takes on additional responsibilities and risks. If they fail at either job, there are consequences.

The concept was introduced by Sreeram Kannan and the EigenLayer team, who recognized that Ethereum's massive staked capital (over $70 billion) could be leveraged to bootstrap security for new protocols without each one needing to build its own validator set from scratch.

EigenLayer Overview

EigenLayer is the protocol that enables restaking on Ethereum. It acts as a middleware layer between Ethereum's base staking and the services that want to borrow its economic security. The protocol has three main participants: restakers (who provide capital), operators (who run the infrastructure), and AVS (which consume security).

Restakers deposit their ETH or liquid staking tokens into EigenLayer and delegate to operators. Operators run the software for one or more AVS and are responsible for performing the validation tasks each service requires. AVS pay rewards to operators and restakers for the security provided. The protocol takes a 10% fee on AVS rewards distributed through the system.

Actively Validated Services (AVS)

Actively Validated Services are the protocols and systems that use EigenLayer's restaked security. Each AVS defines its own set of tasks, validation rules, slashing conditions, and reward structures. The diversity of AVS is what makes restaking powerful: restaked ETH can secure everything from oracle networks to cross-chain bridges to data availability layers.

EigenDA, EigenLayer's own data availability service, was one of the first AVS to launch. It provides a scalable data availability solution for Layer 2 rollups, competing with alternatives like Celestia. Other AVS include decentralized sequencer networks, keeper networks for DeFi protocols, and cross-chain messaging systems.

Each AVS sets its own reward budget and slashing parameters. When choosing operators, restakers should understand which AVS those operators support and the associated risk-reward profiles. Not all AVS carry the same level of risk or offer the same rewards.

How to Restake

There are two paths to restake on EigenLayer: native restaking and LST restaking. Native restaking is for solo validators who redirect their validator's withdrawal credentials to an EigenPod smart contract. This provides the most direct form of restaking but requires running your own Ethereum validator with 32 ETH.

LST restaking is accessible to anyone holding liquid staking tokens like stETH, rETH, or cbETH. You deposit your LST into EigenLayer's strategy contracts and delegate to an operator. The process requires interacting with smart contracts through a Web3 wallet. After depositing, you continue earning base staking rewards from your LST plus additional AVS rewards through EigenLayer.

A third option is using Liquid Restaking Token (LRT) protocols like EtherFi, Renzo, or Kelp. These protocols handle the restaking process for you and issue a liquid token representing your restaked position, adding another layer of composability but also another layer of smart contract risk.

Liquid Restaking Tokens

The Liquid Restaking Token (LRT) ecosystem emerged as a natural evolution of liquid staking applied to restaking. LRT protocols like EtherFi (eETH), Renzo (ezETH), and Kelp (rsETH) allow users to restake through EigenLayer while maintaining liquidity through a tradeable token. These tokens represent a share of the underlying restaked ETH plus accumulated base staking and AVS rewards.

LRTs add convenience and DeFi composability to restaking, but they also add another protocol layer with its own smart contract risk. The LRT space is competitive, with different protocols offering various approaches to operator selection, AVS diversification, and fee structures. Due diligence on the specific LRT protocol is as important as understanding EigenLayer itself.

Risks and Considerations

Restaking introduces compounded risks that stakers must carefully evaluate. Slashing risk is amplified because your restaked ETH can be slashed for AVS-specific failures on top of standard Ethereum slashing conditions. If an operator misbehaves in any AVS they support, your restaked position can be penalized. EigenLayer implements slashing limits to cap maximum losses, but the risk is non-trivial.

Smart contract risk is compounded across multiple protocol layers: the base staking protocol (Lido, Rocket Pool), EigenLayer itself, individual AVS contracts, and potentially LRT protocols. Each additional layer increases the total attack surface. The restaking stack is still relatively new and has not been battle-tested to the same extent as base liquid staking.

Operator risk is a unique concern in restaking. You delegate to operators who choose which AVS to support and maintain the infrastructure. If an operator has poor uptime, supports buggy AVS, or acts maliciously, your restaked funds are at risk. Choosing reputable operators with transparent operations is critical for managing this risk.