Liquid Native Restaking is quickly becoming one of the hottest topics in the EigenLayer ecosystem and the DeFi market. It has garnered significant attention from the community and major investment funds. But what makes Liquid Native Restaking so special? Let’s dive deeper into this innovative concept and explore its potential.
What is Liquid Native Restaking?
Restaking is a concept introduced by EigenLayer, allowing users to stake their Liquid Staking Tokens (LST) on the platform after their initial stake. Native Restaking, on the other hand, refers to the activities of Validators on the EigenLayer network. Typically, Ethereum Validators earn only from staking on Ethereum. However, with EigenLayer’s Native Restaking model, Validators on Ethereum can also earn additional income by participating in EigenLayer.
That said, Native Restaking comes with some inherent challenges. For example, becoming a Validator on Ethereum requires significant financial and hardware investments. Specifically, users must lock up at least 32 ETH (around $70,000 at the time of writing). Additionally, issues like security risks and slashing penalties make it even more complicated.
Liquid Native Restaking was developed to address the challenges of Native Restaking on EigenLayer. The core advantage of Liquid Native Restaking projects is that Node Operators can create and manage a node on Ethereum with just 2 ETH, which is significantly lower than the direct requirement on the Beacon Chain.
Furthermore, technologies like Distributed Validator Technology (DVT) help reduce the need for advanced hardware while enhancing security. These solutions not only make scaling easier but also improve the decentralization of the Ethereum network.
How Liquid Native Restaking Works
Liquid Native Restaking platforms generally follow a simple three-step process:
- Step 1: Users deposit ETH into Liquid Native Restaking protocols and receive LST tokens, representing their stake rewards from both Ethereum staking and the activities of Node Operators on EigenLayer.
- Step 2: Aspiring Node Operators must deposit a minimum of 2 ETH, while the remaining ETH is allocated from the pool of user deposits.
- Step 3: The Node Operators run their operations across both EigenLayer and Ethereum, maximizing their rewards. Meanwhile, the technologies behind Liquid Native Restaking aim to enhance security and decentralization.
Risks Associated with Liquid Native Restaking
Despite its many benefits, Liquid Native Restaking is not without risks. Some Node Operators may leverage the system to activate the maximum number of nodes, which can be problematic if they lack the necessary experience. Inexperienced operators can easily incur slashing penalties, leading to losses of ETH for both themselves and the users whose funds are staked. Additionally, the technologies used in Liquid Native Restaking protocols are still under development, which introduces operational and security risks.
Prominent Projects in the Liquid Native Restaking Space
Puffer Finance is one of the pioneering projects in Liquid Native Restaking, backed by the Ethereum Foundation. The project has introduced several innovative technologies, such as Secure-Signer, which helps mitigate losses from slashing, and Fractal DVT, which enhances security and decentralization without the need for complex hardware.
Puffer Finance has successfully raised funds from well-known investment firms like Jump Crypto and Animoca Brands. In addition, the Secure-Signer and RAVe technologies developed by Puffer Finance have received support from the Ethereum Foundation.
Ether.fi is another standout project in the Liquid Native Restaking space, enabling users to stake ETH and maximize their returns. Unlike Puffer Finance, Ether.fi primarily relies on DVT technology from Obol Network, which allows node operators to manage their nodes without advanced hardware, while maintaining high levels of security. Ether.fi has also attracted investment from prominent funds such as North Island Ventures, Arrington Capital, and Versionone.
Liquid Native Restaking represents a groundbreaking development in the staking and DeFi landscape, offering numerous benefits for users and node operators alike. With its potential to revolutionize the staking model and improve both scalability and security, this field is set to see major breakthroughs in the near future. Refer to other articles here.