May 30, 2024
Double Dip Your Rewards with This Emerging Crypto Strategy
Dear Subscriber,
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| By Jurica Dujmovic |
The crypto world is constantly churning with new developments. That fast pace is part of what makes it so exciting … and rife with opportunities.
And one of the latest trends catching investors' eyes goes is liquid staking, or “restaking.” This emerging sector promises to help investors get more bang for their digital buck.
See, staking is a crypto process where users lend their crypto to a platform to provide liquidity. Users then get a portion of fees generated as a reward.
But the catch with traditional staking is that you cannot use your assets when they’re staked.
But liquid staking changes that. Introduced in 2022 by EigenLayer, restaking platforms not only pay you a yield for your staked assets. They also issue a liquid staking token, or LST. These represent your staked assets, like an IOU, that you can use on secondary protocols.
It’s like a three-step dance:
- Initial Staking: Investors begin by staking their digital assets, such as Ethereum, on a primary staking protocol.
- Issuance of Liquid Staking Tokens:The platform you initially stake in issues LSTs that represent the staked assets.
- Secondary Protocol Restaking: The LSTs can then be redeployed and staked themselves on secondary protocols, allowing users to earn additional rewards. These secondary staking activities can bolster a diverse range of blockchain services, such as Layer-2 networks, decentralized applications and other DeFi initiatives.
In essence, restaking allows you to get twice the rewards for the same capital investment.
This unlocks a world of opportunities for investors to generate additional rewards while supporting the growth and development of the decentralized finance ecosystem.
And EigenLayer’s rapid growth — with nearly $7 billion in total value locked, a barometer of usage — underscores the significant impact and adoption of restaking within the DeFi ecosystem.
But the advantages of restaking reach far beyond what you can see in your crypto wallet. Indeed, the benefits can provide significant value to both individual investors and the broader blockchain infrastructure.
For example:
- By diversifying staked assets across multiple protocols, restaking acts as a decentralizing force, reinforcing the security and resilience of blockchain networks.
- LSTs afford investors so much more flexibility. And in the fast-moving crypto markets, liquid assets are essential if you want to keep up.
- This is in stark contrast to traditional staking arrangements that require assets to be locked for a predetermined duration.
- Finally, restaking fosters interoperability and collaboration across distinct blockchain networks, facilitating the creation of a more interconnected and cohesive blockchain ecosystem.
That said, there are notable risks, as well.
First of all, there’s the added complexity.
It’s no secret that navigating the crypto market, particularly DeFi, can be overwhelming. The multi-layered nature of restaking introduces a level of complexity that can be prohibitive for new users.
Investors need to be knowledgeable about multiple protocols, manage the multiple transactions — and pay several rounds of fees — and have a plan for the effective management of their LSTs.
Next, restaking heavily relies on smart contracts.
That means users are exposed to potential security risks stemming from vulnerabilities or flaws in the underlying code. Impeccable contract security is paramount to safeguarding staked assets.
Third is slashing, a penalty for validator misconduct or non-performance.
While slashing is present across different protocols, it can be compounded by the same interoperability we were just celebrating. That’s because the risk can be amplified across multiple protocols, potentially leading to significant losses for investors.
Finally, the value of LSTs can fluctuate. This can impact restaking returns and necessitate adept market risk management strategies.
If you think restaking is a strategy you’d like to pursue, it’s crucial to choose the right platforms to maximize your benefits and minimize these risks.
Here’s a closer look at some of the top platforms that exemplify robust infrastructure and user-friendly interfaces, making them ideal for investors, both new and experienced in restaking.
Renzo Protocol
By integrating with EigenLayer, Renzo simplifies the restaking process, allowing users to leverage Actively Validated Services — protocols that have already expressed interest in joining the EigenLayer ecosystem — for additional rewards.
The platform’s intuitive interface counters the complexities of staking, making it accessible to all. Renzo supports multiple staking tokens in return for its LST, ezETH. It also offers a robust security framework through comprehensive audits and a strong governance model.
Picasso Network
Picasso Network is tailored for those who prefer a customizable staking experience.
It allows investors to adjust their staking strategies based on their risk tolerance and financial goals. Picasso supports a variety of staking assets, enhancing the flexibility and diversity of your investment portfolio.
Although specific features are less detailed than those of Renzo, Picasso’s robust infrastructure and adaptable approach make it a noteworthy platform for restaking.
Ether.fi
Ether.fi seamlessly integrates restaking functionalities within the Ethereum ecosystem, ensuring security and transparency through automated smart contracts.
This platform is particularly user-friendly, with comprehensive support resources that help both beginners and experienced investors make the most of their staking activities.
By focusing on interoperability, Ether.fi facilitates easier participation in DeFi applications.
These are just three examples out of many. And with the rate this emerging market is growing, there will be more soon for sure.
By understanding the underlying mechanisms and potential risks of not just the sector, but each platform, you can effectively harness the opportunities presented by this burgeoning domain.
Remember, restaking is not just about earning higher returns, though that is certainly a delightful benefit for users.
It’s also about contributing to the security and resilience of blockchain networks, maintaining liquidity and fostering an interconnected and collaborative blockchain ecosystem. And that means a stronger crypto market all around.
If you’re ready to take the next step, consider diving into restaking.
And if you’re not but still want exposure to this up-and-coming narrative, some restaking platforms, such as Lido (LDO, Not Yet Rated), have their own tokens listed for purchase on exchanges. In fact, Renzo is in the process of launching its native token, REZ, through airdrops now. You can read more about that here.
With this strategy, you get a piece of that platform’s success without needing to master the skill of restaking.
Best,
Jurica Dujmovic
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