Liquid Staking and Restaking Garners Popularity Amid Value Proposition to Scale Tokens Utility

Liquid staking has garnered popularity alongside restaking owing to the inherent value to scale the staked tokens’ utility.

The segment data by DEFi Llama shows that liquid staking now has over $53 billion in total value locked (TVL). Also, the restaking protocols have witnessed sustained growth in their TVL to $14 billion in barely 12 months since EigenLayer’s restaking service was unveiled on the Ethereum mainnet.

The basis of the two emerging sectors of decentralized finance (DeFi) gaining much traction lies in their fundamentals and inherent potential for growth.

Fundamentals of Liquid Staking and Liquid Restaking

Liquid staking, just like restaking, was unveiled to facilitate the proof-of-stake (PoS) validators in generating additional DeFi yield and facilitating blockchain applications via the staked tokens.

Liquid staking platforms such as Lido Finance allow the Ethereum validators to stake Ether (ETH) and get the derivative token, stETH. One can utilize the LSD token to secure additional DeFi yield in other chains supporting Lido, such as Solana, Terra Classic, and native Ethereum.

Liquid restaking tokens have unique designs for utilization within the secondary blockchain app services. In particular, EigenLayer integrated the actively validated services (AVSs) into its asset staking to eliminate the costly and resource-wasteful nature of DApps for on-chain validation.

EigenLayer’s AVS facilitates the DApps running on Ethereum to leverage the staked ETH to validate without scaling the resources.

Despite the apparent value proposition for the liquid staking and restaking tokens, they are yet to realize their full potential. The challenge lies in composability limitation.

Using Lido’s stETH across multiple blockchain environments lacks a seamless process. EigenLayer’s smart contracts are entirely built on Ethereum, thereby segregating validators that run on other PoS blockchains that could tap LRTs benefit.

Multi-chain Compossable Possible via Synthetic Assets

The DeFi asset class identified as synthetic assets can bridge the composability gap, hindering liquid staking and restaking tokens.

The synthetic DeFi assets should tap the unique design for multi-chain compatibility.

Such should emulate the Visa and Mastercard in payment acceptance. Consequently, synthetic assets’ omni-chain composable feature should help overcome this barrier.

The synthetic assets from tokenizing real assets can catalyze liquid staking and restaking across various blockchain environments. DeFi innovations could adopt the omni-chain composability to scale their utilization across the PoS chains.

Tapping into the synthetic assets is critical for DeFi protocols that participate in liquid staking and restaking to expand reach. Also, matching the composability of synthetic assets in liquid staking and restaking will yield a missing seamless process.

The popularity of liquid staking and restaking faces threats from security and economic sustainability concerns affecting protocols that promise double-digit returns to investors.

Haven1 co-founder and chief executive Jeff Owens warns that the most significant risk lies in the absence of investor understanding, not technical complexity. Investors do not understand the risks inherent in asset looping when you deploy the same capital into various protocols.

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