Restaking: Find how you increase your staked ETH rewards

November 01, 2023
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Ethereum is undoubtedly the leading blockchain. However, its scalability issues remain one of the top limitations. To address this, several Layer 2 chains have been created, yet even though they do provide a solution for this, they create a security breach by having independent validators. Ethereum trust network is one of the network's best assets and until now there was no way to convey this into the secondary chains. That’s about to change! Eigenlayer, a middleware protocol built on Ethereum, introduces a new primitive concept, named restaking, that promises to solve this by allowing users to restake their ETH or ETH LST and extend the network security towards other chains. Built to power up the EigenLayer, InceptionLRT offers users the possibility of restaking their assets and receiving back a liquid restaked asset, which allows users to participate in network security while also maintaining access to their funds.

TL;DR:

  • Ethereum's Proof-of-Stake Mechanism requires users to lock ETH to enhance network security, which decreases user liquidity;
  • Liquid Staking Protocols enable users to stake ETH and maintain liquidity;
  • EigenLayer enables users to restake original ETH and ETH LSTs to extend Ethereum's trust network onto Layer 2’s, and leverage their earnings;
  • InceptionLRT enables participation in EigenLayer protocol while preserving liquidity, offering Liquid Restaked Assets (LRT) as a solution.

How are blockchain transactions recorded?

A blockchain is like a shared diary, collectively maintained and secured by a consensus mechanism. Ethereum currently operates on a Proof-of-Stake consensus mechanism, wherein users lock up their tokens to enhance network security.

At its heart, a blockchain is like a shared diary where every participant can record their entries with the assurance that they will remain there indefinitely. To ensure everyone is on the same page and that entries to the diary are agreed upon by everyone, blockchains use consensus mechanisms to record the information. You can think of them as the "decision process validators" for confirming new entries.

Back in 2008, when Bitcoin first appeared, the world saw the first widespread application of the Proof of Work (PoW) mechanism. However, the PoW mechanism was shown to be too resource-intensive, and difficult to maintain.

These inefficiencies led to the development of the Proof of Stake (PoS) method. In this mechanism, individuals prove their dedication to the network by setting aside (locking) a part of their tokens - also known as staking. This method is generally seen as a greener alternative to the earlier mining method, yet it keeps the same levels of security.

Ethereum was originally released as a PoW blockchain but has since transitioned to a PoS mechanism (Ethereum 2.0). This change led to a reduction of the energy consumed and provided a more suitable foundation for implementing new scaling solutions compared to the earlier PoW approach.

InceptionLRT

Image Credit: Ruchika Gupta, Proof of Work vs. Proof of Stake

Staking and Liquid Staking

Despite its advantages, the Proof-of-Staking mechanism limits users' liquidity, as it requires tokens to be locked up for a period of time. Liquid staking tokens are liquid tokens that represent the amount of staked ETH and the corresponding network rewards. This option allows stakers to maintain their liquidity while providing security to the network.

Once Ethereum 2.0 was released, users found themselves at a crossroads: they either pledged their ETH by staking, and provided security to the network, or they would use their coins on other on-chain activities. Opting for one meant forgoing the other.

Addressing this same inefficiency, a sector within the Ethereum decentralized finance (DeFi) ecosystem has been growing - the liquid staking tokens sector. Liquid staking enables users to stake their coins and earn the corresponding network rewards while maintaining liquidity through an ETH LST representing the staked asset.

Essentially, liquid staking represents staking without locking your tokens, since you receive a token worth as much as what you’ve deposited.

Currently, the main liquid staking providers are Lido Finance, Rocket Pool, and Coinbase. By staking on Lido, the user receives back stETH; by staking on Rocket Pool, the user receives back rETH; and finally, by staking on Coinbase, the user receives back cbETH.

Restaking: leverage your yield and increase earnings

EigenLayer enables protocols to leverage the Ethereum trust network on Layer 2 solutions, thus helping to lower protocol costs. ts consensus mechanism allows stakers to provide liquidity and security by pledging their LSTs (restake).

Despite transitioning to a PoS consensus mechanism, Ethereum still faces scalability challenges. It’s quite common to see the network fees soar high due to network congestion, which becomes a heavy barrier for the regular user. This issue has given rise to numerous frameworks, trying to solve the scalability issue.

One of these frameworks is EigenLayer. Functioning as middleware on the Ethereum network, EigenLayer enables protocols to leverage Ethereum's robust trust network without needing to establish their own validator set. This approach provides an off-chain data availability option, helping to lower costs for Layer 2 solutions.

To participate in the Eigenlayer consensus mechanism, users have to restake their ETH or their ETH LSTs (stETH, rETH, or cbETH) with an EigenLayer validator, and therefore, be rewarded from that same stake.

Disclaimer: Engaging in any staking activity carries the risk of slashing (penalties) if the chosen validator engages in malicious or harmful activities towards the network. By participating in both staking and restaking, investors expose themselves to increased risk of penalties across all validating protocols, amplifying their investment risk. It is crucial to conduct thorough research (DYOR) into the trustworthiness of validators before engaging in these activities.

The staking loop and InceptionLRT solution

InceptionLRT enables EigenLayer restakers to maintain their liquidity, by offering a liquid restaked asset (LRT). LRTs are similar to liquid staking tokens and allow users to participate in on-chain activities while providing security to both Ethereum and Eigenlayer networks.

Despite its advantages and further earning opportunities, the direct restaking into the EigenLayer protocol introduces a challenge concerning the liquidity of capital. By restaking your ETH or ETH LSTs, the investor is, in fact, locking up their capital once again and is not able to use it.

That’s where InceptionLRT comes in. InceptionLRT is a protocol built on top of Ethereum, tailored to seamlessly restake Liquid Staked ETH, unlocking Layer 2 rewards while preserving liquidity. It invites users to amplify rewards on restaked tokens by selecting optimal EigenLayer's node operators.

InceptionLRT follows the same principle of liquid staking protocols and allows users to restake their ETH or ETH LSTs tokens, and receive back a liquid-restaking token. This strategy guarantees asset liquidity, allowing users to navigate and capitalize on the plethora of DeFi opportunities within the Ethereum and EigenLayer ecosystems. It facilitates the compounding of liquid staking and restaking rewards and the usage of LRTs in other on-chain activities such as yield-farming, or liquidity mining.

Depending on the LST restaked, the user will receive a different LRT. If the user restakes stETH, he will receive back instETH; if the user restakes rETH, he will receive inrETH; finally, if the user restakes cbETH, he will receive incbETH.

By pledging their restake to Inception, users are assured access to the most competitive yields available in the market. Our clients are relieved from the complexities of the market, eliminating the need for active operator selection and management. Inception consistently prioritizes optimal risk-reward strategies, backed by a devoted account manager who continuously analyzes and forecasts market trends to ensure the best possible outcomes.

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