GM! This is Milk Road PRO, lighting up your email inbox each Saturday with a report that helps you invest successfully in crypto. 💰
Today we’re diving into restaking – a sector we believe is the next big thing in crypto.
The Milk Man wants to make sure you're ready to make the most of this trend, so we’re breaking down 4 ways you can capitalize on this massive opportunity.
EigenLayer, the protocol who invented restaking, is one of the fastest growing protocols in crypto history, moving from <$1 billion to almost $15 billion in one quarter. 🤯
Source: TheBlock
Oh, and the craziest part is that it only went live on mainnet 2 weeks ago. 👀
Unbelievable growth, and we believe it’s well deserved. Restaking is one of the most exciting new use cases to exist in blockchain since Ethereum itself was invented.
We wrote a PRO report last year about staking becoming the next trillion dollar industry. We think restaking is the next big thing and where the opportunity to make serious cash is right now.
This could be another trillion-dollar industry built on blockchain, and it's still fresh and misunderstood by many—even in the crypto world.
We love nothing more than something with massive potential that isn’t well understood. That’s where the alpha exists and why today’s report is going to cover:
- What is restaking and EigenLayer? 🌀
- The bull case for restaking 🐂
- Why liquid restaking tokens (LRTs) are going to eat the market share of liquid staking tokens (LSTs) 🌊
- How to capitalize on the opportunity of restaking right now 💰
Ok let’s get into it, starting with a brief explanation of restaking and the protocol that invented it, EigenLayer. ⏬
WHAT IS RESTAKING? 🌀
Restaking is a complex topic, but the Milk Man will do his best to simplify it – just bare with him here…
Restaking allows validators on blockchains like Ethereum to redeploy their staked crypto assets across other proof-of-stake (PoS) based services to extend that asset’s security.
Think of restaking like repurposing the security of a staked asset. We’ll explain this more thoroughly soon…
When you stake $ETH, you are using your $ETH to help secure the Ethereum blockchain via running or delegating to a validator.
When you re-stake your $ETH, you’re extending the utility of that $ETH to not just secure Ethereum, but also other applications.
This concept is called actively validated services (AVSs) – and can consist of various applications like Rollups, bridges, oracles and more.
The advantages of restaking are simple:
1/ Think of this like Ethereum validators have excess bandwidth, so restaking allows them to put those excess resources to use.
As a result, validators and users earn additional yield outside of the yield earned from the Ethereum blockchain.
Staked ETH is ~4% APY + restaked ETH is X% APY = Total yield for restaked $ETH
FYI we don’t yet know the % APY for restaking as the protocol is still in its early days.
2/ For AVSs, bootstrapping decentralized security is extremely complex and expensive.
By using restaked security, decentralized applications save significant resources and achieve greater security than they could likely achieve on their own.
Restaking provides a clear solution to a problem for many applications on the internet.
What is EigenLayer?
EigenLayer is a protocol built on Ethereum that enables restaking.
In short, users can deposit their $ETH or staked $ETH in EigenLayer and the protocol will distribute that security to AVSs who choose to utilize EigenLayer’s restaking service.
The additional yield generated from restaking comes from the AVSs paying for this security service and then that payment is distributed back to the restakers via the EigenLayer protocol.
Is This Yield Risky?
The key thing to note here is that the yield coming from staking and restaking are both real yields, generated from sustainable and revenue generating sources.
1/ Staked $ETH earns yield from the issuance of the Ethereum blockchain (i.e. inflation) and gas fees.
In Ethereum's case, the inflation is sustainable because Ethereum is burning more $ETH than it is issuing due to its blockchain activity.
This yield is fluid and moves up and down based on gas fees as well as the number of staked $ETH – you can learn about Ethereum’s tokenomics design here.2/ Restaked $ETH earns yield from the revenues of actively validated services (AVSs).
This yield can vary depending on how much revenue the AVSs generate and the amount of restaked $ETH.
While restaking carries some risks like any other protocol, it's not traditional rehypothecation where assets are reused in a risky manner that could create systemic risk to Ethereum. View the EigenLayer FAQ for more details on restaking risks.
Before we get into explaining the opportunities at hand with EigenLayer and restaking, there is one more layer that we need to explain: Liquid Restaking Tokens.
What Are Liquid Restaking Tokens?
Liquid Restaking Tokens (LRTs) are to restaking as Liquid Staking Tokens (LSTs) are to staking.
WTF is that? We bet you wanna punch the Milk Man in the face after he put together that sentence… Please don’t, yet! 🥺
If you've read our staking report, you know that staking your $ETH gives you a token representing your staked $ETH. This allows you to use that token in DeFi or other ways, while still earning staking rewards.
$stETH from Lido or $rETH from Rocketpool are common LSTs.
LRTs are the exact same concept, but instead for restaked $ETH.
$eETH from Ether.fi, $ezETH from Renzo and $rswETH from Swell are the most common LRTs currently. More on these in just a second…
Together, the various layers mentioned above create a new crypto ecosystem, called restaking. You can see this in a nice visual below.
Source: StakingRewards
THE BULL CASE FOR RESTAKING 🐂
We've talked extensively about the benefits of staking, and most of you get it by now. But if staking is good, why not restake to earn even more? This question makes the case for restaking pretty clear.
Restaking takes a crypto function that is already growing massively (staking) and adds additional rewards to it, with the exact same UX.
It’s one of those things that once you wrap your head around it, it's a complete no brainer. Let’s dive into the specifics to help you see just how big of an opportunity this is.
Uh, Oh… 😧 The rest of this report is exclusive to Milk Road PRO members!
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WHAT’S LEFT INSIDE THIS REPORT?
- The bull case for restaking
- The bull case for liquid restaking tokens
- 4 ways you can capitalize on the opportunity of restaking
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