TL;DR
It’s high time we discuss the EtherFi liquid restaking magic. Having had the proper amount of time with restaking protocols in the marketplace. A sense of security can now be associated with the process. Unlike this time last year when uncertainty still heavily surrounded this new technology. If you aren’t up to speed on all the ins and outs of this new Staking process. You’re not alone. Discussing how liquid staking and restaking work in today’s Ethereum economy. Even if you have no interest in using EtherFi. This article will help provide you with a much better understanding of how it all comes together.
You’ll soon understand why the term “house of cards” is often used to describe the fundamentals of liquid-staking Ethereum. There’s some truth hidden behind this moniker. But also a dash of concern. As we naturally fear what we don’t understand. Attempting to break down the world of Ethereum restaking can be a daunting task to those beginning to familiarize themselves with the industry. Jumping from liquid staking right into re-staking, gave many students little time to understand the original formula, let alone the latest variant. Since the rules of restaking can be applied across the board. We’ll start there and apply this information to EtherFi in the same way you could to EigenLayer, Kelp, Renzo, or any other restaking protocol.
Understanding ETH Staking
The transition from proof of work to proof of stake blockchain was not an easy decision for the Ethereum community. Requiring a tremendous amount of thought and development before making that leap. Deploying proof of stake on Ethereum fundamentally changed everything. No longer could you buy a few GPUs and mine yourself some ETH with proof of work. Now you have to already own ETH to participate in mining more.
Traditional Staking (ETH)
This brought us the very first form of staking Ethereum, now called traditional. Giving users four main options to lock up their ETH in exchange for securing the network and mining more ETH. With home staking becoming the first and primary way to stake Ethereum. This process required the user to deposit a minimum of 32 ETH for participation. For those with little to no technical knowledge, staking as a service removed the barrier to entry, but retained the high cost of entry for users. With someone having only 1 ETH now left out of the equation. The market provided an answer in the form of pooling ETH with others through decentralized (dApps) and centralized (Exchanges) products. Allowing everyone with any amount of ETH to participate.
Liquid Staking (LST)
With all this Ethereum locked up in staking contracts of one variety or another. It removed a large chunk of liquidity from the market. Users who staked 32 ETH couldn’t access their liquidity the same way a pooled staker could. Having fear of ETH staking protocols becoming too centralized. The concept of liquid staking was born. Instead of locking your ETH up in proof of work directly to earn ETH mining rewards. Users were now given the option to lock their ETH into liquidity protocols that would stake that ETH on their behalf and provide an additional token to the user, a wrapped version to represent their original ETH. Known as a liquid staking token. This new product could now be used as an additional…
Head of Research Jesse is a passionate seeker of truth who enjoys educating others about Bitcoin. As a free thinker and 2nd amendment advocate, Jesse believes each individual has the right to monetary freedom. “The swarm is headed towards us” -Satoshi Nakamoto
