The Ethereum community, including co-founder Vitalik Buterin, has warned of the potential risks of leveraging Ethereum’s security. One of the biggest risks of restaking is slashing, which occurs when the software used by stakers breaks certain rules and is penalized by having some of the staked Ether tokens taken away.
Even so, new platforms have emerged to become some of the biggest drivers of EigenLayer’s growth by providing a derivative version of restaked Ether tokens. The idea is similar to Lido Finance, which has been providing a derivative version of staked Ether since even before Ethereum’s conversion. These so-called liquid staking tokens can then be used on other DeFi applications — whether it is earning rewards by providing liquidity in money market protocols, or borrowing against the derivatives token in lending markets to get even more Ether to boost staking rewards. The type of new projects for liquid restaking have already attracted about $2 billion in deposits.