From Staking to Restaking ｜Pell Research

5 min readDec 17, 2024

For newcomers to Web3, staking and restaking are two interconnected but often confusing concepts. While both play critical roles in the blockchain ecosystem, their functions, mechanisms, and value creation differ significantly. This article explores the distinctions between staking and restaking, providing case studies to illustrate their applications and potential for future development.

Staking: The Foundation of Blockchain Security

Staking is a core activity of Proof of Stake (PoS) consensus mechanisms, designed to maintain the security and operations of decentralized networks through economic incentives. First popularized by blockchains like Ethereum, staking allows users to lock a certain amount of tokens to support network operations and earn rewards.

An analogy: Staking as a fixed deposit at a bank

• Deposit (Staked Assets): You deposit money into Bank A as a fixed deposit. Similarly, users lock tokens (e.g., ETH) into a PoS blockchain like Ethereum to participate as validators.

• Earning Interest (Staking Rewards): The bank pays interest based on the amount and duration of your deposit. In blockchain, staking rewards incentivize users to secure the network.

• Capital Utilization (Network Security): The bank uses deposits for lending or investment to sustain operations. Likewise, staked tokens enhance the blockchain’s security, validate transactions, and ensure system stability.

Key Characteristics of Staking

• Network Security: Staked assets act as collateral, incentivizing validators to maintain network stability and deter malicious activity.

• Governance Participation: Stakers in many PoS networks can vote on critical decisions.

• Stable Returns: Staking rewards are often distributed with fixed or dynamic Annual Percentage Rates (APRs), depending on network rules and staking ratios.

Ethereum Staking in Practice

Since Ethereum transitioned to PoS, users can stake ETH to earn rewards and secure the network. Ethereum staking has become a cornerstone of the network’s decentralization, strongly supporting its DeFi ecosystem. Users need to stake a minimum of 32 ETH to become validators, operate a node, and participate in block validation and finalization.

Restaking: An Innovation for Enhanced Capital Efficiency

Restaking builds on staking by enabling users to leverage staked assets to support additional networks or protocols. This mechanism improves capital efficiency and broadens security applications across the decentralized ecosystem.

An analogy: Restaking as a reinvestment of deposit certificates

• Initial Staking: Just as you deposit funds in Bank A, users lock tokens (e.g., ETH) into a blockchain network like Ethereum.

• Receiving a Deposit Certificate: The bank provides a certificate as proof of deposit. Similarly, in staking, users receive proof of stake, representing their contribution to network security.

• Restaking: The deposit certificate can then be reinvested into other financial products for additional returns. In blockchain, staked tokens or their derivatives can be restaked in protocols like EigenLayer or Pell Network to earn extra rewards.

Restaking Case Studies

EigenLayer: The Pioneer of Ethereum Restaking

Overview

EigenLayer is a leading restaking protocol in Ethereum’s ecosystem. It repurposes the security of ETH stakers for other protocols and services. Acting as middleware, EigenLayer allows Ethereum validators to restake their staked ETH or Liquid Staking Derivatives (LSDs) in other protocols requiring security and trust, enabling dual rewards for stakers.

Active Validation Service (AVS)

EigenLayer introduced the Active Validation Service (AVS) model, a framework that leverages Ethereum’s security and decentralization to build services and applications, such as Layer 2 networks, data layers, decentralized applications (dApps), and cross-chain bridges.

In essence, users restake their assets and delegate them to registered node operators on EigenLayer. These operators then provide validation services for AVS and share a portion of the rewards with the restakers.

Before EigenLayer, AVS needed to establish independent security mechanisms, facing significant security and funding challenges. EigenLayer simplifies this process by allowing AVS to utilize Ethereum’s existing validation infrastructure, reducing startup costs and enabling a “rented security” model.

Development Status

EigenLayer currently holds a Total Value Locked (TVL) of $17.9 billion and has completed four funding rounds, raising over $160 million in total. Its latest Series B funding valued the protocol at $1 billion. EigenLayer’s ecosystem is rapidly expanding, making it a leader in Ethereum’s restaking space.

Pell Network: A Pioneer in BTCFi Restaking

Overview

Pell Network is the first protocol to bring the restaking mechanism to Bitcoin’s ecosystem. As the first omnichain BTC restaking network, Pell unlocks Bitcoin’s potential value and drives the growth of Bitcoin Finance (BTCFi).

Decentralized Validated Services (DVS)

Pell Network introduces the Decentralized Validated Services (DVS) model, similar to EigenLayer’s AVS but centered around Bitcoin. By leveraging restaking, Pell enables BTC’s ecosystem to expand cryptographic security. The three key participants in this model are:

1. Restakers: Users who stake Bitcoin Liquid Staking Tokens (LSTs) in Pell Network. These funds are used for restaking, providing security for various DVS. Restakers can either run their own nodes or delegate restaking to node operators.

2. Node Operators: Individuals or organizations that operate nodes and provide validation services for DVS. In return, they receive rewards and ensure that DVS functions according to pre-set rules and penalties.

3. DVS (Decentralized Validated Services): Services built on Pell Network and executed by node operators, such as dApps or protocols. DVS leverage restaked assets for security and implement slashing conditions to deter malicious actions.

Development Status

Pell Network has achieved a TVL of $638 million in restaked assets and secured $3 million in funding. As a key driver of BTCFi, Pell is forging strong ecosystem partnerships and creating new value propositions for Bitcoin.

The Future: Collaborative Evolution of Staking and Restaking

Staking and restaking will collaboratively enhance asset utilization, forming a more efficient capital cycle. In the future, users and developers will be able to fully leverage existing security and liquidity across multiple protocols. By reusing the security foundation of established networks, emerging protocols can quickly gain trust and significantly reduce development and operational costs, fostering more innovation.

With the rise of BTCFi, restaking mechanisms open new growth opportunities for Bitcoin, shifting its role from “store of value” to “value creation.” As protocols like Pell Network continue to develop, Bitcoin’s prominence in DeFi, cross-chain applications, and Web3 ecosystems will further increase.

Conclusion

Staking is the cornerstone of blockchain, establishing network security and trust through economic incentives. Restaking builds on this by enhancing capital efficiency and expanding security applications, driving a new wave of ecosystem innovation. From EigenLayer to Pell Network, the synergy between staking and restaking is leading the technological evolution and application breakthroughs of Web3.

About Pell :

Pell: The First & Omnichain BTC Restaking Network, extending BTCFi into the cryptoeconomic security domain and fully unlocking Bitcoin’s potential.

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