If you've been feeling that the term 'Liquid Restaking' has been appearing frequently lately but remains somewhat unclear, then this article is just for you. We will set aside the obscure jargon, starting from scratch, to clarify why this concept can stir a new wave in the crypto world, and understand the revolutionary role played by the Lorenzo Protocol in this.
Scene One: Basic Staking - The Cost of Security
In proof-of-stake (PoS) blockchains (like Ethereum), users need to stake tokens (like ETH) into the network to become validators, maintaining network security. In return, they earn staking rewards. But here’s the problem: the staked assets are locked, losing liquidity. During the lock-up period, you can't trade, lend, or participate in other DeFi activities with it. This is the 'liquidity cost' paid for security.
Act II: Liquid Staking - Liberating Liquidity
Thus, 'liquid staking' was born. When you stake ETH, you receive a token certificate, such as stETH. This stETH represents your staked ETH principal plus returns and can be freely traded on the market, used as collateral for loans, and participate in other DeFi protocols. It transforms 'stagnant' staked assets into 'living' capital. Protocols like Lido have achieved great success in this regard.
Act III: Re-staking - Discovering a New Continent of Security
But the story isn't over yet. Security experts are pondering: can the 'economic security' contained in these staked ETH, besides protecting the Ethereum mainnet, be used to protect other entities? For instance, to protect a new blockchain, an oracle network, or a cross-chain bridge?
The concept of re-staking was thus born. It allows users to re-utilize the 'security properties' of already staked assets (or their liquid staking certificates, such as stETH) to provide assurance for other services that require security (referred to as 'Active Validation Services' or AVS). Users can therefore gain additional rewards from these new services.
Act IV: Liquidity Re-staking - The Ultimate Form
Combining 'liquid staking' and 're-staking' leads to the current hottest trend of 'liquidity re-staking'.
1. You hold ETH.
2. You stake it, obtaining a liquid staking token stETH (maintaining liquidity).
3. You re-stake your stETH, choosing one or several AVS you trust, delegating your 'security' to it.
4. Results: You simultaneously earn Ethereum base staking rewards + additional rewards provided by AVS, while your stETH can still participate in other DeFi activities. This achieves a multiple overlay of capital efficiency and returns.
Why is this the next explosion point?
1. The Holy Grail of Capital Efficiency: It solves the long-standing 'security, yield, liquidity' trilemma of crypto assets, approaching the theoretical limit of capital efficiency.
2. Fostering an Innovative Ecosystem: It provides affordable and quickly accessible security for countless new blockchain middleware and infrastructure (AVS), significantly lowering the barriers to innovation. This is similar to how AWS lowered the barriers for internet entrepreneurship.
3. Huge Market Potential: From Ethereum to Bitcoin, trillions in staked assets are waiting to be developed in this blue ocean.
Lorenzo Protocol: Leading the Wave towards Bitcoin
What Lorenzo has done is systematically introduce this explosive 'liquidity re-staking' paradigm, which has been validated by Ethereum, into the Bitcoin world for the first time. It allows BTC holders to not only earn staking rewards but also turn the ultimate security of BTC into a yield-generating 'commodity', renting it out to the demand side of the entire crypto ecosystem. This is not only the 'liberation of BTC's yield' but also a reshaping of the security landscape of the entire crypto world.
After understanding liquidity re-staking, where do you think its biggest risks might come from? Is it from smart contract vulnerabilities, or the varying quality of AVS itself?
@Lorenzo Protocol #LorenzoProtocol $BANK
