Liquid Staking Tokens and Restaking
How stETH/rETH liquid staking tokens work, why EigenLayer's restaking model created a new economic primitive, and what AVS economics mean for the broader Ethereum ecosystem.
The Liquid Staking Idea
Ethereum's proof-of-stake security comes from validators staking 32 ETH each, earning rewards (~3-5% APY) for honest validation. The catch: staked ETH is locked, and exits take 1-2 days to process. Liquid staking tokens (LSTs) solve this. You deposit ETH into Lido and receive stETH in return — a token that represents your staked position. stETH continues to accrue staking yield (its quantity grows over time, or its price grows depending on the design) and can be freely traded, used as DeFi collateral, etc. You get the yield without locking the asset.
Who's in This Space
**Lido** is by far the largest, with ~30% of all staked ETH represented as stETH. **Rocket Pool** offers a more decentralised alternative with rETH. **Coinbase Wrapped Staked ETH (cbETH)** is the largest CEX-affiliated LST. **Frax** has sfrxETH. **Mantle** has mETH. Each has different decentralisation properties, validator distribution, and operational structure. Lido's dominance has been a source of community concern — at >32% of staked ETH, it crosses the threshold where it could in theory affect consensus.
What Restaking Added
EigenLayer (launched 2024 mainnet) introduced restaking: take your staked ETH (or LST) and 'restake' it to secure additional services beyond Ethereum's consensus. The restaked ETH backs 'Actively Validated Services' (AVSs) — protocols like cross-chain bridges, data availability layers, custom rollups, oracle networks. AVSs pay restakers for the security; restakers earn ETH staking yield + AVS rewards. This created a new economic primitive: Ethereum-backed security as a marketable commodity.
- LSTs let you stake ETH for yield without locking the position
- Lido (stETH) is dominant; Rocket Pool (rETH), Coinbase (cbETH), Frax, others compete
- EigenLayer restaking lets staked ETH back additional services (AVSs)
- Restaking creates a new commodity: Ethereum security as a marketable asset
Key Takeaways
- LSTs solve the 'staked ETH is locked' problem with tradeable receipt tokens
- Lido is by far the largest LST — at >30% of staked ETH, decentralisation concern is live
- Restaking extends staking utility: ETH-backed security for non-Ethereum services
- AVS economics are still maturing; the model is meaningful and unprecedented
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