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description: Introduction to Staking, Restaking and LRT concepts.
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# Introduction to Restaking and LRTs

Before learning about BPM Finance, we would like to provide some context about restaking and the concept of Liquid Restaking Tokens. Decentralised Finance is experiencing a resurgence, thanks to a new concept called "Restaking" that has attracted the interest of crypto enthusiasts globally and billions of dollars since the first protocol emerged (Eingenlayer). Through restaking, a new type of asset has emerged called Liquid Restaking Tokens (LRTs).&#x20;

If you are new to Liquid Restaking Tokens (LRT), it is helpful to first understand Ethereum's [Proof-of-Stake](https://ethereum.org/en/developers/docs/consensus-mechanisms/pos/) (PoS) consensus mechanism and why this is preferred over its original [Proof-of-Work](https://ethereum.org/developers/docs/consensus-mechanisms/pow) (PoW) architecture. After coming up to speed on PoS, dive into the original token methodology for representing stake on Ethereum, the [Liquid Staking Tokens](https://chain.link/education-hub/liquid-staking) (LST).

## **First, what is Staking?**

Staking plays a crucial role in securing a Proof-of-Stake blockchain. Validators on the network can stake a certain amount of the blockchain’s native token to support network security and earn a passive income (yield).

In Ethereum's Proof-of-Stake consensus mechanism, stakers place a 32 ETH stake in a validator under the agreement that they will actively participate in the consensus process. This stake serves as collateral and can be partially or completely taken away if the validator fails to complete their duties in a process known as Slashing. In return for participating properly, the user is able to earn ETH rewards (% APY).

While these rewards are attractive to users, most users don't have the knowledge or equipment required to set up and properly configure a validator to avoid slashing penalties. To allow users to participate in staking without running validators themselves, professional operators offer the service of running validators in return for a small portion of the rewards.&#x20;

Any ETH placed in a validator by a user is **locked**, and cannot be used elsewhere in the DeFi ecosystem. This necessitates that operators take custody of the funds and determine ways, either on or off-chain to account for user deposits. The growing trend for achieving this in a trustless way is to wrap the process in smart contracts while issuing a fungible Liquid Staking Token (LST) that represents the staked ETH and can be traded, loaned, or otherwise used in other DeFi protocols.

## **What is Restaking?**

The Essence of Restaking Restaking stands as an innovative crypto concept pioneered by EigenLayer, a protocol decentralizing and commodifying Ethereum’s unparalleled trust. Essentially, restaking empowers users to **delegate their staked ETH, either in its Native form or as Liquid Staked Tokens (LST), to designated Operators who manage validator nodes on various platforms termed Actively Validated Services (AVSs).**  Funds restaked to an AVS will act as collateral for their validation process, be subject to slashing, and generate additional rewards. And like native staking, restaking to EigenLayer locks those tokens away.

<figure><img src="https://196993802-files.gitbook.io/~/files/v0/b/gitbook-x-prod.appspot.com/o/spaces%2FMs8nRcRrD5zdfw6gT3AN%2Fuploads%2F2QFzzlI6idndr0E5ykYX%2FScreenshot%202024-07-29%20at%2012.18.59.png?alt=media&#x26;token=ebff591c-1a51-48b2-9236-dbdb5621868c" alt=""><figcaption></figcaption></figure>

There are 2 types of Restaking

1. **Native Restaking:** Native restaking involves linking an Ethereum validator with EigenLayer’s protocol to extend the economic security furnished by staked ETH beyond Ethereum and into other protocols or AVSs. Though operationally demanding, requiring the operation of an Ethereum validator, native restaking offers unparalleled flexibility. Validators can distribute varying amounts of ETH to different protocols based on their preferences and needs.
2. **LST Restaking:** EigenLayer offers an alternative to running Ethereum validators by allowing users to deposit their liquid staking tokens (LST), such as stETH (Lido), into the protocol’s smart contracts. These tokens can then be delegated to Operators managing various AVSs. This mechanism simplifies the restaking process, broadening its accessibility.

## **What is an LRT?**

**A Liquid Restaking Token is a token representing assets that have been restaked on Eigenlayer to secure AVS.** Like LST, these tokens can participate in DeFi markets. A Liquid Restaking Token (LRT) represents a way to keep your investments liquid while restaking on Eigenlayer to earn rewards.&#x20;

Depositing capital into EigenLayer would make your funds illiquid. However, by depositing your ETH/LST into BPM Finance, you will receive an equivalent amount of our Liquid Restaking Token ensuring that your capital continues to be restaked on Eigenlayer while unlocking liquidity.&#x20;

## Key Restaking Benefits: <a href="#restaking-advantages" id="restaking-advantages"></a>

* **Higer Yields and Rewards:** Restakers can earn additional revenue from multiple AVSs in addition to the ETH staking rewards. For example, a restaker could earn 3% APY for securing **AVS x** and 5% APY for securing **AVS y** on top of the current 3% ETH staking rewards for securing Ethereum, for a total of 11% APY. Restakers can also earn rewards in the form of airdrops from AVS's.
* **Access to Security:** Restaking allows new protocols to utilize Ethereum’s unmatched security and distributed validator set in a relatively simple, safe, and inexpensive manner. For AVSs, tapping into Ethereum’s crypto-economic security is almost always a better alternative than building out their own security from scratch.

## Key Restaking Concerns: <a href="#restaking-concerns" id="restaking-concerns"></a>

* **Slashing Conditions:** From a restaker’s perspective, restaking often involves securing multiple AVSs with vastly different reward and slashing conditions. This makes conducting proper risk assessment and due diligence significantly more challenging for amateur restakers, increasing their risk of getting slashed.
* **Complexity:** Restaking introduces another layer of complexity to Ethereum’s consensus mechanism, potentially raising the burden on Ethereum validators by increasing smart contract and slashing risks.
* **Centralization:** EigenLayer could potentially impose additional computational demands on Ethereum validators, leading to greater centralization.
* **Opportunity Costs:** Unlike liquid staking, restaking with EigenLayer is illiquid, meaning that restakers potentially miss out on better investment opportunities. For example, restakers can’t lend or use their restaked ETH as collateral on decentralized money markets.



