Why Restaking Could Be the Spark That Triggers the Next Big DeFi Collapse

Restaking Boom: Why This New Yield Strategy Is Fueling the Next Big DeFi Narrative

In the world of decentralized finance, truly new ideas are rare. But restaking is one of those cases where the concept goes beyond a simple update; it introduces something entirely different. Restaking allows investors to earn additional yield on ETH that is already locked in staking, essentially letting them earn twice on the same asset. 

This explains the growing interest in protocols like EigenLayer, along with similar platforms such as Renzo, Kelp DAO, and RSTK.

The narrative sounds appealing: the “Airbnb of decentralized trust.” In the past, every dApp had to build its own validator network. Now, it can simply rent security from Ethereum through restaking. 

This simplifies the launch of new networks and gives users the opportunity to earn more from holding ETH.

The mechanics are simple: you’ve already staked your ETH and receive a yield. With restaking, you delegate the same ETH (or its liquid token like stETH) to other protocols and earn additional rewards. In theory, it’s risk-free. In practice, it’s starting to look more like a multi-layered yield farm, where capital operates across several levels at once.

However, speculative interest shouldn't be overlooked. Many users turn to restaking protocols not for the yield itself, but for the potential of future airdrops. EigenLayer sparked especially high expectations, and the launch of its token became one of the most talked-about events in crypto.

Last year, the team held two airdrop rounds, distributing a total of 11.95% of the entire EIGEN supply (more than 200 million tokens). At the time of listing, the token was priced at $4.

All of this has fueled a surge of interest in restaking. But the higher the wave, the louder the crash can be. Restaking may look like a technological breakthrough, yet it carries hidden complexity. And as often happens in DeFi, when something looks too good to be true, it’s worth asking: what’s the catch?

The Leverage No One Talks About: How Restaking Multiplies Risk Across Protocols

The more complex a system becomes, the easier it is for vulnerabilities to hide within it. Restaking is a clear example. It builds a second trust economy on top of Ethereum, but also introduces a second layer of risk. On top of the already volatile and risk-sensitive ETH (or liquid tokens like stETH), an additional structure forms: multiple AVS protocols that allow the same asset to be delegated simultaneously. This resembles leverage, but within the architecture of the blockchain itself.

As long as things go smoothly, everything works as expected. But a single failure in one AVS service – whether due to a bug, a hack, or a dishonest validator – can set off a chain reaction. Some of the staked ETH gets slashed, users lose funds, and DeFi protocols using these tokens as collateral begin to liquidate positions.

One failure can ripple across dozens of projects. This is the “domino effect” industry insiders are warning about.

You might also like: Solayer: A Cutting-Edge Restaking Protocol on Solana

The main concern with restaking is that it creates a chain of derivative obligations without any centralized clearing or oversight. Who manages the risk? Who tracks the behavior of AVS protocols? Who knows how many times the same ETH has been reused? The answer is almost no one. That’s the hidden risk: it looks like a safe source of yield, but in practice it builds a system where total exposure and protocol interdependencies are hard to measure.

Vitalik Buterin, the co-founder of Ethereum, has openly warned that putting too much pressure on Ethereum’s consensus layer is a serious risk. 

He warns that validators may become involved in too many AVS (Actively Validated Services), which could jeopardize the economic security of the network itself. Although EigenLayer says it has built-in safeguards to separate risks, it’s clear the industry is still learning how to handle them.

What Restaking Actually Is and Why It’s Not Just “Staking 2.0”

At first glance, restaking might seem like just an improved version of regular staking. But in fact, it represents a much deeper change in how security operates within blockchain ecosystems. To grasp the idea, it's important to return to the basic principle: when you stake ETH, you help secure the Ethereum network and receive rewards for doing so. It’s that simple.

More on the topic: What Is Liquid Staking? Benefits and Risks Explained

Restaking introduces a second layer to the process. You use already staked ETH (or its liquid equivalent, such as stETH) and delegate it to additional projects that require security. These can include blockchain services like bridges, data networks, or Layer 2 solutions. These projects are called AVSs. Rather than building their own validator networks, they rely on Ethereum’s security by using protocols like EigenLayer.

You connect your ETH to EigenLayer and accept additional conditions. If the AVS you support performs well, you earn rewards. If it fails, you risk slashing and may lose part of your funds. This is the core trade-off of restaking: higher yield in exchange for added risk.

This approach makes blockchain security more adaptable and scalable. Instead of building their own validator networks, new projects can rely on Ethereum’s existing protection. In theory, this should accelerate innovation and lower the barrier to entry. However, it’s important to remember that beneath the elegant setup are real risks, especially if you don’t fully understand which AVSs you’ve delegated your security to.

Unlike traditional staking, where you know you're supporting Ethereum, restaking demands a higher level of awareness. You’re not just earning yield, you're also taking responsibility for the behavior of third-party protocols. This isn’t just “Staking 2.0”; it’s a full-fledged financial layer with many moving parts.

A Fragile Tower: How a Slashing Event Could Trigger a DeFi-Wide Cascade

Picture this: you lock up your ETH to help secure the Ethereum network, but you wake up to find it gone – victim to a glitch in someone else’s protocol. In a restaking setup, a misstep by any AVS service entrusted with your ETH triggers a slash of your stake, direct involvement or not.

Slashing cuts out part of your stake automatically the moment rules are broken. And that’s just the first ripple in a wider chain reaction.

On top of that, you might have staked the same ETH in several protocols simultaneously. A slash in one eats your stake everywhere. DeFi platforms then rush to liquidate ruined collateral, offloading user assets en masse. TVL collapses across projects, dragging the whole ecosystem down.

Many protocols tap the same validator pools, creating a single point of failure. A single lapse could jeopardize the entire network. Even more troubling, most DAOs and individual users rarely know which AVS platforms custody their ETH or the danger levels involved. Any existing risk metrics stay hidden behind closed doors.

No one in DeFi can accurately trace how restaked ETH moves across platforms. We can’t determine how deeply AVS networks interlink. Lacking robust risk-management frameworks, segmented liability, and defense layers, restaking risks collapsing like a deck of cards.

This structure feels strikingly similar to the 2008 housing crisis: rising returns, plummeting transparency, growing entanglement, all propped up by faith. Markets flourish without scrutiny – until a small quake shatters the illusion.

Conclusion: Restaking Is Powerful — but What About Risks?

Restaking has emerged as a top-tier innovation in DeFi. It achieves returns we’ve never seen before, strengthens validator functions, opens doors for new entrants, and blends security with flexibility in near-perfect measure.

The concept of restaking isn’t flawed; it’s a powerful and elegant piece of technology. Still, it demands a higher level of maturity from all participants: retail users, protocol developers, and infrastructure providers. Institutional investors are already eyeing restaking, but they only engage through trusted, custodial frameworks that guarantee control and auditability.

Soon, we may leave behind the chaotic era of “wild” restaking, where users chase tiny yields amid myriad risks  and embrace more organized, stratified formats. The burning question is: will the market grow up before it faces its first true stress scenario?