Restaking: The Wild West of Institutional Adoption 🤠

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Restaking, like a shiny new penny in the digital wallet, burst onto the scene in late 2023, much to the delight of retail investors. Meanwhile, institutional investors are still scratching their heads, trying to figure out what to make of this peculiar phenomenon. After all, who wouldn’t be a bit wary of something that sounds like a cross between a financial strategy and a high-stakes game of musical chairs?

According to a recent report from P2P.org and CryptoMoon Research, the journey of restaking is far from over. The report takes a deep dive into the world of restaking, breaking it down into bite-sized chunks that even your grandmother might understand. It starts by explaining what restaking is, why it matters, and the various risk-management frameworks that are being developed. It then delves into the evolution of native restaking through distributed validator technology, a term that sounds like something straight out of a sci-fi novel.

The report also tackles the thorny issue of how institutions currently struggle with yield generation and how restaking could potentially solve some of these problems. But let’s not get ahead of ourselves; the road to institutional adoption is fraught with challenges, from the lack of standardized risk assessment methods to the operational complexity of managing validators and protocols. It’s like trying to juggle chainsaws while riding a unicycle-impressive if you can pull it off, but incredibly risky.

For a comprehensive look at control models, validator technology, and the hurdles facing restaking, download the full report for free here.

Operational Challenges of Restaking

The institutional approach to restaking is a bit like trying to fit a square peg into a round hole. While retail investors can afford to take a more relaxed, “let’s see what happens” attitude, institutions need everything to be buttoned up tight. They require streamlined management processes and robust risk assessment models, and most restaking protocols haven’t quite figured out how to deliver that yet. It’s a bit like expecting a wild stallion to perform in a circus act-it’s possible, but it takes a lot of training.

One of the biggest hurdles is the introduction of new risk vectors. These risks are notoriously difficult to quantify, partly because the ecosystem lacks historical data on things like slashing incidents. Slashing, for those who aren’t in the know, is the digital equivalent of getting fined for bad behavior. If a validator or operator breaks the rules, they get slashed, which can mean losing a significant portion of their stake. In restaking, where stakes can be delegated to multiple networks, the risk of slashing is magnified. It’s like playing a game of Russian roulette, but with multiple chambers loaded.

Each Additional Validator Set (AVS) brings its own set of risks, and even small risks from individual protocols can add up to big problems. Imagine if every time you crossed the street, there was a chance you’d trip and fall. Now imagine doing that dozens of times a day. That’s the kind of risk institutions are facing in the restaking world.

To make matters worse, the risk landscape is layered and often opaque. Without a clear understanding of historical slashing data, institutions are left to navigate a minefield of potential issues. To move forward, detailed risk disclosures, slashing recovery mechanisms, and frameworks for on-chain insurance or loss mitigation are essential. Until these pieces fall into place, institutional adoption will remain sluggish, like a snail trying to cross a busy highway.

Researchers are working hard to develop proper risk frameworks, such as the network-level risk evaluation framework proposed by the P2P.org team. But until these frameworks are widely adopted, institutions will continue to tread carefully, like a cat walking on hot pavement.

Beyond risk management, the selection of AVSs is crucial for maximizing returns. However, most AVSs currently lack sustainable revenue models. For example, EigenLayer doesn’t yet distribute actual restaking APY and relies on token incentives. In the future, choosing the right AVSs will be key to generating high yields, requiring active management and constant monitoring. It’s like being a gold prospector in the Wild West-there’s gold in them thar hills, but you’ve got to know where to look.

For a comprehensive look at control models, validator technology, and the hurdles facing restaking, download the full report for free here.

Path for Institutionalization of Restaking

The evolution of restaking mirrors the institutionalization of staking, much like how the invention of the wheel led to the development of the automobile. Liquid staking protocols paved the way for Ethereum staking, and now restaking is following a similar trajectory. Initially embraced by DeFi-native projects, particularly liquid restaking (LRTs) protocols, restaking is poised for broader adoption by crypto-native institutions like centralized exchanges, wallets, and custodians.

However, achieving this requires a delicate balance between control and operational efficiency. The report outlines three models of restaking: self-controlled restaking, curated vaults, and LRTs. Each model comes with its own set of trade-offs, much like choosing between a Ferrari, a minivan, and a bicycle. Self-controlled restaking offers maximum control but requires a high level of expertise. LRTs provide ease of use but may sacrifice some yield. Curated vaults strike a middle ground, offering a balance of security, flexibility, and yield.

Among these, curated vaults stand out as the most promising integration model for institutions. Introduced by Symbiotic, curated vaults are smart contracts that coordinate capital flows between restakers, operators, and AVSs. They allow institutions to define key parameters like slashing governance and delegation strategies while outsourcing operational duties to trusted curators. It’s like having a personal chef who knows exactly how you like your steak cooked, but you still get to decide what’s on the menu.

Another significant development in restaking is the Distributed Validator Technology (DVT). DVT is a bit like having a team of superheroes, each with a unique power, working together to protect the city. By spreading key management and signing responsibilities across multiple parties, DVT reduces the risk of slashing or compromised validator keys. This allows institutions to control staking and restaking products directly without intermediaries, eliminating single points of failure. It’s a game-changer, much like the invention of the internet itself.

The SSV (Secret Shared Validator) Network is a prime example of DVT in action. It allows validators to operate in a distributed cluster, enhancing security and reducing operational costs. Major staking and restaking platforms, such as P2P.org’s SSV White-Label solution, are adopting DVT to offer more secure and cost-effective services. It’s like getting a supercharged engine for your car without breaking the bank.

For a comprehensive look at control models, validator technology, and the hurdles facing restaking, download the full report for free here.

This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts, and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of CryptoMoon. CryptoMoon does not endorse the content of this article nor any product mentioned herein. Readers should do their own research before taking any action related to any product or company mentioned and carry full responsibility for their decisions.

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2025-08-12 18:03