How to Choose the Best Restaking Approach for Your Portfolio
As the decentralized finance (DeFi) landscape evolves, strategies for optimizing yields have become more sophisticated. One such strategy is restaking, which has gained significant traction thanks to the advent of Liquid Restaking Tokens (LRTs).
The concept of liquid staking emerged as a response to the limitations of traditional staking, where assets were locked up, limiting their liquidity and usability. Liquid staking allows users to stake their assets while retaining the ability to trade or utilize them in other DeFi protocols through LSTs.
As the DeFi market matured, the introduction of protocols like EigenLayer further transformed the staking landscape by enabling liquid restaking. This process allows users to not only earn staking rewards but also to restake their liquid tokens across multiple networks, compounding their rewards.
The purpose of this article is to guide you through choosing the best restaking approach tailored to your portfolio's specific needs, considering the types of assets you hold, your risk appetite, and the market conditions.
Evaluating Assets for Restaking
Understanding Asset Types: Native Tokens vs. Liquid Staking Tokens (LSTs)
When embarking on a restaking journey, you can choose between two primary types of assets: Native ETH or ETH Liquid Staking Tokens (LSTs).
Native ETH
EigenLayer allows users to directly restake their native ETH by redirecting their staking keys to an “eigenpod”—a specialized smart contract within the EigenLayer ecosystem. This setup enables users to maintain the security of staking on the Ethereum network while unlocking additional utility within the EigenLayer protocol.
To further simplify this process, protocols like InceptionLRT offer Liquid Restaking Tokens (LRT). With LRT, users can deposit their native ETH directly into the protocol, bypassing the complexities of managing eigenpods and staking keys. The LRT protocol automates the staking and restaking processes, streamlining the experience and enabling users to optimize their rewards with minimal effort.
Liquid Staking Tokens (LSTs)
Alternatively, you can restake using ETH that has already been staked and tokenized as a Liquid Staking Token (LST). These LSTs represent staked ETH and allow you to participate in staking while retaining liquidity. With LSTs, there's no need to redirect staking keys or engage with eigenpods; you simply deposit your LSTs into the appropriate smart contracts on EigenLayer or an LRT protocol. This approach allows you to continue earning staking rewards while accumulating the staking rewards.
Once again, if you restake with a liquid restaking protocol you will get in exchange an LRT token that will allow you to continue with other DeFi endeavors, such as yield farming, lending and borrowing.
Considerations for Asset Selection
When selecting assets for restaking, several factors should be considered:
1- Liquidity Needs: Choose assets that match your liquidity requirements. If you need access to your capital frequently, using LRT protocols may be a more suitable solution than using EigenLayer directly.
2- Risk Appetite: Analyze the volatility and stability of each asset. There are several types of LRT solutions, thus one should evaluate which one fits better their risk profile.
3- Yield Potential: Compare the historical performance and current yield of different assets. inETH has shown consistent performance, making it a reliable choice for those looking to restake.
Isolated Liquid Restaking Tokens (iLRTs)
Understanding iLRTs
The evolution of staking has led to the creation of Liquid Staking Tokens (LSTs), which solved a significant problem in traditional staking: the locking of capital.
LSTs introduced flexibility and liquidity, allowing stakers to use their assets in other DeFi activities while still earning staking rewards. Building on this innovation, Liquid Restaking Tokens (LRTs) emerged as a natural evolution in the restaking process, offering the same benefits of flexibility and liquidity but with added advantages of compounding rewards.
Just as liquid staking protocols were developed to provide liquidity during the staking process, liquid restaking protocols like InceptionLRT were created to extend these benefits into the realm of restaking. These protocols allow users to restake their assets across multiple networks, further enhancing yield opportunities.
LRT protocols simplify the restaking process by managing the complexities involved. For example, when restaking Native ETH, users can deposit their ETH directly into an LRT protocol like InceptionLRT. The protocol itself handles the staking and restaking operations, eliminating the need for users to manage staking keys or interact with complex smart contracts.
iLRTs vs Basket-based Restaking
Isolated Liquid Restaking Tokens (iLRTs) offer a more refined solution compared to basket-based approaches. In traditional basket-based models, multiple assets are pooled together, which can introduce cross-asset risks—if one asset underperforms, it could negatively impact the entire portfolio. In contrast, iLRTs isolate the risk of each LST, ensuring that the performance of one asset doesn’t affect others. This isolation provides greater transparency and control, allowing investors to make more informed decisions based on the performance of each individual asset.
With iLRTs, you not only benefit from the liquidity and flexibility that LSTs offer but also gain the added security and transparency that come from isolating your assets' risks. This makes iLRTs an ideal choice for those looking to maximize their restaking strategy while maintaining precise control over their portfolio.
Choosing iLRTs
When selecting LSTs for your restaking strategy, protocols that offer iLRTs, like InceptionLRT, are ideal. These protocols allow you to isolate risks and optimize your yield strategy by focusing on the performance of individual assets. This approach minimizes the risk of cross-asset contamination, providing a clearer picture of each asset's performance and allowing for more precise portfolio management.
Selecting the Right Liquid Restaking Protocol
Key Factors to Consider
Choosing the right protocol for liquid restaking is crucial to maximizing your returns and ensuring the safety of your assets. Here are key factors to consider:
1- Unstaking Mechanisms: Look for protocols with efficient unstaking mechanisms. For instance, InceptionLRT’s Flash Unstake feature allows for immediate liquidity, enabling you to quickly unstake their assets and adjust your portfolio in response to market changes.
2- Security Features: Ensure the protocol uses robust security measures, such as Distributed Validator Technology (DVT) and partnerships with Tier 1 Node Operators. These features help minimize risks like slashing and ensure the safety of your restaked assets.
3- Track Record: Choose protocols with a proven track record and those that have undergone thorough and regular security audits from leading cybersecurity firms. This ensures that the platform is reliable and trustworthy.
Determining the Optimal Duration for Restaking
When considering the duration for restaking, it’s important to acknowledge that you have the flexibility to maintain your restaked assets for as long as you wish. However, the key factor is ensuring that you have the ability to adjust your strategy based on changing market conditions.
- Long-term restaking is advisable in attractive or bullish market conditions. This approach can also expose you to extended market risks, particularly during periods of volatility.
- Short-term restaking will not render as much results but it is preferable in volatile markets, where locking in gains and reducing exposure to potential downturns is crucial.
To navigate these challenges effectively, it’s advisable to favor protocols like InceptionLRT that offer features such as Flash Unstaking. With InceptionLRT’s Flash Unstake feature, you can withdraw your restaked assets immediately whenever you need them, without waiting through traditional unbonding periods. This capability gives you the agility to adapt your investment strategy during precarious market conditions.
InceptionLRT: The Best of Restaking under a Single Dapp
Choosing the best restaking approach involves a careful analysis of your portfolio's needs, market conditions, and available assets. By understanding the differences between native tokens and LSTs, and by selecting protocols that offer features like iLRTs and Flash Unstake, you can optimize your restaking strategy to compound returns while minimizing risks.
InceptionLRT presents a comprehensive solution for all your restaking needs, offering advanced features and security measures that make it a versatile choice for both novice and seasoned investors.
