Restaking 101: Best Practises for Security & Reward Optimization
Liquid restaking is revolutionizing the yield generating landscape in Decentralized Finance (Defi), accumulating billions in Total Value Locked (TVL) and attracting numerous projects and investments.
Liquid Restaking Total Value Locked (TVL) growth in the past year (Source)
This practice has replicated the success of liquid staking, offering a doubled reward structure while maintaining full asset liquidity. However, before investing in liquid restaking it is vital to be aware of its inherent risks and how to best invest your capital.
That is why we’ve compiled this article on the best practices for restaking, helping you choose protocols that have perfected the balance between security and reward maximization.
The Significance of Choosing the Best Protocols
Choosing the right protocol for restaking is crucial, as it ensures that your assets are secure and optimal rewards are being generated.
In the selection process, users should look for protocols that adhere to industry best practices, including smart contract audits from leading cybersecurity firms, providing a robust foundation for your investments, and safeguarding them against potential threats and exploits.
-> For more on balancing security and rewards, check out our latest blog post: The Perfect Balance Between Security and Reward Maximization
Restaking Best Practices for Protocols
1. Distributed Validator Technology (DVT)
Distributed Validator Technology (DVT) is a cornerstone of secure and decentralized restaking protocols. By distributing the responsibilities of validation across multiple nodes, DVT significantly boosts security.
- Definition and Importance: DVT ensures that no single validator holds too much power, reducing the risk of a single point of failure. This decentralization is critical in preventing attacks and ensuring the integrity of the protocol.
- Increased Security and Decentralization: DVT distributes validation tasks, making the system more resilient to failures and attacks.
-> Learn more about DVT and its benefits here: The Importance of Distributed Validator Technology (DVT)
2. Isolated Liquid Restaking (iLRTs)
Isolated Liquid Restaking (iLRTs) represents a strategic approach to mitigating risks associated with restaking.
To offer context, the other alternative known as “basked-based” solutions offer a product that pools restaked assets together into a single “basket”. While this method is more convenient for restaking protocols, it carries more risks.
Here are some of the complications of basket-based restaking solutions:
- Performance risks: If one specific asset underperforms, it can have a detrimental impact on the overall basket’s results - Management Difficulty: Maintaining balanced weights of different restakable assets in a basket requires continual monitoring and modifications. - Increased Risk Exposure: Restakers face the pooled risks of all assets in the basket, thereby increasing return volatility.
To address these challenges, Isolated Isolated LIquid Restaking and iLRTs represent each restaked asset with a distinct token, providing several key advantages:
- Transparency: Each asset and its rewards are tracked separately, giving restakers full visibility into their performance. - Minimized Risk: By Isolating each reataker’s risk, the impact of any underperforming asset is contained, improving overall stability - Control Over Investments: The Restaker has the ability to make informed decisions based on the performance of each individual asset, allowing for a more personalized experience.
Restaking Options through InceptionLRT (Source)
3. LRT Liquidity
Maintaining high liquidity for Liquid Restaking Tokens (LRTs) is essential for the operation and attractiveness of restaking protocols. Lack of liquidity spells doom for both protocols and restakers.
- Importance of Liquidity: High liquidity ensures users can buy and sell LRTs at any time. The higher the liquidity, the easier it is to enter or exit the market without significant price fluctuations.
Mechanisms for Increased Liquidity:
- Liquidity Incentives on DEXs: This is also known as liquidity mining, a practice where users are offered rewards for providing liquidity on decentralized exchanges (DEXs). - A Flash Unstake Feature: Allows users to quickly unstake their assets, providing flexibility and quick access to funds. This feature is available on InceptionLRT, enabling anyone to exit their restaked position at any time.
For detailed insights, check out our blog post on Immediate Liquidity and our Flash Unstake Feature:
-> InceptionLRT Introduces Flash Unstake: Unlock Your Assets Instantly
4. Audits and Security Reports
Regular security audits are also crucial for maintaining the integrity of protocols, especially in DeFi. Partnering with leading audit firms ensures that potential vulnerabilities are identified and addressed promptly before disaster strikes.
- Leading Audit Firms: Halborn, Veridise, and CertiK are renowned for their thorough and reliable security audits, ensuring that protocols adhere to the highest security standards.
We advise our users to always perform due diligence and verify if restaking protocols have conducted smart contract audits. To ensure the safety of our users, InceptionLRT’s code has undergone several thorough audits from leading firms.
-> For a full overview of our audits, check out our: Audit Reports
Best Practices for Users
1. Diversification
Diversifying your restaked positions across various asset types and strategies is a fundamental practice to mitigate risks and optimize returns. Managing different liquid staking tokens may be a hassle, but by only using one protocol and asset type users risk losing everything in the event of a protocol exploit.
2. Using Reputable Platforms
Selecting protocols with a proven track record and strong security measures is critical. Reputable platforms have established mechanisms to protect user assets, ensure reliable performance, and perform regular security audits.
3. Staying Informed and Educated
Keeping up-to-date with the latest developments and best practices in restaking is crucial for making informed decisions. Educate yourself on the underlying technology and industry standards to avoid potential risks.
Our blog contains all the educational resources needed to learn about restaking in-depth: InceptionLRT Blog
Choose Wisely
Restaking offers a powerful way to compound returns on your staked assets, but it requires careful consideration of best practices to ensure security and efficiency. By following the guidelines outlined in this article, you can make informed decisions and leverage the full potential of protocols like InceptionLRT.
Join InceptionLRT today and start maximizing your rewards in a highly secure and liquid ecosystem.
