Restaking is a feature of certain cryptocurrencies and blockchain networks that allows token holders to put their holdings back into the network to continue earning rewards. It enables capital efficiency by allowing tokens that have already been staked and have earned rewards to then be immediately restaked. This keeps the capital continuously working to earn more rewards rather than sitting idle after the initial staking period.

In proof-of-stake cryptocurrency networks, staking involves locking up tokens to help validate transactions on the blockchain. In exchange for helping provide security and operations for the network, stakers earn rewards (similar to interest) on their staked crypto holdings. Restaking builds on this by compounding those rewards back into the staked principal automatically.

What is Restaking?

Restaking refers to the automated compounding of cryptocurrency staking rewards back into an original principal staking amount. When tokens are staked on a proof-of-stake blockchain network, they are typically locked up for a set period of time, such as several days or weeks. After that staking period ends, the staker then receives their original token stake back plus any rewards they earned during the lock-up.

With restaking, as soon as the initial staking period ends, those earned tokens are automatically staked again in a new stake along with the original tokens. This keeps the capital continuously staked over time, compounding gains, rather than needing manual re-staking by the token holder.

On proof-of-work networks like Bitcoin, newly minted coins are distributed as block rewards to miners. On proof-of-stake networks, interest-like staking rewards are distributed to those who lock up their coins to help validate network activity. Restaking takes this staking a step further for optimizing gains.

Why Restaking Enables Capital Efficiency

Restaking enables greater capital efficiency from staked crypto holdings because it keeps assets continuously invested as opposed to sitting in a wallet or exchange account doing nothing.

By automatically compounding interest and principal back into new stakes, a token holder’s balance grows at an accelerated rate through the power of compounding. More tokens are earning rewards on an ever-growing invested balance, supercharging the income generating potential.

If a cryptocurrency offers an annual staking yield of 5%, restaking will boost the effective yield through compound interest. After 6 months, manually repeating the staking would lead to 2.5% gains. With restaking, the full 5% annual yield gets compounded twice, leading to 5.25% gains in 6 months rather than just 2.5%.

Over longer periods, the difference gets even more significant. Restaking drives exponentially greater capital efficiency and allows investors to realize higher yields.

Restaking also saves users effort and transaction fees. Manually re-staking earned rewards involves transactions on the blockchain to send tokens to staking smart contracts. This incurs minor gas or transaction fees each time. With restaking, it happens automatically without any transactions, effort, or fees required.

Examples of Cryptocurrencies with Restaking

Many leading proof-of-stake cryptocurrencies have implemented restaking capability including:

Polkadot - On the Polkadot network, restaking is enabled by default when users stake DOT tokens unless they choose to disable it. This keeps staking rewards continuously compounding to maximize yield.