So-called DeFi Legos or Money Legos were a gamechanger for the decentralized finance industry, paving the way for a new generation of extremely complex protocols and dApps that can perform multiple functions simultaneously. DeFi Legos are composable building blocks that led to the creation of new financial opportunities around lending, borrowing, and other yield-generating activities that simply weren’t possible before.
Now, with the growing popularity of restaking in DeFi, we’re seeing a new kind of building block emerge. The Staking Legos are being used by innovative DeFi developers to transform distributed native staking, creating new opportunities for users to participate in securing Ethereum’s consensus layer with improved capital efficiency and yield, while boosting the overall health of its network.
The concept of Staking Legos is laid out in a blog post by SSV Network, which explores how its distributed validator technology and infrastructure is seamlessly composable with restaking applications, opening the door to new frontiers in Ethereum staking.
Simplicity With Composability
The Staking Legos are all about composability, which refers to a system design principle where the various building blocks of applications can be put together in a variety of ways and work seamlessly together.
In traditional DeFi, highly composable Money Legos can be used to build financial dApps in various ways to create new functions. Developers can create smart contracts that enable the Money Legos to operate in any order they specify, including one after the other, or even in parallel. For instance, Legos can be joined together in such a way that a DeFi user could take out a loan in one cryptocurrency, split that loan into two amounts, stake one half, reinvest the other, then pull both amounts simultaneously, pay off the loan and interest and retain the profit.
These steps would all be carried out by a single smart contract, thereby eliminating the need to perform them all as individual transactions. It enables all of those functions to be performed in a single step, on different blockchains and with different tokens, as a single transaction, cutting down on processing times and gas fees and significantly simplifying the process for end users.
Restaking Building Blocks
Just as Money Legos are the building blocks of more sophisticated dApps in DeFi, Staking Legos can be used as the foundation of a new generation of restaking applications.
Staking Lego building blocks include the base layer, namely the Ethereum blockchain and the native ETH rewards earned by validators who stake ETH to attest and add transactions. Next, we have the SSV Network’s DVT infrastructure, which is a decentralized validation layer that can be utilized by solo-stakers and staking dApps. SSV’s DVT helps to provide security and fault-tolerance for validators made up of multiple non-trusting parties, and plays a key role in decentralizing Ethereum’s network.
Third, we have the liquid staking protocols (LSPs) such as Lido, which work by minting and issuing derivatives, known as “liquid staking tokens” or LSTs, which can then be used in various DeFi protocols, meaning that staked tokens are no longer idle assets. LSTs allow users to earn additional rewards, besides the native ETH yield they get from staking. LSPs can use DVT to route validators to SSV’s node operator network rather than creating their own, a process SSV calls “distributed native restaking”.
Finally, the fourth layer of Staking Legos is restaking, which provides new opportunities for generating yield by extending Ethereum’s secure base layer to “actively validated services” or AVSs on EigenLayer. LSPs allow users to stake their LSTs with an EigenLayer operator to secure AVSs through its novel dual-staking paradigm, and earn further rewards in the shape of Liquid Restaking Tokens or LRTs.
This is where things get really interesting, as LRTs enable the concept of multi-protocol staking, allowing users to diversify their rewards by staking across numerous AVSs at once.
New Possibilities With Distributed Native Restaking
SSV’s distributed native restaking process opens the door to new yield-generating opportunities for both solo-stakers and LSPs. In the case of solo-stakers, they can stake a minimum of 32 ETH to set up their own validator, then create what’s known as an “Eigenpod”, which is a user created and deployed smart contract that allows them to set their validator’s withdrawal credentials to the pod address, enabling them to earn “staking points”. By doing this, solo stakers can now earn both regular ETH rewards and restaking yield via a decentralized and highly-resilient base layer.
For those with less than 32 ETH to stake, they can deposit their tokens to an LSP that operates validators on SSV’s DVT layer. In doing this, they also have the option to restake their LSTs to EigenLayer, gaining extra yield besides their ETH principle. For instance, a user could stake ETH on Lido, one of the most popular LSPs, and then restake their stETH tokens on EigenLayer.
The LSP can set up its own EigenPod for users to earn restaking rewards while ensuring its underlying validator infrastructure remains secured with SSV’s DVT. This will allow them to reward their users with a new LRT.
Further complicating things, it’s possible for LSPs to also become AVS operators, thereby creating an additional revenue stream.
Maximizing Yield For Stakers
By using SSV’s network, it becomes possible to stack multiple rewards derived from various services that utilize the above Staking Legos, enabling users to generate yield far beyond what is possible through native Ethereum staking alone.
By restaking multiple times, users can earn the basic consensus layer rewards in ETH, plus SSV’s incentivization rewards (SSV) and EigenLayer’s restaking points. Note that because EigenLayer is still in testnet, users can only earn points that they’ll be able to redeem as rewards at a later date, when the mainnet goes live.
dApps such as Claystack, P2P, Xhash and StakeWise are already enabling users to earn these stacked rewards, taking advantage of the seamless compatibility of Staking Legos to simplify the experience for users.
A New Era For Ethereum Staking
SSV notes that restaking dApp builders have a responsibility to ensure their validator nodes remain secure, in order to provide security for their user’s original ETH stakes. For instance, they need to consider how the protocol handles and stores the validator’s keys, and who is able to access them. As with all aspects of DeFi, smart contracts should be carefully vetted to ensure they are free of vulnerabilities and risks.
By minimizing the complexity of building restaking dApps, SSV provides lots of advantages, both to restaking protocols and their users, as well as solo stakers. It offers access to more than 200 permissionless operators, including many of the most trusted on Ethereum. In other words, it’s a win-win-win for everyone concerned, and will smooth the path towards the creation of a new generation of LRTs while further boosting Ethereum’s decentralization.
Developers who’re interested in leveraging SSV’s DVT to build composable restaking dApps can explore a number of detailed guides on how to leverage Staking Legos