Restaking Risks Explained: Staking, Liquid Staking, Kelp DAO
Lesson 6 of 10 · Intermediate
What is staking, and where do rewards come from?
In proof-of-stake networks such as Ethereum, security is provided not by miners but by validators: participants who lock up some of the network’s currency as a guarantee and in return propose and attest to blocks. This locking is called staking. On Ethereum, each validator needs 32 ETH.
Staking rewards come from three sources: newly issued ether from the protocol, transaction fees (the tip portion) and income from transaction ordering, or MEV. The rate is not fixed; it changes with the total amount of ether staked and network activity. An important point: part of the reward comes from new issuance, which means holders who do not stake are diluted proportionally. So do not treat staking rewards as “risk-free yield”.
Risks of direct staking:
- Slashing: if a validator behaves inconsistently (for example signs two different blocks), part of its stake is burned.
- Lock-up and exit queue: leaving staking is not instant and at busy times can take days or longer.
- Price risk: rewards are paid in the same currency; if its price collapses, the percentage reward does not compensate.
“Staking USDT” is not staking
On many websites and platforms the phrase “USDT staking” appears. Tether (USDT) is a token on other networks and secures no proof-of-stake network. What is offered under that name is usually lending your USDT to a platform or depositing it with a counterparty that does something with it to generate yield. So the main risk is counterparty risk: if that platform goes bankrupt, is hacked or freezes, your principal is at risk.
Educational resources have also warned that a promise of a high guaranteed return (for example above roughly 1 percent per month) on USDT is a common sign of Ponzi schemes. Calling it “staking” does not reduce the risk.
Liquid staking (LST) and depeg risk
Because 32 ETH and running a validator are hard for most people, liquid staking protocols emerged: you deposit ether with them, they stake it, and they give you a liquid staking token (LST) such as stETH that represents your share and the rewards. The token is transferable and can be sold or used as collateral in DeFi.
The risks that get added:
- Contract risk of the liquid staking protocol and of the validator operators it chooses.
- Depeg on the secondary market: the “theoretical” value of an LST is close to ether, but its market price depends on liquidity and the exit queue. If many want to sell at once and the withdrawal queue is long, the LST trades at a discount.
- Collateral risk: if an LST is collateral in lending and the oracle reads the market price, a temporary depeg can lead to real liquidations.
Restaking: risk on top of risk
Restaking means putting the same staked ether or LST to work again to secure other services (for example bridges or auxiliary networks) in exchange for extra rewards. EigenLayer is the best-known platform for this. Liquid restaking protocols give you a new token (an LRT) in return.
Each layer adds a new set of risks: the slashing rules of the new services, the restaking protocol’s contract, the LRT protocol’s contract, and any bridge that carries the LRT to other chains. The extra reward is precisely the price of those extra risks.
The Kelp DAO case (April 2026): according to CoinDesk and Chainalysis, on 18 April 2026 Kelp DAO’s restaking token rsETH was hit by an attack of about 292 million dollars. After compromising a developer’s computer, the attacker pushed a forged cross-chain message through the LayerZero system. That path relied on a single verifier (a 1-of-1 DVN configuration). The result: rsETH on roughly 20 chains was left without reliable backing. According to the same reports, Aave reported about 195 million dollars of bad debt and about 5.4 billion dollars left the restaking sector as a whole. According to BlockEden, assets restaked on EigenLayer fell to about 7 billion dollars by late September 2026, compared with about 18 billion at the peak.
The lesson: the point of failure was not staking itself but the bridge and the verifier configuration of one layer. Yet because rsETH was collateral in several other protocols, the loss also hit people who had never bought rsETH.
Five questions before you stake
- Where exactly does the reward come from? Network issuance and fees, or token incentives from a protocol whose own value is unstable?
- How many layers sit between me and the base network? Count each layer (LST, restaking, LRT, bridge) separately.
- How long does exit take? How many days is the official withdrawal queue, and if I want out sooner, at what discount would I sell on the secondary market?
- Who holds the upgrade keys to the contracts? Are changes applied with a timelock?
- Where is the token I receive used as collateral? If it is accepted in lending markets, its depeg can create a chain of liquidations.
Common mistakes
- Equating staking rewards with risk-free income; part of it is new issuance, and price risk, slashing and lock-ups exist.
- Believing in “USDT staking”; in practice it is lending to a counterparty and the main risk is that counterparty.
- Assuming an LST always trades exactly at the ether price; under selling pressure and a long exit queue it can trade at a discount.
- Chasing restaking rewards without counting layers: contract, slashing, LRT token and bridge are each separate points of failure.
- Posting an LST or LRT as collateral and borrowing near the limit, without allowing for a temporary depeg.
What do volume and data say here?
Much of the health of staking and restaking can be seen on-chain:
- Market price of an LST to ether: on DEXs and exchanges, see what discount the LST trades at. A widening discount means exit pressure or concern about backing.
- Validator entry and exit queues: a lengthening exit queue means high withdrawal demand and a likelihood of bigger LST discounts.
- Inflows and outflows of restaking protocols: after the Kelp case, billions of dollars leaving the sector were visible on-chain. A fast exit shows risk being reassessed; it is not a trade signal.
- Bridge and verifier configuration: if a token exists on several chains, see how many independent verifiers sign cross-chain messages. “One of one” means a single point of failure.
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Frequently asked questions
What is staking?
Locking the currency of a proof-of-stake network to take part in validating blocks and securing the network. In return you earn rewards from new issuance, fees and MEV, with risks of slashing, lock-up and price swings.
What is the difference between staking and restaking?
In staking, your asset secures one network. In restaking, the same staked asset is reused to secure other services. It earns extra rewards but adds new layers of risk such as extra slashing, more contracts and bridges.
What happened in the Kelp DAO case?
According to CoinDesk and Chainalysis, on 18 April 2026 an attack of about 292 million dollars hit Kelp DAO’s rsETH token through a cross-chain message verified by a single verifier. rsETH on many chains was left without reliable backing, and Aave reported about 195 million dollars of bad debt.
Education only, not a recommendation to buy or sell; we never give signals. Price examples are illustrative. Test any method on a demo account first, with strict risk management.