Ethereum (ETH): how restaking demand is locking more ETH out of circulation this year

Explore why increasing restaking on Ethereum is pulling more ETH from the market, its impact on supply dynamics, and how RWA platforms like Eden RWA fit into this trend.

• Restaking pushes a significant portion of ETH into locked positions, tightening circulating supply.
• The phenomenon amplifies staking yields and influences price volatility for 2025.
• Tokenized real‑world assets provide alternative avenues to lock value while earning passive income.

Ethereum’s transition to proof‑of‑stake (PoS) has redefined how holders interact with their tokens. The promise of staking rewards, coupled with the growing appetite for liquidity and yield, has spurred a surge in restaking: locking ETH that was initially staked on one protocol into a second layer or financial product. This article examines how restaking is increasingly drawing ETH out of circulation this year, the mechanics behind it, its market implications, regulatory considerations, and what it means for retail investors.

The core question we address is: How is restaking reshaping Ethereum’s supply‑demand balance, and why should intermediate retail investors be aware of these dynamics? Understanding this trend is crucial because the tighter the circulating supply, the greater the potential upward pressure on ETH price—yet the increased lockup also reduces liquidity and can introduce new risks.

We’ll walk through the background of restaking, break down its operational model, analyze real‑world use cases, assess regulatory hurdles, and outline future scenarios. Finally, we spotlight Eden RWA—a platform that tokenizes French Caribbean luxury real estate—to illustrate how real‑world assets can offer alternative lockup mechanisms aligned with Ethereum’s ecosystem.

Background & Context

Restaking refers to the practice of taking ETH already staked in a validator set and using it as collateral or liquidity in secondary protocols. This concept emerged alongside Layer‑2 scaling solutions (e.g., Optimism, Arbitrum) and decentralized finance (DeFi) products that reward locked assets.

The shift began after Ethereum’s London upgrade introduced Ether scarcity incentives, where a portion of transaction fees is burned, tightening supply. As staking rewards grew to roughly 4–5% annually, investors sought higher yields by locking their staked ETH into yield‑optimizing products or bridging it to Layer‑2 chains that offer faster withdrawals.

Key players in the restaking ecosystem include:

• Staking pools: Entities that aggregate user deposits and stake them collectively.
• Layer‑2 rollups: Optimistic and ZK rollups that allow users to move staked ETH into faster, cheaper environments.
• DeFi vaults & liquidity protocols: Platforms like Curve or Balancer that reward locked assets with governance tokens.
• RWA tokenizers: Firms such as Eden RWA that bridge physical assets and Ethereum via ERC‑20 tokens.

In 2025, regulatory scrutiny has intensified. The U.S. Securities and Exchange Commission (SEC) is evaluating whether restaked tokens qualify as securities, while the European Union’s MiCA regulation is expanding its scope to cover tokenized real‑world assets. These developments add layers of compliance that restaking protocols must navigate.

How It Works

The restaking process can be summarized in three main steps:

1. Staking the base ETH: Users deposit ETH into a validator or staking pool, receiving a staked token (e.g., sETH) that represents their share of rewards.
2. Locking the staked token: The staked token is then deposited into a secondary protocol—often on a Layer‑2 rollup—that offers higher yield or liquidity. Users receive a new derivative token (e.g., rETH‑L2) which can be traded or used as collateral.
3. Unstaking and redemption: To retrieve the original ETH, users must first redeem their derivative token on the secondary protocol, then unwind the staking position. This often involves a waiting period (e.g., 14 days) to ensure network security.

The roles of actors are distinct:

• Issuers: Staking pools create staked tokens; Layer‑2 protocols issue derivative tokens.
• Custodians: Smart contracts hold and manage locked assets, ensuring no double‑spending or misallocation.
• Investors: Users decide how much ETH to restake based on expected yield versus liquidity cost.
• Governance participants: Many protocols allow token holders to vote on fee structures or protocol upgrades.

Smart contracts underpin the entire chain, automatically handling deposits, withdrawals, and reward distribution. However, each additional contract layer introduces potential attack vectors that investors must evaluate.

Market Impact & Use Cases

The primary impact of restaking is a reduction in Ethereum’s circulating supply. When more ETH moves into locked positions, the free float shrinks, potentially supporting price appreciation. At the same time, liquidity diminishes, which can amplify volatility during market stress.

Real examples illustrate the trend:

• A DeFi vault that accepts sETH and rewards users with a governance token at 12% APY, leading to thousands of ETH being restaked.
• A Layer‑2 bridge where users can swap staked tokens for fast withdrawals, attracting liquidity from institutional investors seeking lower slippage.
• Eden RWA’s property tokens, backed by French Caribbean villas, allow investors to lock capital in real assets while receiving stablecoin rental income and quarterly experiential stays.

For retail investors, the upside includes higher yields and diversified exposure. However, the downside is reduced liquidity and increased counterparty risk—especially if a protocol fails or a smart contract bug occurs.

Risks, Regulation & Challenges

Regulatory uncertainties: The SEC’s stance on whether restaked tokens are securities remains unsettled. MiCA in the EU is progressively covering tokenized assets, but gaps exist regarding staking derivatives.

Smart contract risk: Each lockup introduces a new codebase. Bugs or exploits can lead to loss of funds. Audits mitigate but do not eliminate risk.

Custody & liquidity risk: Locked tokens often have limited exit windows (e.g., 14–30 days). During market downturns, users may find themselves unable to liquidate positions quickly.

Legal ownership ambiguity: For tokenized real‑world assets, the legal chain of title can be complex. Investors must verify that the SPV holds clear title and that the smart contract accurately reflects ownership.

Concrete example: In 2024 a Layer‑2 protocol experienced a flash loan attack that drained millions in staked ETH derivatives, highlighting how vulnerable restaked positions can be during rapid market swings.

Outlook & Scenarios for 2025+

• Bullish scenario: Regulatory clarity arrives, confidence rises, and more investors move into restaking. Circulating supply tightens further, pushing ETH price higher while liquidity improves due to better exit mechanisms.
• Bearish scenario: A significant protocol failure or regulatory crackdown forces large withdrawals, leading to a sharp drop in ETH price and a temporary halt in restaking activity.
• Base case: Moderate regulatory progress coupled with steady growth in staking rewards keeps restaking volumes stable. Liquidity remains acceptable for most retail investors, but the supply‑demand balance will continue to favor a gradual price appreciation over the next 12–24 months.

Investors should watch protocol upgrade schedules, audit reports, and regulatory filings. Builders must prioritize robust governance models and transparent fee structures to attract long‑term capital.

Eden RWA: Tokenizing French Caribbean Luxury Real Estate

Eden RWA exemplifies how real‑world assets can be integrated into Ethereum’s ecosystem while offering yield‑generating opportunities. The platform democratizes access to luxury villas in Saint‑Barthélemy, Saint‑Martin, Guadeloupe, and Martinique through fractional ERC‑20 tokens.

• Structure: Each villa is owned by a special purpose vehicle (SPV) – either an SCI or SAS. Investors purchase ERC‑20 tokens that represent indirect shares of the SPV.
• Income distribution: Rental income, collected in USDC stablecoins, flows directly to holders’ Ethereum wallets via automated smart contracts.
• Experiential layer: Quarterly, a bailiff‑certified draw selects a token holder for a free week’s stay in the villa they partially own.
• Governance: A DAO‑light model allows token holders to vote on major decisions (renovation, sale), ensuring aligned interests and transparency.
• Liquidity prospects: Eden plans a compliant secondary market for its tokens, providing potential liquidity beyond the primary presale.

This RWA platform offers an alternative lockup: investors can allocate capital to real‑world assets that generate stable income while their ETH remains effectively locked in a tokenized form. For those wary of pure DeFi restaking risks, Eden provides a tangible asset backing and a diversified revenue stream.

Learn more about the Eden RWA presale and explore how you might participate: Eden Presale or Secondary Presale Portal. These links provide detailed information on tokenomics, legal structure, and participation requirements.

Practical Takeaways

• Monitor staking reward rates: higher yields incentivize restaking.
• Check lockup periods for secondary protocols to assess liquidity risk.
• Verify audit status of smart contracts before depositing staked assets.
• Understand regulatory frameworks in your jurisdiction, especially concerning tokenized securities.
• Diversify across staking, Layer‑2 restake products, and RWA tokenized real estate.
• Track governance proposals for fee changes or protocol upgrades.
• Use portfolio analytics tools to monitor the proportion of ETH locked versus circulating supply.

Mini FAQ

What is restaking?

Restaking involves taking staked Ethereum (e.g., sETH) and locking it in a secondary protocol—often on a Layer‑2 rollup—to earn additional yields or liquidity. It effectively creates a new derivative token that represents the original stake.

How does restaking affect ETH price?

By reducing circulating supply, restaking can exert upward pressure on ETH’s price, especially if demand remains steady. However, lower liquidity can also amplify volatility during market swings.

Are restaked tokens considered securities?

The regulatory classification is still evolving. In the U.S., the SEC examines whether they meet the Howey Test; in the EU, MiCA may apply to tokenized assets. Investors should stay informed of jurisdiction‑specific rulings.

Can I unstake my ETH instantly after restaking?

No. Unstaking typically requires a waiting period (e.g., 14 days) and may involve slashing penalties if the validator fails. Plan your liquidity needs accordingly.

What makes Eden RWA a good alternative to pure DeFi restaking?

Eden provides a tangible asset backing, stable rental income in USDC, experiential perks, and DAO‑light governance—all of which reduce some of the counterparty and smart‑contract risks inherent in purely digital yield protocols.

Conclusion

The surge in restaking this year reflects Ethereum’s maturing ecosystem: users seek higher yields, faster withdrawals, and diversified exposure. While the tightening of circulating supply can support price growth, it also introduces liquidity constraints and new risk vectors that investors must carefully evaluate. Regulatory clarity will shape the future of these protocols, and platforms like Eden RWA demonstrate how tokenized real‑world assets can offer complementary lockup mechanisms with additional income streams.

For intermediate retail investors, staying informed about staking reward dynamics, protocol audit status, and regulatory developments is essential. By balancing exposure across staking, Layer‑2 restake products, and RWA tokenization, you can potentially capture yield while managing liquidity risk in an evolving market landscape.

Disclaimer

This article is for informational purposes only and does not constitute investment, legal, or tax advice. Always do your own research before making financial decisions.