Restaking: why regulators may scrutinise liquid restaking tokens next

Explore the emerging trend of liquid restaking, its regulatory implications for 2025, and how platforms like Eden RWA are navigating this new landscape.

• Liquid restaking is gaining traction as a way to maximise DeFi yields.
• Regulators are eyeing these tokens due to their hybrid nature between crypto and traditional assets.
• The article explains the mechanics, risks, and real‑world examples for retail investors.

In 2025, liquid restaking has moved from a niche DeFi strategy to a mainstream feature on major blockchains. The practice allows stakers to keep their tokens earnable while simultaneously lending or providing liquidity elsewhere. This dual use raises questions about whether such tokens should be treated as securities, derivatives, or something else entirely.

For retail investors who have already dabbled in staking or yield farming, the new wave of restaking products promises higher returns but also introduces fresh regulatory uncertainty. The article answers why regulators might target these tokens next and what that could mean for everyday participants.

We will unpack the concept, its operational mechanics, market impact, risks, and future outlook. Along the way, we’ll look at a concrete example: Eden RWA’s tokenized real‑estate platform, which blends liquid restaking with real‑world assets (RWAs). By the end, you should understand whether these tokens fit into your investment strategy.

Background & Context

Liquid restaking builds on two foundational DeFi practices: staking and liquidity provision. Staking locks a token to secure a blockchain network and rewards the holder with new tokens. Liquidity provision supplies capital to decentralized exchanges (DEXs) or lending protocols, earning trading fees or interest.

Traditionally, once a token is staked, it becomes illiquid; the staker cannot use it for other activities. Liquid restaking solves this by allowing stakers to “restake” their locked tokens in separate contracts that issue derivatives or yield‑bearing instruments. These instruments can then be sold, traded, or used as collateral on DeFi platforms.

The idea has accelerated since the 2024 surge of “restaking protocols” such as Restake, StakeLend, and LiquidYield. Their marketing frames the model as a way to earn both staking rewards and secondary yield from DeFi protocols simultaneously. However, the dual nature of these tokens blurs traditional regulatory categories.

Regulators worldwide are increasingly focusing on tokenized assets that straddle multiple financial services: the U.S. Securities and Exchange Commission (SEC), the European Union’s Markets in Crypto‑Assets Regulation (MiCA), and national authorities like France’s Autorité des Marchés Financiers (AMF) have all signaled that they will scrutinise tokens that can be traded, used as collateral, or represent ownership of real assets.

Key players include:

• Restake Protocol – one of the first to combine staking with liquidity provision on Ethereum.
• Chainlink’s Verifiable Random Function (VRF) – used by some restaking contracts to randomise reward distribution.
• Regulators such as SEC, MiCA, AMF and the U.K.’s Financial Conduct Authority (FCA).

How It Works

The liquid restaking process can be broken down into three core steps:

1. Staking Phase: A user deposits tokens into a staking contract. The contract locks the tokens and distributes staking rewards over time.
2. Restake Token Issuance: While the original stake remains locked, the protocol issues a new ERC‑20 token (the restake token). This token represents a claim to both the underlying staked asset and its future rewards.
3. Secondary Yield Generation: The newly minted restake token is then lent, supplied as liquidity, or used as collateral in other DeFi protocols. In return, holders receive additional yields that are distributed back to them, often via a separate reward mechanism.

Actors involved include:

• Issuers: Protocol developers who create the staking and restake contracts.
• Custodians: Third‑party services that hold staked tokens on behalf of users to mitigate self‑custody risks.
• Investors: Retail participants who supply liquidity or lend restake tokens.
• Governance Token Holders: Users who vote on protocol upgrades and fee structures through DAO mechanisms.

Because the restake token can be freely traded, it introduces a layer of market dynamics that were absent in traditional staking. The price volatility of the restake token often diverges from its underlying staked asset, creating arbitrage opportunities but also additional risk exposures.

Market Impact & Use Cases

The liquidity generated by restaking fuels several DeFi verticals:

• Lending Platforms: Restake tokens act as collateral for loans on Aave or Compound, enabling borrowers to access credit without selling their staked assets.
• DEX Aggregators: Protocols like Uniswap v4 can use restake tokens as liquidity providers, earning trading fees.
• Insurance Pools: Restake tokens provide a diversified asset base for on‑chain insurance products.

Real‑world examples include:

• Stablecoin Yield Farming: Users restake USDC to earn both staking rewards and interest from DeFi protocols that require stablecoin liquidity.
• Tokenized Real Estate: Platforms like Eden RWA issue property tokens backed by French Caribbean villas. Investors can restake those tokens for additional yield while earning rental income.

Risks, Regulation & Challenges

Regulatory Uncertainty

• The SEC’s 2024 “Crypto Asset Investor Protection” guidelines suggest that tokens with dual functions may be considered securities.
• MiCA introduces a “qualified crypto asset service provider” (QCASP) framework, potentially requiring restaking protocols to register and comply with AML/KYC rules.

• A flaw in the restake contract could allow an attacker to drain rewards or manipulate token supply.
• Audit failures may lead to loss of investor funds, as seen in the 2024 YieldSwap incident.

• Restake tokens are often illiquid; secondary markets can be thin, leading to large price swings.
• If a protocol goes offline or is hacked, staked assets may become inaccessible for months.

• Token holders may lack clear legal ownership of the underlying asset, especially in cross‑border jurisdictions.
• Regulators are tightening KYC requirements for tokenized real assets; failure to comply can result in delisting or fines.

• If a regulator classifies restake tokens as securities, existing protocols could face enforcement actions, leading to abrupt shutdowns.
• Market sentiment may turn negative if high‑yield promises prove unsustainable, causing rapid sell‑offs and liquidity crunches.

Outlook & Scenarios for 2025+

Bullish Scenario

• A harmonised regulatory framework emerges across the EU and US, allowing restaking protocols to operate with clear compliance pathways.
• Institutional capital flows into liquid restaking, boosting liquidity and stabilising token prices.
• Eden RWA’s upcoming compliant secondary market expands investor access while maintaining yield streams.

Bearish Scenario

• Regulators impose blanket bans on tokens that can be used as both staking rewards and DeFi collateral, causing many protocols to shut down.
• Investor confidence erodes due to high-profile hacks or mismanagement of restake contracts.
• Lack of liquidity leads to significant price volatility and potential losses for retail participants.

Base Case

• Regulatory clarity will improve incrementally; protocols that adopt transparent governance and robust audits will survive.
• Retail investors should remain cautious, focusing on projects with proven track records and clear legal frameworks.
• The restaking ecosystem will continue to grow but at a slower pace than the hype suggests.

Eden RWA: Tokenizing Luxury Real Estate with Restake Potential

Eden RWA exemplifies how liquid restaking can be integrated into a real‑world asset platform. The company offers fractional ownership of high‑end villas in Saint‑Barthélemy, Saint‑Martin, Guadeloupe, and Martinique through ERC‑20 tokens.

Key features:

• SPV Structure: Each villa is owned by a Special Purpose Vehicle (SCI/SAS), ensuring clear legal ownership and compliance with French property law.
• Rental Income in USDC: Investors receive quarterly payouts in the stablecoin USDC directly to their Ethereum wallets, streamlining income collection.
• Quarterly Experiential Stays: A bailiff‑certified draw selects a token holder for a free week’s stay, adding tangible value beyond passive income.
• DAO‑Light Governance: Token holders vote on major decisions such as renovations or sale, balancing efficiency with community oversight.
• Dual Tokenomics: The platform issues a utility token ($EDEN) for governance incentives and property‑specific ERC‑20 tokens (e.g., STB‑VILLA‑01) that represent fractional ownership.

Eden RWA’s model aligns with the restaking trend: while investors hold ERC‑20 property tokens, they can also lend or provide liquidity in other DeFi protocols, effectively creating a second yield stream on top of rental income. The platform is building a compliant secondary market to enhance liquidity, which could open new avenues for liquid restaking.

For retail participants interested in exploring this intersection of real‑world assets and DeFi, Eden RWA offers a transparent, regulated entry point into tokenized luxury property. You can learn more about their presale by visiting the official presale page or their secondary presale portal. These links provide detailed information on the offering, but no financial advice is given.

Practical Takeaways

• Verify the legal structure of any restake token – is there a clear underlying asset or collateral?
• Check for third‑party audits and compliance certifications, especially under MiCA or SEC guidelines.
• Monitor liquidity depth on secondary markets; thin markets amplify price swings.
• Understand how staking rewards are calculated and whether they can be compounded via restaking.
• Assess the governance model – a DAO‑light approach may reduce overhead but still allow community oversight.
• Be wary of high yield promises; always compare net APY after accounting for gas, fees, and potential slippage.
• Keep track of regulatory updates in your jurisdiction; changes can affect token classification instantly.

Mini FAQ

What is liquid restaking?

Liquid restaking allows stakers to keep their locked tokens earnable while simultaneously lending or providing liquidity with a derivative token that represents the underlying stake and its future rewards.

How does restaking differ from traditional staking?

Traditional staking locks a token for network security and yields rewards. Restaking adds an extra layer where the staked asset can be used in other DeFi activities, generating additional income streams.

Is liquid restaking regulated as a security?

Regulatory bodies are still assessing whether tokens that serve dual functions qualify as securities. In many jurisdictions, they may fall under MiCA or SEC’s crypto‑asset frameworks if they exhibit characteristics of investment contracts.

Can I restake my own token without a protocol?

Technically possible through custom smart contracts, but it requires deep technical knowledge and introduces significant smart contract risk. Most retail users rely on established protocols with audited codebases.

What are the main risks of liquid restaking?

Key risks include smart contract vulnerabilities, liquidity shortages, regulatory enforcement actions, and unclear legal ownership of underlying assets.

Conclusion

The rise of liquid restaking reflects a broader trend: investors seek to maximise yield by leveraging every available on‑chain activity. While the potential rewards are enticing—especially when paired with real‑world assets like those offered by Eden RWA—the regulatory environment remains uncertain. In 2025, regulators across the globe will likely tighten scrutiny on tokens that blur the line between traditional crypto services and securities.

Retail investors should adopt a cautious stance: focus on projects with clear legal backing, robust audits, and transparent governance structures. By staying informed about evolving regulations and maintaining disciplined risk management, participants can navigate this innovative yet complex space responsibly.

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.